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Japan eyes greater corporate bond market transparency with new price data

Monday, November 2, 2015 - 13:30
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Japanese authorities are trying to bring greater transparency to corporate bonds with new price data, but with new rules extending to only a part of the market few see the changes having an immediate impact.

[TOKYO] Japanese authorities are trying to bring greater transparency to corporate bonds with new price data, but with new rules extending to only a part of the market few see the changes having an immediate impact.

Unlike the United States, Japan has lacked a system that discloses real-time corporate bond transactions, resulting in reduced transparency.

Until last month, corporate bond price data from the Japan Securities Dealers Association (JSDA) was based on indication prices from brokerages, not on real transactions, leading to criticism from investors that the data was not reliable.

To address such concerns, the JSDA launched a system on Monday that requires the Japan Securities Depositary Center (JASDEC), a central depository for shares, to submit trade data of bonds with high liquidity.

Some have welcomed the change. "The availability of more accurate pricing on outstanding bonds will be useful for evaluating our portfolio," said a money manager at a Japanese non-bank institution.

The new regulations, however, have also been criticised for encompassing only a part of the corporate bond market.

The JSDA will only disclose trades that exceed 100 million yen (S$1.16m) on bonds that are rated AA or above by two or more rating agencies. Currently, about 45 per cent of corporate bond issues are rated AA or higher. "What we want is information on lower-rated debt, and the new regulations will not be of much use," said a fund manager at a Japanese banking institution.

Also of concern is the time lag, which can be as long as one month, that new issuers have before they submit the transaction price of newly-issued bonds.

With the time lag, underwriters of newly-issued bonds -those entrusted by corporate bond issuers to sell the new debt in the primary market - could be tempted to dump bonds they failed to sell.

Since the underwriters would likely dump the leftover bonds at a discount, the fear is that such practices could distort market pricing by making the official prices much higher than they actually are.

The JSDA said they will review the new regulations once a year, but that they are yet to determine which parts of the rules will be discussed.

REUTERS