US Banks Keen to Slow-Up Reporting on Corporate Bonds Trades

The measures may prompt a skirmish with regulators trying to do all they can to maximise market clarity.

Steps were taken in 2002 to break up the chummy climate of debt trading with the Financial Industry Regulatory Authority's (FINRA) Trade Reporting and Compliance Engine (TRACE), which stipulates that US corporate bond transactions must be reported within 15 minutes. 

Banks have always maintained that TRACE alerts the transaction of corporate bonds to rivals who can move to take advantage of the deals being made. 

Asset managers are now joining banks in saying that even small delays in reporting would remedy the downturn in bond market liquidity that is responsible for considerable anxiety on Wall Street and for regulators alike. 

Richard Prager, head of money manager BlackRock is very supportive of a delay in reporting on large block trades, calling the move the "simplest and most elegant way of solving some of the liquidity challenge, with very little effort."

A delay in reporting bond trade prices to TRACE casts a shadow on the new dawn of transparency and regulation that followed the financial crisis. The fact that banks have dared to utter such measures indicates just how tough trading conditions are in the bond industry. 

Morgan Stanley and Oliver Wyman have said that current requirements "discourage large order transactions, as buyers that are uncertain of ultimate size become concerned about being run over." By way of remedy, a delay in reporting could give brokers the incentive to take more risk to facilitate client flow. 

The financial industry is still deciding how to move forward on the consensus for a delay. FINRA, although willing to participate in discussions on the issue, is unlikely to lend its support, fearful of implications over transparency in this murky area of the markets.