EUROPE - Institutional investors should lobby "aggressively" against EU proposals to limit delays in trade reporting, according to JP Morgan, as they would further decrease supply in the secondary bond and equity markets.

The measures aim to increase transparency and are proposed in the second Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR), Michael Ridley, managing director at JP Morgan, told the International Capital Market Association conference in Milan last week.

Ridley said investment banks welcome greater transparency, pointing out that the secondary market had become less liquid over the last five years in the absence of a proper transparency regime - with dealers taking less risk, investors expressing less conviction and supply now relatively constrained to the bond market. 

However, Ridley also claimed that the measures within MiFID II and MiFIR aimed at limiting the time financial firms can delay publishing trade reports could dry up the secondary market even further and lead to higher premium to be paid by investors. 

He said: "Institutional investors who hold large amounts of cash currently only want to buy equities in the primary market, as it comes at a decent concession to the secondary market.

"The problem is that those investors have relatively smaller occasions in the primary market - so they hold their secondary bonds, preferring not to trade them.

"As a result," Ridley told delegates, "the secondary market is increasingly becoming a buy and hold market, whereas the primary market becomes more and more attractive for investors who are sitting on a large pile of cash they want to see invested."

According to Ridley, the concentration of fixed-income products means that dealers now need to trade large boxes of stocks to compensate.

While he stressed that it was important for regulators to have access to market trade prices to ensure best execution in the interest of investors, he also argued for more protection on the sell side. 

"In a market that has become increasingly less liquid over the past five years, we believe that dealers need to be protected when they take on risk to provide financial solutions for investors", he added.

"Therefore, if the length of time allowed for the deferred publication of large trades was restricted, this could result in increased premiums for risk trades as banks rush to complete orders before disclosing to the market, and the secondary market would increasingly dry up."

Ridley called on institutional investors to lobby "aggressively" against those measures within the MiFID II and MiFIR, as an investment banks' aim was first and foremost "to protect liquidity in the market rather than protect profitability".

In July last year, the Committee of European Securities Regulators (CESR) suggested restricting the time banks could delay publishing trade reports, with reporting any trade to the end of the same day on which it was executed.

CESR, which sought to increase market transparency, also recommended reducing any delay in reporting some trades intraday from three to two hours.

Currently MiFID allows traders to delay reporting some trades for a minimum of three hours to a maximum of three days.

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