Transparency in the UK Bond Markets: An Overview

34 Pages Posted: 9 Mar 2017

See all articles by Matteo Aquilina

Matteo Aquilina

Financial Conduct Authority

Darren Butterworth

Durham University - Department of Economics and Finance

Felix Suntheim

International Monetary Fund (IMF) - Monetary and Capital Markets Department

Christian Winkler

European Securities and Markets Authority

Carla Ysusi

Financial Conduct Authority

Date Written: January 15, 2015

Abstract

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

Aquilina, Matteo and Butterworth, Darren and Suntheim, Felix and Winkler, Christian and Ysusi, Carla, Transparency in the UK Bond Markets: An Overview (January 15, 2015). FCA Occasional Paper No. 6. Available at SSRN: https://ssrn.com/abstract=2885786

Matteo Aquilina (Contact Author)

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Darren Butterworth

Durham University - Department of Economics and Finance

Durham, DH1 3HY
United Kingdom

Felix Suntheim

International Monetary Fund (IMF) - Monetary and Capital Markets Department ( email )

United States

Christian Winkler

European Securities and Markets Authority ( email )

103 Rue de Grenelle
Paris, 75007
France

Carla Ysusi

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

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