Last week, the Canadian Securities Administrators (CSA) published for comment Proposals that would require trade information for all corporate debt securities executed by dealers to be made publicly available, subject to delayed dissemination and volume caps, by the end of 2017. The CSA Proposals aim to enhance the regulation and transparency of the Canadian fixed income market, partly in response to certain limitations highlighted in a Report on “The Canadian Fixed Income Market 2014” published earlier this year by the Ontario Securities Commission which suggested that retail investors in corporate fixed income securities have less access to market information than institutional investors.
The CSA Proposals would only affect trades in corporate debt securities (not government debt securities) executed by investment dealers (not exempt market dealers or dealers relying on the international dealer exemption). National Instrument 21-101 – Marketplace Operation (NI 21-101) already sets out transparency requirements for government debt securities effective January 1, 2018. The CSA is considering whether exempt market dealers should also be required to report fixed income trade information and whether transparency requirements should apply to that information.
Currently, under NI 21-101, dealers are required to report order and trade information for designated corporate debt securities to an information processor (CanPX) who collects, aggregates and publicly disseminates the data with a one-hour delay subject to volume caps, which mask the true dollar size of large trades.
Under the CSA Proposals, IIROC would become the information processor for corporate debt securities under NI 21-101, and will publicly disseminate trade information relating to those securities, subject to the following dissemination delay and volume caps:
- Dissemination delay: data will be made public at least one day following the trade (T+1) and likely T+2. This is significantly longer than CanPX’s one-hour dissemination delay currently in effect.
- Volume caps: actual volumes will not be shown for trades that have volumes over $2 million for investment grade corporate bonds and $200,000 for non-investment grade corporate bonds. Instead, the volumes will be reflected as $2 million+ and $200,000+, respectively. These volume caps are the same as the ones currently in effect.
In addition to information prescribed by NI 21-101, IIROC expects to make public, for each corporate debt security, information that would facilitate more informed decision-making for investors, including the name of the security, price, coupon, yield, volume traded (subject to volume caps), the transaction type, indication of whether the trade was an inter-dealer trade or whether it was a client purchase or sale, date and time of the trade, and settlement date.
The CSA acknowledge concerns raised by market participants regarding the potential negative impact of enhanced transparency on liquidity. It is felt that enhanced transparency and the ensuing pressure on spreads might discourage dealers from maintaining debt inventories to the degree they do now when making markets for debt. The proposed dissemination delay and volume caps are meant to be responsive to such concerns.
Some smaller institutional investors have also raised concerns about their ability to participate in new debt offerings. The CSA and IIROC have established a working group to examine these concerns. The working group will conduct a comprehensive review of how initial debt offerings are allocated between different market participants and assess whether further regulatory action is needed in this area.
Comments on the CSA Proposals may be submitted until November 1, 2015.
 A “corporate debt security” means a debt security issued in Canada by a company or corporation that is not listed on a recognized exchange or quoted on a recognized quotation and trade reporting system or listed on an exchange or quoted on a quotation and trade reporting system that has been recognized for the purposes of NI 21-101 and NI 23-101, and does not include a government debt security