BlackRock has called for an overhaul of the secondary U.S. corporate bond trading market, saying the current system is “broken” and hurts those that borrow through the market.
In a white paper posted on BlackRock’s website, the firm recommends the adoption of more electronic fixed-income trading, the standardization of newly issued corporate bonds and that market participants adapt to “the fundamentally changed landscape” in fixed-income trading.
“Policymakers have recently focused on issues associated with equity market structure, particularly on the impact of regulatory changes and technological innovation on equity markets, which is driven, in part, by concerns around high-frequency trading. Less attention has been paid to fixed-income market structure,” the paper stated.
The white paper said the extent that the system is broken “is masked by the current environment of low interest rates and low volatility, coupled with the positive impact of (quantitative easing) on credit markets. The current environment also breeds complacency.”
BlackRock is not just calling for regulatory changes, “but much broader reforms — to fix corporate fixed-income markets will require changes in behavior by all market participants — issuers, intermediaries and investors. And yes, by regulators, too.”
BlackRock operates its own internal electronic bond-trading system.
The report was co-authored by Barbara Novick, BlackRock vice chairman; Richard Prager, managing director and head of BlackRock’s trading and liquidity strategies group; Kashif Riaz, managing director, trading and liquidity strategies; Joanne Medero; managing director, government relations; Supurna Vedbrat, co-head of the market structure and electronic trading team in the trading and liquidity strategies group; and Alexis Rosenblum, associate, government relations.
The full report is on BlackRock’s website.
