The FSA has published a speech by Sally Dewar (Managing Director, Risk, FSA) entitled Regulatory challenges and developments in the bond markets.
At the start of her speech Dewar gives a brief outline of the FSA’s view on bond market conditions during the past twelve months. In particular she notes that 2009 was a record year for international bond markets, with the backdrop of the financial crisis leading to a global shift from bank borrowing to money-raising via debt capital markets as investors’ overall risk appetite decreased and focused more on security than return.
Dewar then gives an outline of the FSA’s regulatory agenda regarding the bond markets and focuses on:
- Transparency in the corporate bond market. Dewar notes that in its feedback statement on the transparency of corporate bond, structured finance and credit derivatives markets in July 2009, CESR called for the introduction of a mandatory post-trade transparency regime for corporate bonds but noted that it should minimise any potential negative effect on liquidity. It also noted that specific attention should be given to an approach that allows for delayed publication and/or the disclosure without specified volumes if the transaction exceeds a given threshold. The FSA supports CESR’s conclusions and believes that such an approach is consistent with the regime for equity markets under MiFID. Dewar states that the Commission has indicated that it will consider this issue, as well as the case for enhancing pre-trade transparency for corporate bonds, as part of the MiFID review and the FSA expects legislation in this area at the end of this year.
- Retail bond market access. Dewar briefly discusses the recent launch by the London Stock Exchange of its new electronic order book trading platform for corporate and UK government bonds in response to demand from both the retail and investor community.
- European Prospectus Directive. Dewar acknowledges that the FSA is aware that many investors feel that corporate information before an offer is too detailed, too lengthy and too complex to fully comprehend in a timely manner. To this end the FSA is actively participating in the Commission’s review of the European Prospectus Directive to provide simplification of information. However, Dewar also states that it is important that regulators do not promote change that increases retail participation at the cost of damaging wholesale market activity. The FSA supports efforts to clarify the requirements for offers of securities through financial intermediaries or ‘retail cascades’ and moves to introduce a proportionate disclosure regime for offers of equity securities to existing shareholders but it does not support proposals such as the extension of validity of prospectuses from 12 months to 24 months or longer, or the attachment of liability to summary documents.
- Enhancing the quality of credit ratings. The FSA believes that if implemented properly the new European Regulation on credit rating agencies (CRAs) will have a significant impact on the quality and integrity of credit ratings and the confidence that investors can place in them. Dewar also states that whilst it has been agreed that the supervision of CRAs will be centrally conducted by the successor to the Committee of European Securities Regulators (the European Securities and Markets Authority) the FSA will continue to retain a heavy involvement in the process.
View Regulatory challenges and developments in the bond markets, 24 February 2010