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Liquidity Concerns Highlighted to EU Commission 

February 4, 2016

Markets Media

The possibility that European Union rules may harm fixed income liquidity was highlighted in responses to the EU Commission as it reviews the regulatory framework for financial services in the region.

Last October the EU Commission launched a Call for Evidence and requested comments by last month on the benefits, unintended effects, consistency and coherence of more than 40 pieces of legislation that has been adopted in direct response to the 2008 financial crisis. The Commission said in a statement: “The Call for Evidence also presents an opportunity for respondents to consider holistically the last six or so years of European law-making across the financial services market and provide feedback accordingly.”

The International Capital Market Association said in its response that it had chosen to focus primarily on market liquidity, which affects the ability of the economy to finance itself and grow.

“ICMA wishes to highlight that it is important for policy makers and regulators to acknowledge that fixed income markets are very different structurally to equity markets,”said its response. “Essentially, unlike equities, bonds, as a distinct asset class, can and should be considered to be mostly illiquid.”

The association continued that a less liquid secondary bond market potentially widens the market spread for new issues and creates additional borrowing costs for issuers and harms the real economy. Read more

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