Implementation of the second stage of the National Association of Securities Dealers' Trade Reporting and Compliance Engine (TRACE) began last week. Market participants speculate increased transparency could alter the nature of cash bond trading.
TRACE now reports pricing on approximately 17,000 bonds, up from 4,000, and reporting time has been shortened to 30 minutes from 45 minutes. In February, TRACE will report on 23,000 corporate bonds and reporting time will be shortened to 15 minutes by next July.
"In the long term, a tremendous amount of price transparency will change the relative balance of power," said one banker, who said investors will likely benefit at dealers' expense. Thomas Thees, managing director and head of investment-grade trading at Morgan Stanley in New York and chair of The Bond Market Association's investment-grade committee, views the increase in transparency as positive. He said concerns about how transparency will affect short-term volatility will be outweighed by the long-term benefits of more information. "Transparency translates into liquidity," he stated.
