IOSCO adamant bond liquidity has not declined

IOSCO’s latest report has said liquidity in corporate bond markets has not declined.

The board of the International Organisation of Securities Commissions (IOSCO) has rejected industry claims that liquidity in secondary corporate bond markets has declined.

The most recent report published by the regulator explained it found no substantial evidence showing liquidity had deteriorated from historic norms between 2004 and 2015.

It added there have been “meaningful changes to the characteristics and structure of corporate bond markets, caused by new technology, the growth of electronic trading venues, and changes in execution models and dealer inventory levels.”

IOSCO stated last month the recent boom in electronic bond trading platforms has presented new challenges for regulators, as they are tasked with monitoring activity in the market as it shifts to new trading venues.

As of January this year, 128 bond trading platforms were available to fixed income market participants as traders seek new technology to improve connectivity and electronic trading.

This boom in innovation has seen traders readily embrace electronic trading and a variety of alternative protocols offered to meet bond market needs.

Panellists at the Association for Financial Markets in Europe’s (AFME) market liquidity conference in London last month agreed liquidity has declined across markets, but reports - like IOSCO’s - have failed to find vital evidence to support this.

“All reports are failing to find the smoking gun because the regulators are looking in the wrong place… they are looking at market structure rather than taking it a step further,” said Jon Mawby, a senior portfolio manager at GLG Partners.

IOSCO concluded the results of the report are based on detailed analysis of various liquidity metrics, survey results from industry and regulators, industry roundtables, and a review of academic, government and other research articles.

Although it admitted the primary challenge when writing the report was a lack of useful data on the trading of corporate bonds on the secondary market, largely because most bonds are traded through decentralised, dealer-intermediated OTC markets.