Transparency in the UK Bond Markets: An Overview
34 Pages Posted: 9 Mar 2017
Date Written: January 15, 2015
Given the debate on transparency in non-equity markets associated with the Markets in Financial Instruments Directive (MiFID II), a sound understanding of how these markets operate today is needed to identify potential market failures and to assess the impact of proposed regulatory interventions. This paper uses the transaction reporting data available to the UK Financial Conduct Authority (FCA) to analyse the structure and characteristics of the UK-listed bond markets and highlight features that should be considered when designing transparency regimes aimed at improving market functioning. We observe significant diversity in the UK bond markets, with big differences between market participants, the way they trade and the risks of trading different instruments. While most bonds are only traded sporadically, some bonds are rather liquid and trade frequently at different venues. However, their liquidity profile varies widely during their lifetime. Most transactions in the UK-listed bonds in our sample are carried out off-exchange. We find that trading costs depend on transaction size, credit risk profile and maturity. We note that there is a moderate level of concentration of broker and market maker services but we have not carried out a full assessment of competition as part of this work.
Keywords: Bond Markets, Transparency
JEL Classification: G12, G18
Suggested Citation: Suggested Citation