AFME and Finbourne Technology have published new data on EU sovereign and public bond trading highlighting the importance of a carefully calibrated deferral regime.
Among the key findings are:
- There is a high degree of trade transparency in EU sovereign bond markets, especially when compared to corporate bond markets, with a significant majority of EU government bond trades (76%) currently being made real-time transparent (compared to 8% of corporate bond trades). However, the quality of the sovereign data set is materially worse than the corporate bond data set due to a high level of distortion caused by the inconsistent use of some flags, among other issues. This needs to be addressed by ESMA.
- The majority (60%) of government bond-related trades on EU venues are non-EU bonds from the US, UK and other countries. This means it is currently hard to have a clear view of the trading of EU-based issuers with the large amount of trading in the EU by non-EU issuers clouding the picture. AFME believes improvements could be made, for example, by narrowing the scope of MiFIR trade reporting to only cover EU-issuers, which would then be the basis on which deferrals should be calibrated. This re-focus would further support an EU fixed income consolidated tape focused on EU markets.
- Trade out times (the time it takes for a bank to move risk off its balance sheet) vary significantly for various issue and trade size categories, ranging from a few minutes to well over a year depending on the issue and trade size category.