IMA calls for reform of sterling corporate bond market

Following publication of an IMA-commissioned report, The Impact of the Credit Crunch on the Sterling Corporate Bond Market, the IMA has today published a position paper urging further action by regulators and market participants on reforms to promote a well functioning sterling corporate bond market.

The report concluded that:

the disruption in the sterling corporate bond market in the period following the credit crisis was damaging for the buy-side;

the dealer market structure failed during this period and may not recover in its previous form;

the risk of the sterling corporate bond market becoming a backwater is increasing; and

the absence of data for this market is a significant barrier to evidence-based policy making and an obstacle to market participants.

As a result of the findings, IMA proposes the following actions to support recovery of the sterling corporate bond market:

in the short-term the Bank of England should consider engaging further in the corporate bond market;

exchanges and MTFs should consider whether there is a further role that they could play in offering anonymised trading systems;

the Financial Services Authority should engage actively with liquidity providers, exchanges and MTFs with the aim of improving the market.

IMA intends to review the recommendations in a year's time and is keen to engage with all market participants to promote reform.

Commenting, Jane Lowe, Director of Markets at IMA said: "The success of the sterling corporate bond market is important to the UK economy. It is no easy task to move from one market structure to another, but if the sterling corporate bond market is to survive and improve it will have to change. And while the dealer market has served investors well, going forward, there needs to be more choice in terms of trading functionality. Liquidity providers, regulators and market service providers all need to act together for this to happen."

Commenting, Professor John Board, ICMA Centre, University of Reading, said: "The best test of a market's resilience is a crisis, and the report clearly indicates that while the market has continued to function, there will be clear benefits from reforming its structure. While it is not surprising that the cost of trading has increased sharply, the reduction in useful pre-trade information is worrying for a market that has always argued that it offers a good level of transparency to its participants."