Decoding the AMF Study on Bond Market Transparency

Decoding the AMF Study on Bond Market Transparency (July 2024)

Introduction and Context

In February 2024, the Council of the European Union adopted a significant revision of the MiFIR Regulation and the MiFID II Directive, which govern investment services and financial market activities within the European Union. This revision aims to enhance the transparency of transactions in bond markets by introducing consolidated data publication systems, known as “consolidated tapes” (CT). These systems will provide essential information on transaction prices and volumes, accessible to all investors.

Objectives and Importance of Consolidated Tapes

The CTs are part of the Capital Markets Union (CMU) framework and aim to strengthen the integration of European financial markets. They will enable better price discovery through high-quality, near-real-time market data. However, the regulation revision also introduces standardized publication delays for bond transactions, removing the discretionary power of national authorities, which led to divergent practices and limited transparency.

Study Methodology

This study proposes a methodology for calibrating the thresholds for publication delays based on transaction data analysis. The goal is to balance market information access with maintaining market liquidity and efficiency. Publication delays are necessary to allow market participants to cover their positions before transactions are disclosed.

Transaction Data Analysis

The study focuses on corporate bonds and uses transaction data received by the AMF. This data is processed to eliminate duplicates and anomalies. The majority of transactions in French bonds involve corporate bonds, although sovereign bonds dominate in terms of traded volumes.

Current Post-Trade Transparency

The MiFIR regulation, in effect since 2018, imposes post-trade transparency obligations for various categories of financial instruments, including bonds. Transactions must be published quickly, but publication delays are possible under certain criteria (bond liquidity, transaction size). Currently, a large proportion of corporate bonds are considered illiquid, making these transactions eligible for publication delays.

New Transparency Criteria

The revision of MiFID/MiFIR introduces a new definition of liquidity based on the issuance size of bonds and proposes new criteria for publication delays. Transactions will be classified into five categories according to bond liquidity and size, with publication delays ranging from real-time to four weeks.

Calibration of Thresholds

The calibration of new publication delay thresholds aims to maximize transparency without harming market liquidity. The proposed thresholds are based on the time needed for the market to absorb a transaction of a given size. Analysis results indicate that current criteria are too permissive and do not effectively support the goal of an efficient CT. Redefining these criteria is therefore crucial for better transparency.

Conclusion

This AMF study highlights the challenges and methods of calibrating publication delays in the bond market. The new transparency rules, currently being defined, are essential to improve the visibility and efficiency of European financial markets while maintaining their liquidity.