By Pav Jordan
TORONTO, April 14 (Reuters) - Canada's securities industry watchdog will propose new rules on Friday that would revamp bond market pricing, in a bid to make it more transparent and potentially cheaper for investors.
The proposed regulations -- which could affect the profits at the country's leading bond dealers -- will target issues including fair pricing, yield disclosure and a requirement for firms to inform clients when they have made a profit on a transaction, and that that profit is included in the price.
'We are trying to raise the bar,' Paul Bourque, senior vice-president for enforcement, policy and registration at the Investment Industry Regulatory Organization of Canada (IIROC) told Reuters during an interview on Tuesday.
'We're trying to create a heightened level of transparency around the debt markets and around individual transactions,' he said from his Toronto office, overlooking Canada's leading financial district.
Once implemented, Bourque said, the regulations would put Canada's bond industry standards on a par with the United States.
Many Canadian investors do not know how much commission they are paying to buy and sell bonds because the amount is embedded in the price.
The country's bond market is dominated by the investment dealing arms of the major banks, such as Royal Bank of Canada and Toronto-Dominion Bank.
Bourque said the proposed rules are not a reaction to complaints in the industry as much as a concern for more transparency in over-the-counter markets and to ensure retail customers in particular are getting fair pricing.
The new rules will insist on fair pricing of bonds and require explanations where prices do not seem to justify brokers' costs and reasonable commissions.
'If it is on an objective basis, not a reasonable price, then we are going to insist on an explanation for it. If we don't like the explanation then it could result in enforcement,' he said.
LIQUIDITY CONCERNS
The new rules will be closely scrutinized by the country's investment dealers. Increased transparency could force them to become more aggressive on the pricing of deals, eating directly into profits.
Some bond market players in Toronto are also concerned about regulations being sufficiently flexible to take into account the enormous variety in the bond market, where a company with only one listed stock can have dozens of bond issues, most of them fairly illiquid.
One concern of bond market players is that new regulations could kill incentives for trade in the least-liquid issues.
Bourque said that under the new regulations dealers will have the opportunity to justify pricing.
'It is a requirement that they look at all the market conditions, look at the factors and provide a price that's fair,' he said.
Eventually, the IIROC plans to introduce a surveillance system into the bond market that is similar to systems tracking the stock market, but not on a real-time basis.
'We've never believed for example that we need real-time surveillance of the debt market. We're going to have a system, and its going to be a better system, and it will be electronic, but its not going to be real time,' he said.
New rules could take some time to implement.
The IIROC will publish proposed new regulations on Friday, after which they will be open to public comment for 90 days. Once that consultation period is closed, changes may or may not be made before a final version goes to the Canadian Securities Administrators (CSA) for approval.
If changes are substantive, a new 90-day public comment period can be called.
(Reporting by Pav Jordan; editing by Jeffrey Hodgson and Rob Wilson) Keywords: CANADA/BONDS (pav.jordan@thomsonreuters.com; +1 416 941 8163; Reuters Messaging: pawel.jordan.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
TORONTO, April 14 (Reuters) - Canada's securities industry watchdog will propose new rules on Friday that would revamp bond market pricing, in a bid to make it more transparent and potentially cheaper for investors.
The proposed regulations -- which could affect the profits at the country's leading bond dealers -- will target issues including fair pricing, yield disclosure and a requirement for firms to inform clients when they have made a profit on a transaction, and that that profit is included in the price.
'We are trying to raise the bar,' Paul Bourque, senior vice-president for enforcement, policy and registration at the Investment Industry Regulatory Organization of Canada (IIROC) told Reuters during an interview on Tuesday.
'We're trying to create a heightened level of transparency around the debt markets and around individual transactions,' he said from his Toronto office, overlooking Canada's leading financial district.
Once implemented, Bourque said, the regulations would put Canada's bond industry standards on a par with the United States.
Many Canadian investors do not know how much commission they are paying to buy and sell bonds because the amount is embedded in the price.
The country's bond market is dominated by the investment dealing arms of the major banks, such as Royal Bank of Canada and Toronto-Dominion Bank.
Bourque said the proposed rules are not a reaction to complaints in the industry as much as a concern for more transparency in over-the-counter markets and to ensure retail customers in particular are getting fair pricing.
The new rules will insist on fair pricing of bonds and require explanations where prices do not seem to justify brokers' costs and reasonable commissions.
'If it is on an objective basis, not a reasonable price, then we are going to insist on an explanation for it. If we don't like the explanation then it could result in enforcement,' he said.
LIQUIDITY CONCERNS
The new rules will be closely scrutinized by the country's investment dealers. Increased transparency could force them to become more aggressive on the pricing of deals, eating directly into profits.
Some bond market players in Toronto are also concerned about regulations being sufficiently flexible to take into account the enormous variety in the bond market, where a company with only one listed stock can have dozens of bond issues, most of them fairly illiquid.
One concern of bond market players is that new regulations could kill incentives for trade in the least-liquid issues.
Bourque said that under the new regulations dealers will have the opportunity to justify pricing.
'It is a requirement that they look at all the market conditions, look at the factors and provide a price that's fair,' he said.
Eventually, the IIROC plans to introduce a surveillance system into the bond market that is similar to systems tracking the stock market, but not on a real-time basis.
'We've never believed for example that we need real-time surveillance of the debt market. We're going to have a system, and its going to be a better system, and it will be electronic, but its not going to be real time,' he said.
New rules could take some time to implement.
The IIROC will publish proposed new regulations on Friday, after which they will be open to public comment for 90 days. Once that consultation period is closed, changes may or may not be made before a final version goes to the Canadian Securities Administrators (CSA) for approval.
If changes are substantive, a new 90-day public comment period can be called.
(Reporting by Pav Jordan; editing by Jeffrey Hodgson and Rob Wilson) Keywords: CANADA/BONDS (pav.jordan@thomsonreuters.com; +1 416 941 8163; Reuters Messaging: pawel.jordan.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.