Bond markets may fragment after regulation hit

New regulations may lead to sweeping changes for bond market models.

The implementation of new regulations may be a ‘game changer’ for the future of bond markets according to the head of multi-asset training at Union Investment.

Speaking at a FIX Trading Community event in Frankfurt, Christoph Hock spoke about the impact regulations, including MiFID II and Basel III, may have upon the existing model.

“There will be a great deal of fragmentation compared to what we saw in the past as the new protocols will lead to less principal capital providers.

“Alongside this there will also be an emphasis on profitability as brokers will be looking at their balance sheet charges and focus on specific situations rather than global coverage.”

Mr Hock also spoke about what bond markets must do in order to satisfy the protocols.

“We are in a game changing industry being both innovative and proactive, and collaboration between the buy-side, sell-side and vendors is essential.

“They must work together as they can’t work without each other. There will also be an emphasis to not only satisfy the regulations but to provide the best practice for investors.”

Bond markets are currently struggling with a liquidity crisis as banks have reduced the number of bonds they are willing to hold on their balance sheets. The developments have seen a number of new bond trading platforms spring up in recent years, leading to similar fragmentation fears seen in the equities market when MiFID I was introduced in 2007.