After the recent financial crisis, the former Financial Stability Forum (nowadays the Financial Stability Board) advised market regulators working, in conjunction with the markets participants, on the analysis and development of a new regime of transparency of prices and volumes in the securities markets. The G20 has also mentioned the necessity of strengthening the information breakdown of the complex financial products.
After this advice, CESR decided in April 2008 to review whether its conclusions on the transparency of the corporate bond markets were still right and to extend its analysis on other complex financial products like: Asset-Backed Securities (ABS), i.e. Residential Mortgage Backed Securities (RMBS), Commercial Mortgage Backed Securities (CMBS) or Collateralised Debt Obligations (CDO), as well as credit derivatives, especially the Credit Default Swaps (CDS). One reason for including these new products is that an adequate disclosure on prices of corporate bonds is critical for pricing those new products.
Finally CESR published, in July 2009, its new report on the transparency of corporate bond market, complex financial products and credit derivatives. Its main conclusions are shown below.
In CESR opinion, the recent market developments did not produce an adequate level of transparency. CESR also thinks that increase the current grades of price transparency will have several beneficial effects in the bond and structure products markets. In addition, CESR believes that, due to the EU financial integrated market, a harmonious regime of post trade transparency in the EU is much better than the local initiatives.
CESR recommends the EU Commission to adopt an obligatory post trade transparency regime in corporate bonds, financial structures products and credit derivatives in Europe. CESR suggests launching this new regime in the short run if practical matters allow it.
CESR proposes that a post trade transparency regime in corporate bonds should include all the bonds with a public prospectus and all the listed bonds in a regulated market or in a multi-trading facility. The information to be published should be: a) a summary of the main features of the financial product; and b) the price /yield, volume, date and time of the trade. The market should allow delays in the publication in order to preserve the liquidity if the trade is higher than a certain level, which should be determined with the same criteria used in the equity markets.
Regarding the structures products, CESR considers that any post trade transparency regime on those financial products should be complementary to the current initiatives for improving the transparency in the initial phases of the trade chain.
CESR suggests applying a sequential procedure for the transparency regime in ABS and CDO. Although, in the case of Asset Backed Commercial Papers (ABCP) and other short term securitization products, CESR does not support setting a transparency regime because it is not demanded by the market participants.
For the CDS, CESR will promote a post trade transparency regime if those financial products have an adequate level of standardization and are able to settle in a Central Counterpart. The CESR proposal also includes the suggestion of delaying the publication of transactions on CDS if it could be beneficial for the liquidity.
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