Canadian regulators have unveiled a new system to report trading data from the secretive corporate bond market, but investors will have to wait two days after a trade occurs to see details of the transaction.
The new public reporting system is expected to launch in mid-2016 and to be fully implemented by mid-2017, giving investors information about pricing and volume of trading in corporate bonds.
The system was developed after regulators faced global pressure following the financial crisis in 2008 to develop systems to report trading activity in the enormous but opaque corporate bond market. In Canada, corporate bonds accounted for $500-billion of trading volume in 2014, but little of the action could be seen by ordinary investors, with data largely available only to institutions that can pay to receive it from private sources.
The new reporting system will only cover corporate bonds, not government bonds. The Canadian Securities Administrators, an umbrella group for all of Canada's provincial securities commissions, said it is still monitoring international developments, and said no other country has yet required reporting on trading in government bonds.
The CSA said Thursday that it has decided to piggyback on a new internal bond-trade system being rolled out in November by Canada's brokerage industry regulator.
The system was created to allow the Investment Industry Regulatory Organization of Canada to privately monitor pricing in the bond market, but IIROC has agreed to also report data it collects to create a public bond-disclosure system for Canada.
Under the IIROC model, however, brokerage firms that conduct bond trades will not have to report details of trades to the regulator until the day after they occur. Securities regulators say IIROC will then need time to prepare data for public disclosure, which means trading data will experience a two-day public reporting delay.
By comparison, CanPX Inc., a joint venture operated by Canadian dealer firms, consolidates trading data for a select group of corporate bonds and reports information every hour to its clients.
In a staff notice published Thursday, the CSA said it recognizes two days is a long delay compared to CanPX's one-hour reporting time frame, but argued IIROC's system provides "benefits that far exceed the potential impact of a longer delay."
For example, regulators say IIROC's data will be a "comprehensive source" of information for all bond trades and will provide an efficient system for dealers, who will only have to report trades once, and to one source.
"We will monitor the dissemination delay with a view to decreasing it over time," the staff notice added.
Louis Morisset, who heads the Quebec's securities regulator and is chair of the CSA, said it is a significant step that regulators will be able to monitor bond trading data, and that it will then be publicly reported.
"The CSA's plan covers these key areas and lays the groundwork for future policy work," he said in a statement.
Neil Gross, executive director of FAIR Canada, which advocates for investors on regulatory reform issues, said small investors in Canada particularly stand to benefit from more disclosure of bond trading because they have little access to pricing in that market, while big investors can pay for data.
"Currently, they face trading disadvantages due to information asymmetry that greatly favours institutional players and dealers," Mr. Gross said.
Under the new model, information will also be disclosed about the size of corporate bond trades, but with exceptions. Trades of more than $2-million in investment-grade corporate bonds and more than $200,000 in non-investment-grade bonds will be identified only as being above those thresholds, without revealing the full value of the transactions.
The CSA said it met with dealers who buy and sell bonds, and they were concerned that reporting the value of large trades could have an impact on liquidity in the market.
The staff notice also said regulators have been studying whether small investors are getting fair access to new bond issues, which are typically marketed first to institutional investors. The notice said IIROC and CSA members have formed a working group to study the issue and determine whether regulatory action is needed.
The proposal for the new reporting system is open for public comment until Nov. 1. Regulators will then publish a final version of the proposal before it takes effect.