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IIAC Newsletter Raises Concerns over CSA Bond Market Proposals

By Andrew Rickard | November 11 2015 09:47AM

The Investment Industry Association of Canada (IIAC) has started a newsletter covering regulatory developments in the domestic and foreign bond markets.

One subject discussed in the inaugural issue is the Canadian Securities Administrators (CSA) proposal that the current dealer-owned system CanPX be replaced and trading data on all corporate-debt securities be made public next year.

The IIAC says there is need for extensive industry consultation on the proposal since there is "chronic weakness" in corporate bond liquidity. The association goes on to describe the CSA proposal as an "unprecedented effort" to expand transparency as many illiquid high-yield bonds are included, and notes that many of these bonds are not distributed to retail investors.

"The CSA proposes to expand transparency over time by shortening the settlement period from two days to one day, or perhaps even intraday. This will increase balance sheet exposure to market makers, particularly for illiquid bonds," reads the newsletter. "Moreover, this expanded transparency approach would require significant technical changes to the new debt reporting system, adding to overall costs, and would provide minimal benefit as many thinly traded corporate bonds are not purchased by retail investors."

The newsletter article ends by pointing out that the CSA has not given any indication of how this transparency project will be funded. "If regulators decide to commercialize the transparency data, the investment industry is entitled to resulting revenues given its involvement in creating the data and building the dissemination technology," it reads.

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