European secondary markets a concern, says ICMA 25 November 2014Zurich Reporter: Stephen Durham
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Concerns are growing that secondary markets for European bonds have become critically impaired and are no longer able to function effectively, according to a study from the International Capital Market Association (ICMA).
This has been widely attributed to the unintended consequences of banking regulation and 鈥渆xtraordinary monetary policy鈥�, said ICMA.
Broader concerns about increased market volatility, frozen capital markets, risks to economic growth and another financial crisis were also raised by the survey.
Intermediaries, chiefly banks and broker-dealers, are responding to these concerns by changing their models, according to ICMA.
鈥淟iquid and efficient capital markets support economic activity, growth, and jobs,鈥� commented Martin Scheck, ICMA chief executive.
鈥淚t is the responsibility of market providers, investors, issuers and regulators to ensure that this vital function is not compromised鈥欌��.
As a result of more active capital allocation within the banks, the survey also noted a shift to holding smaller quantities of bonds in inventory, but seeking to increase turnover through 鈥渟marter, more active trading鈥� on an agency basis.
In terms of regulation, ICMA鈥檚 survey found that there is a high level of concern from both intermediaries and investors, particularly the Markets in Financial Instruments Directive II.
While many see improved transparency as a good thing, there is a worry that too much transparency could cause market liquidity to deteriorate further.
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