Investors will have access to public price information in the $1.5 trillion market for privately sold corporate bonds beginning today.
The Financial Industry Regulatory Authority will start disseminating prices on company bonds issued under Rule 144a, the latest step in the agency’s effort to make over-the-counter debt markets more transparent. The move represents the biggest expansion of FINRA’s corporate-bond price disclosure on its Trade Reporting and Compliance Engine since 2006.
“People go to the market with numbers in hand and use them in negotiations,” said Steven Joachim, an executive vice president at FINRA. “We’ve found that as we’ve disseminated prices, it influences trading in many ways.”
Rather than relying on traders to relay market values, investors will now have benchmark prices to consider when deciding whether to make a purchase.
The privately sold bonds, which are only purchased by institutional investors, account for about 30% of junk-bond trades tracked by the regulator, or an average $3.5 billion each day. They include almost 13% of investment-grade transactions, or $2.1 billion a day.
The system of publicly reporting U.S. corporate bond transactions reduced trading while cutting price volatility in the months after being introduced, according to researchers at Massachusetts Institute of Technology and Harvard University in a study last year.
High-yield bonds were affected the most, according to the study using data from FINRA’s Trace system, which was introduced in stages beginning in 2002.
The average size of a 144a trade tends to be bigger than public-bond trades, equaling about $2.3 million compared with $540,000, FINRA data show. Access to the transactions will be available via data providers today, and the agency’s website starting tomorrow.
Typically, more disclosure causes price levels to become more consistent, Joachim said. “We see some changes in the market” and, “as a result, a much more uniform market.”
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