The extra paperwork MAR will generate will be onerous but preferable to falling foul of regulation.
But vague regulation cuts both ways. It gives regulators wiggle room to implement a flexible approach, allowing banks to comply with the spirit of the directives rather than mumbleswerving their way through loopholes like a pack of weasels.
But broad scopes can backfire when banks’ operations become bound by the letter of MAR letter, even when its spirit is not intended to affect them.
It is certainly difficult to imagine a situation in which a potential investor could feel disadvantaged on an MTN trade as a result of normal market sounding procedures.
It seems perverse that this regulation could have such a disastrous effect on the market. If discussing issuers’ levels — often in circulation and all but public anyway — with investors is deemed imparting private information, it will render MTN dealers pretty much mute.
Much of the differentiation in MTN pricing occurs among dealers pricing with the same issuer, rather than using different issuers' criteria. Investors have to be able to shop around as a matter of fiduciary duty.
Placing overly tight limits on this will hamstring the market, preventing borrowers and investors from finding the tightest prices and limiting the MTN new issue process to half-blind reverse enquiries.
Let us hope that regulators’ — and bank compliance departments' — common sense will prevail and that the MTN market will not be a casualty of ham fisted, unnecessary regulation.