Regulators are stepping up their efforts to ensure adequate investor protection and oversight amid concerns about transparency and fairness in the $2-trillion Canadian fixed-income market.
The Ontario Securities Commission (OSC) issued a report Thursday examining the fixed income market. The Canadian Fixed Income Market Report finds that publicly available market data is limited and fragmented; large investors have significantly more bargaining power than small investors in a market that is decentralized and largely traded over-the-counter; telectronic trading is limited; and direct retail participation in the market is low.
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As a result of these findings, the commission indicates that it is looking for ways to facilitate more informed decision-making by investors; to improve market integrity; and to ensure that the market is fair and equitable for all investors.
At the heart of many of the regulator’s concerns is the fact that bond markets remain much less transparent than equity markets. “Because transparency in fixed income markets is limited, there are concerns that it may be difficult for market participants, and particularly for retail investors, to assess whether a particular price they received for a fixed income security is fair and to determine the value of their fixed income investments. This lack of information impacts their ability to make informed decisions,” the OSC indicates in a staff notice that accompanies the report.
Amid these concerns about market transparency, the OSC indicates that its staff are reviewing whether the existing transparency framework, and the level of post-trade transparency for corporate debt securities, are sufficient. It also pledges to monitor the impact of the Client Relationship Model (CRM2) reforms, which aim to help retail investors better understand the cost of their fixed income transactions; and, it says that it will work with the rest of the Canadian Securities Administrators (CSA) to make it easier for investors to find information on fixed income offerings through the SEDAR system.
Additionally, the OSC says that it intends to work with the Investment Industry Regulatory Organization of Canada (IIROC), both to to examine how investment dealers are currently allocating new fixed income issues, and whether any regulatory response is needed; and, to support the implementation of IIROC’s new rule requiring dealers to report fixed-income trade information to regulators, which starts to take effect in November (with the second phase of the new regime coming into effect in November 2016).
“With this report, we have compiled research that confirms our focus on enhanced post-trade transparency and regulation of the fixed income markets in Canada,” said Howard Wetston, chairman and CEO of the OSC. “Our priority now is to develop regulation that will promote more informed decision-making for market participants regardless of size, improve market integrity and ensure that the market is fair and equitable to all investors.”