Citadel Squares Off With Pimco Over 48-Hour Bond Reporting Delay
Citadel Squares Off With Pimco Over 48-Hour Bond Reporting Delay
(Bloomberg) -- A fight is brewing between financial industry heavyweights with Citadel urging regulators to scrap a proposed review of whether the disclosure of big bond trades should be delayed, pitting billionaire Ken Griffin’s firm against investment giants including Pacific Investment Management Co.
The friction is focused on a Financial Industry Regulatory Authority proposal to study the impact of giving investors 48 hours before having to reveal their large corporate bond trades to other market participants. The effort would help Finra examine whether current rules, which require that so-called block trades be reported within 15 minutes, deter buying and selling.
But Citadel wants the brokerage regulator to drop the review before it even gets started. Letting trades stay secret longer would have detrimental effects on the market, according to the Chicago-based firm.
"There is little evidence to suggest that the proposed pilot will meaningfully improve liquidity conditions," Stephen John Berger, Citadel’s global head of government and regulatory policy, wrote in a June 11 comment letter to Finra. "The costs and complexity of the proposed pilot significantly outweigh the asserted benefits, as it will negatively impact a wide range of market participants."
The pilot, which is supported by JPMorgan Chase & Co. and other Wall Street firms, would address arguments from Pimco and BlackRock Inc. that rapid disclosure can make it hard for securities dealers to sell bonds. The concern is that brokers are hesitant to commit capital to trades because when other market participants can quickly see the size and price of their bond purchases, dealers can’t make a fair return when they then try to sell the debt.
Citadel’s Berger counters in his letter that the proposed review would lead to higher transaction costs, disparities in market participants’ information and decreased competition. The changes may also cause a "liquidity disruption" for exchange-traded funds as market makers may increase spreads to account for some traders having more information on what the bonds that underlie the ETFs are actually worth, according to Citadel.
The idea for the pilot was suggested by a group of industry executives that advises the U.S. Securities and Exchange Commission, which oversees Finra. The test, if approved, would last for one year. At an April meeting of officials advising the SEC, Mihir Worah, chief investment officer of asset allocation and real return at Pimco, said "there are some concerns around liquidity and this is an effort to try to improve it."
As proposed, Finra’s pilot would test the impact of keeping data private for 48-hours on trades of more than $10 million in investment-grade debt and trades greater than $5 million for speculative-grade bonds.
In its letter, Citadel said that neither Finra nor the SEC advisory panel had demonstrated that liquidity for block trading has significantly declined, or that any drop was directly related to how trade data is shared. The firm also questioned why the advisory panel focused on post-trade disclosures rather than other aspects of market structure that could impact liquidity.
To contact the reporter on this story: Ben Bain in Washington at bbain2@bloomberg.net
To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott
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