Asset managers cheer rejection of EU bond rules
Asset managers have won a reprieve from stringent proposed trading rules designed to prevent a repeat of the financial crisis, and will now redouble their efforts to convince European regulators to water the proposals down.
Last week, the European Commission, the EU’s executive arm, rejected the work carried out by Europe’s financial watchdog on transparency in fixed income trading.
It asked the European Securities and Markets Authority to revisit its proposed rules on displaying bond prices, which the fund industry had previously warned would have a “seismic” impact on fixed income liquidity.
Welcoming the commission’s decision, Guy Sears, interim chief executive of the Investment Association, the UK fund industry trade body, said: “Fixed income transparency rules are not dry technical issues. They impact the cost of debt financing in Europe’s bond market, where businesses raise money to support jobs, growth and innovation.”
Under the proposed transparency rules, which form part of European legislation known as Mifid II, asset managers and trading banks would be forced to disclose the prices at which they are willing to buy and sell liquid bond instruments.
Investment managers were concerned too many illiquid bonds would be deemed liquid under Esma’s proposals.
Sean Tuffy, head of regulatory intelligence at Brown Brothers Harriman, the financial services company, said: “Most of the industry should be cautiously optimistic about the rejection of the Esma advice.
“There were real concerns that the proposed rules would have had serious consequences for fixed income liquidity.”
However, because it is still not clear what approach Esma will take now, Michael McKee, head of financial services regulatory at DLA Piper, the law firm, said the industry is likely to rally together to influence the regulator’s new proposals.
“I would expect quite a bit of industry lobbying,” he said.
The IA said it was would “assist Esma in any way we can” to find suitable fixed income transparency rules.
Gianluca Minieri, global head of trading at Pioneer Investments, the $244.1bn asset manager, said the fact that Esma is revisiting the rules is “good news”.
“We are not against transparency, absolutely not. The problem is when the rules force transparency, irrespective of market conditions or the liquidity of the bond,” he said.
“We feel that if the process [of deciding if a bond is liquid or not] is not defined properly, it will harm the process rather than help it.”
Esma, which declined to comment, is expected to spend several months working on new proposals.
There are concerns that this could lead to delays with the implementation of Mifid II, which has already been pushed back a year to 2018.
Gabriela Diezhandino, director of public policy at the European Fund and Asset Management Association, which represents the interests of mainstream fund companies, said: “It is too soon to know whether [Esma’s] end result will be good or bad from the asset managers’ point of view.”