GFMA Response to IOSCO on Corporate Bond Market Liquidity
GFMA submitted a response to the International Organization of Securities Commissions (IOSCO) consultation on “Corporate Bond Markets – Drivers of Liquidity During COVID-19 Induced Market Stresses.”
The response included the following recommendations:
- To ensure markets can function at times of stress going forward, the role of central banks’ (CB) liquidity facilities that helped the private sector to continue intermediating in the market during the market turmoil should remain in the CB toolkit to manage temporary but significant market stresses that may overwhelm the private sector capacity.
- Some of the regional adjustments made to the regulatory framework should be made permanent (such as central bank deposit exemptions from the leverage ratio (LR)) in the global standards and others should be available as regional permanent or temporary measures (such as exempting government bonds from the LR exposure measure, exempting CB facilities from the counterparty credit risk and leverage exposures, and market risk backtesting exemptions) to increase dealer capacity at times of stress. For example authorities that did change the calibration of the LR exposure measure stated market liquidity/financial intermediation capacity as a key concern and reason why such temporary changes were necessary in their jurisdictions in support of financial markets functioning.
- Finally, it is important to ensure that the transparency regimes developed regionally are carefully calibrated, with appropriate dissemination delays, to avoid constraints on dealers’ ability to execute portfolio and block trades at times of stress. Calibration of the transparency framework should be an iterative process that takes into account developments in market structure as well as prudential capital constraints.
– July 8, 2022 –