Thursday, March 15, 2018 Stamford, CT USA — MiFID II will make the European corporate bond market more transparent, and likely more electronic. But investors are waiting to see what this means for liquidity in the market longer term. 

A new report, European Corporate Bond Trading: Impacts of MiFID II, from Greenwich Associates finds that more than half of investment-grade corporate cash bond trading volume is now conducted electronically in Europe, easily topping the 19% of electronic volume in the United States. MiFID II is expected to push even more European business to electronic venues, as dealers try to minimize skyrocketing compliance costs with new technology platforms. 

Regulators expect this and other changes caused by MiFID II will make markets more transparent and competitive. However, market participants are concerned that the price of success for increased transparency could be reduced levels of liquidity in products like corporate bonds.

“Despite these concerns, increases in dealer competition should ultimately result in tighter spreads,” says Brad Tingley, Market Structure and Technology Analyst at Greenwich Associates and author of the new report. 

Liquidity Concerns
Even before MiFID II implementation, European fixed-income investors were experiencing reductions in corporate bond market liquidity. The new Greenwich Report finds institutional investors in search of consistent liquidity are looking to alternatives such as single-name credit-default swaps (CDS) and corporate bond ETFs.   “Investors are taking these steps to ensure liquidity in the short term,” says Brad Tingley. “Over a longer-term horizon, increases in transparency and efficiency brought on by MiFID II and the continuing electronification of market will be a long-run benefit for all involved.”