The rules on pre-trade price disclosure target bonds traded on exchanges and other regulated platforms. They apply to instruments judged to be liquid, with a system of exemptions in place to shield some trades, such as large block transactions.

For post-trade transparency requirements, the scope will be wider, as over-the-counter trades will also be caught if the bond has previously been traded on a regulated platform. Deferral of publication can apply if certain criteria are met.

ESMA's draft implementing rules include standards for determining when a bond is liquid or not, and for applying the different waivers and deferral rules.

Sidika Ulker, director for capital markets at the Association for Financial Markets in Europe (AFME), said it's too early to predict what the impact of the MiFID rules will be.

“No other region in the world has a pre-trade transparency regime similar to that proposed by ESMA for fixed income,” so “there is nothing to compare with,” she said.

AFME represents international lenders including Deutsche Bank AG, BNP Paribas SA, HSBC Holdings Plc, and Royal Bank of Scotland Group Plc.

BUSINESSEUROPE's Berggren called for ESMA to conduct an impact assessment on the rules to answer industry concerns. The lobbying group represents national business federations in 33 countries.

Illiquid Markets

ESMA Chair Steven Maijoor objected to the idea that more transparency will be costly for issuers.

“I don't agree with that, because in certain cases you need to have more transparency to make sure that the market starts to work,” Maijoor said in a Jan. 19 interview in Hong Kong. “I fully agree that in some cases, for example in very illiquid markets or in the case of large trades, that in those cases transparency will hurt.”

Maijoor said ESMA's goal is to make the bond market better and more liquid. “You need to carefully apply transparency requirements,” he said. “There will be more than we have now. It will be applied to a select group of bonds.”

It falls to ESMA to propose draft implementing measures to make MiFID II operational. It then submits its proposals to the European Commission, the EU's executive arm.

“Enhancing market transparency in bond markets is an essential objective” of the updated MiFID rules, the Brussels-based commission said. “This will allow for efficient and fair price formation in these markets.”

Legislators faced competing calls from different parts of the financial services industry when discussing how far the rules should go in overhauling the bond market. While trading venues called for tough transparency rules, banks said some proposed measures could damage market liquidity. Fund managers also raised some concerns.

Transparency of corporate bond pricing “is very poor, particularly during periods of market stress and in the more subordinated securities,” said Andy Li, a London-based fund manager at GLG Partners LP. “We would welcome any improvements in pricing transparency.'

–With assistance from Alastair Marsh, John Detrixhe, and Ben Moshinsky in London and Eduard Gismatullin in Hong Kong.

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