Bond bonuses wilt under transparency
America's corporate bond traders are dying a slow death following the introduction of new rules on pricing transparency. Could the same thing happen over here?
Since 2002, the National Association of Securities Dealers (NASD) has disseminated bond prices to anyone with internet access. According to Bloomberg, the change has proven financially painful.
In the year after the change came into effect Bloomberg says US bond traders lost $1bn in fees. Unsurprisingly, bond traders who once earned six figure payouts are now relegated to Chevys rather than Ferraris.
Europe's bond traders may therefore feel a slight frisson at the prospect of a similar innovation occurring this side of the Atlantic. The Markets in Financial Instruments Directive (MiFID), set to come into force in the equities markets from April 2007, makes a provision for just that eventuality.
With an eye on the MiFID proposals, the UK Financial Services Authority issued a discussion paper last summer suggesting that the bond trading market develop a benchmark system allowing price comparisons. The proposal was not well received and the regulator is due to publish its response today.
John Tattersall, chairman of PricewaterhouseCoopers FS regulatory practice, says increased transparency need not necessarily spell the end of corporate bond trading as we know it.
"I'm cautiously optimistic. The market in which bond trading operates at the moment does lack transparency, both for pre- and post trade," he says.
In the meantime, there appears to be no decline in appetite for corporate bond traders, reports Richard Melkonian, senior partner at head-hunter Napier Scott.
"There still seems to be demand. Pay levels are quite reasonable, although they are probably not keeping pace with the structured products people," he says.
