An effort by regulators and The Bond Market Association to disseminate information about corporate bond trades has entered its final and most controversial phase, in which it will focus on the trading of high-yield securities, according to John Ramsay, senior v.p. and regulatory counsel for the industry trade group. The program, known as TRACE (Trade Reporting and Comparison Entry) went live in July, making trades in the most liquid bonds in the investment-grade universe immediately visible to market participants. Since the second phase of TRACE launched earlier this year, trades in 75% of the investment-grade universe are widely disseminated throughout the market.
However, trade reporting requirements for high-yield securities have still to be ironed out. Ramsay says high-yield transactions are more sensitive because the market is less liquid than the high-grade market. Market participants, he says, have expressed concerns that dealers' incentive to provide liquidity in the market will be greatly reduced if it is obvious to the market that they are trying to make a large trade in a particular security which may change hands as infrequently as once a month.
The BMA and a transaction reporting committee drawn from the dealer community is in talks with the National Association of Securities Dealers to sort through issues such as whether information about high-yield trades must be disseminated to the market, which securities, if any, will be affected, and how soon trades will be disseminated after being made, Ramsay says. While he does not expect any concrete proposals to take shape for at least several months, market participants will have a chance to weigh in during the BMA's annual meeting, April 10-11.
