Changes to Trade Reporting May Benefit Large Investors says Mizuho’s Michael Ziegelbaum – Bloomberg Brief
June 25, 2015 \
8 Comments
Trace was instituted in 2002, and it’s fairly clear that it’s helped liquidity in most cases, especially for retail investors and institutional trades of less than $1 million. For trades above $1 million, some prominent asset managers are advocating to delay reporting to either an end-of-day tape or T+1 or T+2 reporting. Full Article
Comments
I agree with Mr. Ziegelbaum . An additional impediment to trading, caused by TRACE, is the fact that many market participants insist on trading at the last TRACE print. However, the corporate bond market is more fractured and, more importantly less liquid than the Equity, FX, and Rates markets. Many corporate bonds do not trade frequently. Once illiquid bonds are traded, their price may change significantly. Therefore, insisting on trading at the last TRACE print causes a potentially unrealistic perception of a market clearing price and may create a stale-mate or inaction.
I didn’t think the current reporting of 1+mm for a HY, and 5+mm for a HG trade was giving away particularly large market impact information. With larger OTC trades, I think information leakage from trying to find who can move the bonds creates more issues for the final buyer of the round lot. I agree with Hollywood that the last TRACE print is not the market. It is merely a decent guidepost to where the market may currently be, and more importantly not a representation for the current cost of immediacy for buyer or seller to enter or exit a… Read more »
While true that disclosures of 5mm+ for large blocks (+1mm for HY) does shield the market from knowing true size traded, it still announces a transaction and a level. And as much as it is understood that TRACE prints are not the market, in absence of other indicators it is often the defacto standard as Hollywood points out. This is something that asset managers are sensitive to, and I would tend to agree with Mr. Ziegelbaum on this point. I have often heard similar statements from real money accounts, where they look to favor execution of their entire block in… Read more »
Maybe you should put more articles with Mike’s thoughts given the unusual amount of support your featured article is receiving! I too am in agreement with Mike and Hollywood (whomever he or she is; I would trade the Merlin moniker for Hollywood in a second). Clearly TRACE has never served the purpose for which it was intended, which was to protect the public. They still get ripped off but the best part is, they don’t even know what TRACE is, have any idea where to go get the information or have any idea what to do with the information if… Read more »
The entire squadron is in agreement on this one. It seems that the overwhelming desire by the lawyers writing the laws and regulations to make the fixed income market look like and work like the equities market simply doesn’t work. Supporting a market place that enable dealers to make money while providing transparency tot he consumer doesn’t remove the obligation of the consumer to do their homework. TrueCar publishes a broad assessment of what people in your area have paid for the car that you are looking to buy, but it’s still up to you to negotiate the best deal.… Read more »
This article highlights the conundrum that exists in the credit markets. Electronic trading usually allows for a number of in every market; (1) Increases transaction speed (2) Aggregates information/data (3) Allows new entrants to fill voids (4) Leads to other changes in the market structure evolution. It usually is more effective in markets that are the more liquid. I agree with many of the points that Mike brings up in the Q/A. Comparing the credit markets to equities is just plain incorrect and without saying it directly, this is underscored in the article. First, participants are dealing in a principal… Read more »
Other thoughts: There used to be an unwritten rule that if you sold someone a new issue you were obligated to provide liquidity in that bond. Does this still exist at least within the first 6-12 months? I can recall our firm getting buried in unwanted bonds once buyers figured out the bonds were held in weak hands. I am all for both internal dealer matching systems and even buy side/buyside and all/all matching systems (I just don’t believe the last two can build enough critical mass to succeed). But the basic premise of the problem cannot be changed and… Read more »
Agreed Merlin. Good salespeople will thrive even if trading increases in dark pools, all to all, etc. Maybe some of the easier trades disappear, but there will be plenty of very interesting OTC opportunities created from the traffic in those venues.
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