Proposals that are expected to be released in the final version of the Markets in Financial Instruments Regulation would make it harder for investors to buy and sell bonds, warned the U.K.’s Investment Association.
Expected imminently, MiFIR will introduce rules across Europe that will take effect in January 2017. One part of the rules — the regulatory technical standards — covers transparency rules, which include a requirement for investors to inform the rest of the market in advance about intended transactions.
This would force investors to inform the markets ahead of the purchase or sale of bonds and would be required even when the particular bonds show relatively low liquidity levels, trading less frequently than once a day, said the trade body in a statement Tuesday. “Such frequencies are at odds with the liquidity threshold test contained in MiFIR itself, which calls for the existence of ‘ready and willing buyers on a continuous basis,’” the statement said.
The proposals need a “rethink,” as they could “damage already strained levels of liquidity in the bond market, triggering higher transaction costs and higher borrowing costs for sovereigns and companies,” the statement said.
The Investment Association also believes it should be easier for individual bond transactions to qualify for waivers from these transparency rules, which it said would allow smaller trades to take place “without the risk of price disruption.”
The Investment Association has called for a public consultation on the rules of at least 30 days, relating to these proposals. It is also recommending that European Union authorities give sufficient time for market infrastructure to develop, by pushing back the introduction of MiFIR rules until January 2018.
MiFIR is part of the European Commission’s review of the first Markets in Financial Instruments Directive, which came into force in 2007. It aims to increase the transparency and resilience of European financial markets.
The Investment Association represents money managers in the U.K. It’s members have a collective £5.5 trillion ($8.4 trillion) in assets under management.