Executive summary

Corporate bonds CESR confirms its view that the lack of post-trade transparency is not considered to be the key reason behind the difficulties experienced in the corporate bond markets during the past months, nor does it believe that additional post-trade transparency would be able to solve the different problems as a singular measure. However, in combination with other measures, CESR believes that additional post-trade transparency would be able to contribute to improving current market conditions in the corporate bond market. CESR is of the view that current market-led initiatives have not provided a sufficient level of transparency.

CESR considers that an increased level of transparency would be beneficial to the market and that a harmonised approach to post-trade transparency would be preferable to national initiatives taken in this area on the basis of the flexibility allowed by MiFID. Therefore, CESR has considered it necessary to inform the European Commission on the main conclusions reached in this report and to recommend that the Commission considers the adoption of a mandatory trade transparency regime for corporate bonds in the context of the future MiFID revision. CESR concludes that additional post-trade transparency, provided that it is sensibly calibrated to minimise any negative impact on liquidity, might be helpful in restoring market confidence. CESR also recognises that a greater level of post-trade transparency than is currently available may contribute to supporting liquidity in normal times, provided that it is structured in a way as not to have an adverse impact on liquidity. CESR acknowledges the relevant role played by wholesale investors in EU corporate bond markets, characterised by larger traded volumes than those of retail investors.

Therefore, CESR agrees with the importance of a “targeted” approach which should differentiate the needs of retail investors and small market participants from those of wholesale investors and large market participants. To this end, CESR is of the view that a post-trade transparency regime for corporate bonds should have the following characteristics: it should cover corporate bonds for which a prospectus has been published (i.e. including all corporate bonds admitted to trading on a regulated market) or which are admitted to trading on an MTF1; in terms of content of post-trade transparency, CESR believes that the following is the most relevant information to be made public: i) Description of the bond: standardised format of identification (e.g. ISIN code); maturity; coupon; rating; currency; issuer name; ii) Price/yield at which the transaction has been concluded; iii) Volume of the executed trade; and iv) Date and time when the trade has been concluded. it should minimise any potential drawback on liquidity. CESR is of the view that, as with the transparency regime for equity markets under MiFID, specific attention should be paid to an approach that allows for delayed publication and/or the disclosure without specified volumes if the transaction exceeds a given threshold. When setting the thresholds, the initial issuance size (total value) and/or turnover of a particular corporate bond would need to be taken into account in a similar way as in the case of shares under the existing MiFID regime.

In this respect, CESR considers that any threshold and related time delay should be fixed in a way that adequate consideration is given both to the risks incurred by wholesale market participants when committing capital to provide liquidity to the market and the need to ensure that the market could benefit from greater post-trade transparency, in terms of content and timing. The trade information needs to be made available on a non-discriminatory commercial basis at a reasonable cost and in a manner which is easily accessible by all investors. CESR considers that the above approach for post-trade transparency should apply to regulated markets and MTFs as well as to investment firms trading outside regulated markets and MTFs.

Structured finance products and credit derivatives Although insufficient post-trade transparency may not have been the key reason behind the recent market turmoil and additional post-trade transparency would not be able to solve the different problems experienced in the structured finance product and credit derivatives markets as a singular measure, CESR is of the opinion that post-trade information plays a role also in these markets. However, the appropriate level of transparency should be calibrated taking into account the relevant instruments, their trading methods as well as market participants active in the markets for these instruments. CESR is of the view that current market-led initiatives have not provided a sufficient level of transparency in the structured finance product and credit derivatives markets and that an increased level of transparency would be beneficial for these markets. A harmonised approach for post-trade transparency would be preferable to national initiatives taken in this area on the basis of the flexibility allowed by MiFID.

Therefore, CESR has considered it necessary to inform the European Commission on the main conclusions reached in this report and to recommend that the Commission considers the adoption of a mandatory trade transparency regime for these instruments as described above in the context of the future MiFID revision. In CESR‟s view any post-trade transparency regime for structured finance products should be seen as complementary to existing initiatives designed at improving transparency earlier in the transaction chain. In order to avoid slowing progress of these initiatives, the work on post-trade transparency would need to be taken forward separately while continuing to monitor the progress of other initiatives. Regarding ABS markets, CESR agrees that greater post-trade transparency could assist with valuations of ABS and could generally provide greater transparency of market activity to assist with price formation. However, CESR is mindful of the current uncertainties surrounding the ABS market and is of the view that a transparency regime should be calibrated to ensure that market liquidity does not retreat further as a result of introducing increased post-trade transparency.

In terms of scope, CESR recommends that a phased approach would be used so that the regime would gradually apply to all ABS that are commonly considered as standardised. The details of the phased approach will need to be developed, but some CESR Members have suggested that the initial issuance size of an ABS could form a basis for this approach. This view is however not supported by some other CESR Members, who consider that other criteria are likely to be more appropriate as bases for developing a graduated approach. CESR notes that the main concerns of a post-trade transparency regime for CDO markets relate to the complexity and non-standardised nature of many CDOs, the scope for an adverse impact on liquidity and potential cost implications. It is important that a post-trade transparency regime is delivered in the most cost-effective way and limits the potential for a negative impact on liquidity of already fragile markets. In order to mitigate these concerns, CESR recommends that a phased approach would be used so that the regime would gradually apply to all CDOs that are commonly considered as standardised.

The details of the phased approach will need to be developed, but some CESR Members have suggested that the initial issuance size of a CDO could form a basis for this approach. This view is however not supported by some other CESR Members, who consider that other criteria are likely to be more appropriate as bases for developing a graduated approach. CESR considers that in the case of ABS and CDOs the following is the most relevant information to be made public:

i) Standardised format of identification;
ii) Issuer name;
iii) Price at which the transaction was concluded;
iv) Volume of the executed trade;
v) Date and time when the trade was concluded;
vi) Currency;
vii) Maturity; and
viii) Rating. In the case of ABCP markets, CESR came to the conclusion that additional post-trade transparency is not one of the pressing topics for participants in these markets.

However, CESR sees value in further exploring which other “general transparency” or “post-issuance information” could be helpful in the current market conditions and beyond for investors in ABCP (e.g. information on the structure of the ABCP, its underlying collateral, performance of the underlying assets) and in monitoring respective industry initiatives. Therefore CESR does not currently see a need for a post-trade transparency regime for ABCPs.2 However, CESR will monitor the experiences reached with the post-trade transparency regime for other structured finance products and will reconsider its position in this regard at a later stage, if needed. CESR reached the conclusion that a post-trade information regime for CDS markets would provide information on the scale of credit transfers and may contribute to increase liquidity. CESR is of the view that a post-trade transparency regime should cover all CDS contracts which are eligible for clearing by a CCP due to their level of standardisation, including single name CDS, although there may not yet be an offer for clearing of these CDS by a CCP.

In terms of content of post-trade transparency for CDS, CESR believes that the following is the most relevant information to be made public:

i) Standardised format of identification;
ii) Issuer name;
iii) Price at which the transaction was concluded;
iv) Volume of the executed trade;
v) Date and time at which the trade was concluded;
vi) Currency;
vii) Maturity;
viii) Rating; and
ix) Reference entity.

A post-trade transparency regime would need to minimise any potential drawback on liquidity. CESR is of the view that specific attention should be paid to an approach that allows for delayed publication and/or disclosure of trades without indication of the exact volume if transactions exceed a given threshold. When setting the thresholds, the initial issuance size (total value) and/or turnover of a particular instrument would need to be taken into account in a similar way as in the case of shares under the existing MiFID regime. In this respect, CESR considers that any threshold and related time delay should be fixed in a way that adequate consideration is given both to the risk incurred by wholesale market participants when committing capital to provide liquidity to the market and the need to ensure that the market could benefit from greater post-trade transparency, in terms of content and timing.

The trade information needs to be made available on a non-discriminatory commercial basis at a reasonable cost and in a manner which is easily accessible by all investors. CESR considers that the above approach for post-trade transparency should apply to regulated markets and MTFs as well as to investment firms trading outside regulated markets and MTFs.

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