Will bond IR start to be more regulated?

The FSA has launched its a Discussion Paper on trading transparency in the UK secondary bond market which examines whether there is a need for the provision of greater pre- or post-trade price information in the secondary bond markets.

In launching the enquiry, Hector Sants of the FSA said the enquiry will ask whether there are any possible market failures caused by a lack of transparency in the UK and EU bond markets. The FSA also highlighted that the EU will start to examine this issue in 2006.

This enquiry begs the question of whether new requirements will be imposed on IRO’s for debt IR. If the secondary trading markets are to be more transparent, will new obligations for debt IR be imposed?

Will separate conference calls/ analyst meetings for debt holders become mandatory, will specific information for debt holders be required, and placed on debt IR sections of companies websites? Will credit rating agencies become mandatory disclosure points for price sensitive information?

Inevitably, one thinks of the potential for this to raise costs in managing a new set of tasks; on the other hand, if the Improvements in transparency proposed, if achievable, may consequently attract greater participation in a market by fostering confidence among existing and potential participants. To the extent that increased participation and activity reduces any liquidity premium demanded by market users, it should also reduce the cost of capital for issuers.

What does the Transparency Directive say on this issue? It imposes obligations on all issuers to disseminate their regulated information in a manner ensuring fast access to such information on a non-discriminatory basis throughout the EU. Note that the Transparency Directive differentiates between different types of issuers (for example, issuers of equity and issuers of exclusively debt securities).

The implications of this difference on this requirement will be determined when the Transparency Directive is implemented.

The FSA makes the point that it is seeking feedback from the entire market; issuers – both UK and overseas – may wish to look at this.