Sweden weighing stricter bond-trading rules after funds crisis

Stockholm

SWEDEN'S financial watchdog says it may need to tighten rules around bond trading following a liquidity crunch that led 35 fixed-income funds to slam shut in March.

Peter Svensson, a spokesman for the Financial Supervisory Authority in Stockholm, said one area of particular interest is an exemption granted to Swedish securities firms a few years back, essentially giving them more lenient reporting obligations.

Many of the market's structural problems were laid bare three months ago, when a record number of credit funds were forced to halt redemptions to preserve liquidity. Investors panicked, and it became clear that the funds couldn't accurately value the bonds in their portfolio.

The lack of transparency around pricing has prompted many investors to call for change. The FSA now wants to talk to the fund industry about how to "create a more well-functioning market", Mr Svensson said.

"It's a problem if this market has insufficient transparency," said Swe-den's financial markets minister Per Bolund in an interview. "It's important that this is looked over."

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Mr Bolund says discussions are ongoing at the European Union level on how to consolidate bond price information "in a good way" - which is something there's a need for, according to the minister.

Under EU rules - known as the Markets in Financial Instruments Regulation, or MiFIR - trading platforms and certain Swedish investment firms, known as systematic internalisers, must make public bond trades within 15 minutes of execution.

But following a consultation with the fund industry in 2017, the FSA granted exemptions for some of the reporting requirements, meaning trading companies can publish information up to two days after buying or selling the bonds.

"It is these exceptions that the FSA could reconsider in whole or in part," Mr Svensson said.

The market dysfunction has even drawn criticism from the central bank. First deputy governor Cecilia Skingsley said last month that Swedish corporate bonds are "characterised by low transparency in pricing", and the problem has become "even worse since the crisis hit".

To help improve liquidity in the market, Mr Svensson also said that the FSA is "positive on exploring the possibilities of giving Swedish fund companies access to more tools". BLOOMBERG