10 Jul 2009, Alexander Campbell, Risk magazine
Although lack of transparency had not been a major problem for the corporate bond market, Cesr also recommended post-trade reporting of bond deals, although with some limits - trades above a certain size could be reported without size details, or the report could be delayed, in order to avoid distorting the market.
Cesr commented that "current market-led initiatives have not provided a sufficient level of transparency in the structured finance product and credit derivatives markets", and suggested that the European Commission should introduce mandatory trade reporting, eventually extending to all standardised ABS and CDO. Like other proposed changes to the derivative market, notably the requirement for central clearing of credit default swaps, the Cesr proposal leaves open the question of which products would count as "standardised" - Cesr said that all CDS trades which were theoretically eligible for central clearing should also fall under post-trade transparency rules, even if there was no central counterparty actually offering to clear them. The new rules would form part of the planned revision of the Markets in Financial Instruments Directive, and would require the reporting of deal size, date, issuer name, volume, price, currency, maturity and rating.
Cesr admitted that the ABS and CDO markets were relatively illiquid, with most ABS originators holding the securities in order to use them as collateral for central bank loans - but transparent trading would still serve a useful function, it argued. It linked the lack of secondary market transparency to the development of the subprime crisis, arguing that it made price discovery and valuation more difficult - though it added that it is "generally not considered to be a leading cause of the market failure".