(October 12 – 14:30 ET) – The Capital Market and Primary Dealer Money Market committees of the Investment Dealers Association are defending the CanPx bond transparency system in comments to the Canadian Securities Administrators on the proposed regime governing alternative trading systems (ATS).
The committees note that IDA members have spent about $500,000 on the CanPx bond transparency system with no hope of recovering these costs. They note that this figure stretches to more than $1 million if it includes uncompensated time devoted to the initiative;. They say that the full CanPx system should be operational by year end.
The CSA apparently believes CanPx isn’t comprehensive enough to provide transparency. It suggests that market information must also come from market makers and ATS. The IDA disagrees, arguing that including this information will decrease transparency, by confusing investors, reducing dealer willingness to make markets and pushing business offshore. It says that the lack of liquidity and continuity in the market is the problem, at least in corporate bonds and smaller government issues. In 1999, only $71 billion worth of corporate debt was traded in Canada.
The IDA says that since debt prices relate closely to inventories, as opposed to a continuous auction market, forcible display of this information would make dealers reluctant to participate in the market. Adding dealer information will also boost costs to investors because CanPx would have to be rejigged, and the cost would be passed through by dealers since the additional information would not add much economic value.
The IDA committees concede that CanPx could be improved upon in the future, but they maintain that the existing CanPx system should be finalized. It could then modified incrementally to improve transparency as much as possible without adding costs.
-IE Staff