Transparency proposals for European sovereign bond markets
| Published date | 15 May 2007 |
| DOI | https://doi.org/10.1108/13581980710744075 |
| Date | 15 May 2007 |
| Pages | 186-198 |
| Author | Peter G. Dunne |
| Subject Matter | Accounting & finance |
Transparency proposals
for European sovereign
bond markets
Peter G. Dunne
School of Management and Economics,
Queen’s University, Belfast, Northern Ireland, UK
Abstract
Purpose – The debate over the possible extension of transparency regulation in Europe to include
sovereign bonds has opened up a number of other issues in need of serious consideration. One such
issue is the appropriateness of the entire infrastructure supporting the trading of European sovereign
bonds. In recent years, sovereign issuers have supported the development of an electronic inter-dealer
market but have remained unconcerned with the opacity of dealer-to-customer trading. The degree of
segmentation in this market is high relative to what exists in nearly all other financial markets.
The purpose of this paper is to outline the transparency proposals for European sovereign bond
markets.
Design/methodology/approach – This paper explores why European sovereign bond markets
have developed in such a segmented way and considers how this structure could be altered to improve
transparency without adversely affecting liquidity, efficiency or the benefits enjoyed by primary
dealers and issuers.
Findings – It is suggested that the structure of the market could be improved greatly if the largest
and most active investors were permitted access to the inter-dealer electronic trading platforms. This
would solve a number of market imperfections and increase the proportion of market activity that is
conducted in a transparent way.
Originality/value – The paper argues that sovereign issuers in Europe have the means to provide
incentives that would influence dealers to support reduced segmentation. Some practical examples of
how this could be achieved are provided and the potential benefits are outlined.
Keywords Bonds, Financialmarkets, Europe
Paper type Research paper
1. Introduction
Owing mainly to regulatory activity, financial market transparency has become the
subject of much recent interest within the finance industry as well as in academic circles.
The word “transparency” is used in this context to mean how visible market activity
and prices are. Regulation in this area is usually aimed at increasing transparency
and regulatory intervention usually reflects a view that, when left unregulated,
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The views expressed here regarding the determinants of the existing structure of the
euro-denominated sovereign bond market were formed as a result of numerous interviews with
market participants. The questions used in these interviews and a list of the
companies/associations of the interviewees are available from the author on request.
Thanks to Euro-MTS Ltd for providing both inter-dealer trade and quote data and
BondVision data. Thanks are also due to an anonymous referee for very important comments
that have substantially improved this paper. Biographical information for the author can be
obtained at the following URL: www.qub-efrg.com/staff/pdunne/
JFRC
15,2
186
Journal of Financial Regulation and
Compliance
Vol. 15 No. 2, 2007
pp. 186-198
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980710744075
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