A consolidated bond tape for Europe is still years away
The European Commission keeps pressing, but a consolidated tape for bonds is not yet realistic – and firms should use AI analytics to create a quasi-tape.
Officials from the securities markets division of the European Commission (EC) have been talking once again about draft proposals for a consolidated tape to bring more transparency to strategic asset classes, including equities, derivatives, exchange-traded funds (ETFs) and bonds.
There’s a chance this will come to pass for the first three, which are mostly exchange traded, albeit across many venues.
However, it still looks a stretch too far for the largely over-the-counter (OTC) markets in sovereign bonds and especially in corporate bonds, which are bedevilled by large numbers of different securities that rarely trade, even though ETF technology has partially solved some of the chronic illiquidity.
Mifid II regulations have imposed a degree of post-trade transparency, with the big request-for-quote trading platforms, such as Tradeweb, Bloomberg and MarketAxess, each reporting trades through an approved publication arrangement (APA), albeit sometimes after lengthy delays for large deals.
I would love to see a consolidated tape for corporate bonds, but that is not possible in the current market structure
Dealers and asset managers negotiated these waivers in the run up to Mifid II by stressing the downside of real-time transparency, namely that investors seeking to buy or sell bonds in size could suffer substantial and harmful price impact if the first step in such a portfolio repositioning became obvious.