Stay informed with free updates by signing up to the Sovereign bonds myFT Digest, delivered directly to your inbox.
In a move that brings to mind the creation story from Genesis, Europe is set to introduce a consolidated tape for its financial market. This development is especially significant for the corporate bond market in Europe, which is currently fragmented and lacking in transparency, with only about 8% of trades reported in quasi-real time.
Barclays analysts predict that the introduction of a consolidated tape will dramatically increase transparency in the European corporate bond market, with over 80% of transactions expected to be reported in real time. This will provide a single reference source for prices and volumes, making trading data more accessible to a wider range of market participants.
The effects of transparency on corporate bond liquidity are expected to vary. While transparency may decrease transaction costs for small trades and newly issued bonds, it may increase costs for larger trades and older instruments. These changes are attributed to post-crisis regulations that have increased capital charges for banks and the introduction of ETFs.
The shift towards transparency and electronification is expected to reshape the distribution of volumes in the future. Small trades are likely to become easier and cheaper to execute on electronic platforms, while larger block trades may rely more on the expertise and networks of voice traders. This shift has the potential to accelerate systematic investing, generate more trading activity, and attract new investors.
The introduction of a consolidated tape in Europe is a long-awaited development that is essential for creating a truly unified and vibrant European capital market. While this move may change the nature of liquidity in the bond market, it is expected to have a positive overall impact. Europe’s bond market is likely to become more similar to the equity market in the coming years, with smaller trade sizes and increased electronification.
In conclusion, the introduction of a consolidated tape in Europe’s financial market is a significant step towards increasing transparency and reshaping how fixed income is traded. This move is expected to have a positive impact on the bond market, making it more accessible and efficient for market participants.