Moody’s warning over proposed transparency rules

Credit research and analysis firm Moody’s has warned that proposed transparency trading rules in Europe could impair liquidity and thus fund size.

Moody’s, the credit ratings, research, and risk analysis firm, has warned that new trading rules in Europe could restrict the size of investment funds following the publication of the Markets in Financial Instruments Directive (Mifid II).

The rules in question address market transparency, requiring bond traders to disclose and publish information on their trades both before and after transactions. However, Moody’s warns that this could affect liquidity and thus fund size.

Speaking to Bloomberg, Andrew Balls, chief investment officer for fixed income at US-based investment management firm Pimco, said: “You may provide less liquidity to the market if every man and his dog is going to know what you are doing. The idea that post-trade transparency will promote greater liquidity in markets does not seem sensible.”

In a research note, Moody’s said: “Mifid II’s new pre and post-trade transparency requirements risk impairing market liquidity, limiting asset managers’ revenue potential by constraining the potential size of a fund.”

The European Securities and Markets Association's final report on Mifid II is now with the European Commission which will decide to endorse it or not by the end of the year.


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