A single tape might hurt block trades
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Treasury

A single tape might hurt block trades

Will increased transparency in the European corporate bond market lead to higher transaction costs for large trades?

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In June 2023, the European Parliament and the European Council reached agreement on the European Commission's proposal for a review of the regulation governing rules about the structure of the markets in financial instruments.

One of the key elements of this proposal was a mandatory framework for a consolidated tape that would bring together the prices and volumes of various financial instruments from hundreds of execution venues into a single stream.

A single system for corporate bond price and volume data would benefit small trades – but perhaps at the cost of liquidity for block trades.

Zornitsa Todorova, head of thematic macro research at Barclays, says that faster disclosures and the arrival of a consolidated tape will see the percentage of European corporate bond market transactions reported in real time increase from the current 8% to more than 80%.

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Zornitsa Todorova, Barclays

“The tape will provide a single reference source for prices and volumes, making trading data available to a wider range of market participants,” she says.

However, she warns that when it is difficult to quickly match buyers and sellers – as is the case for block trades – posting details of the transaction could put market makers in an even more vulnerable position and expose them to the risk that the market moves against them as they unwind the risk and search for the other side of the trade.

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