BlackRock says 'broken' corporate bond market needs an overhaul

[NEW YORK] BlackRock Inc said the corporate bond market, which is one of the cornerstones of global finance, is "broken" and must be retooled to improve liquidity.

BlackRock, a major competitor in the bond market with US$4.3 trillion in client assets, urged changes including unseating banks as the primary middlemen in the market and shifting transactions to electronic markets. Another solution BlackRock proposed: reducing the complexity of the bond market by encouraging corporations to issue debt with more standardised terms.

Banks have retained their stranglehold on corporate debt trading despite years of effort by BlackRock and other large investors to eliminate their oligopoly. The top 10 dealers control more than 90 per cent of trading, according to a Sept 15 report from research firm Greenwich Associates. To BlackRock, the dangers of price gaps and scant liquidity have been masked in a benign, low interest-rate environment, and need to be addressed before market stress returns.