Worst Functioning Market in Sweden Dragged Before Lawmakers
Sweden’s Worst Functioning Market Gets Dragged Into Parliament
(Bloomberg) -- Sweden’s parliament is set to address shortcomings in the country’s credit market after evidence of its defects burst into public view.
Dennis Dioukarev, who is a member of parliament’s finance committee for the Sweden Democrats, told Bloomberg that a motion addressing the credit market has now been submitted to the legislature. Proposed changes will target improved transparency, he said.
Sweden’s corporate bond market has emerged as a dysfunctional corner of an otherwise highly advanced economy. Trading in debt issued by Swedish companies froze in March, forcing 35 fixed-income funds to halt redemptions as investors fled.
Since then, investors have demanded change. But the public response has left them unimpressed, with an expanded Riksbank bond-purchase program only raising more concerns about price distortions. What’s more, the Riksbank’s decision not to share the findings of a BlackRock analysis with the market angered many investors.
Dioukarev says the multiple signs of dysfunction have left “many small savers worried.”
Proposal Details:
According to the proposal sent to parliament, seen by Bloomberg, “Sweden at the EU level should work for a review of the UCITS regulations, focusing on the issue of an evaluation of a ceiling for illiquid assets.”
The proposal also calls for a “modernized system for increased digital transparency similar to the American one,” where investors can assess liquidity through a centralized reporting system called TRACE.
Lawmakers will also be asked to consider more transparency around fund fact sheets.
A timeline for the first debate in parliament and a vote has yet to be decided.
Per Bolund, Sweden’s minister in charge of financial markets, has so far argued in favor of self-regulation rather than legislation.
Credit market participants are currently “working on an industry initiative with the aim of increasing transparency and improving the functioning of the market,” Bolund told Bloomberg on Monday. Any change to legislation will require approval from the European Union, he said.
“At the EU level, there are plans to revise the rules that apply to the securities market in general,” Bolund said. “When that work starts, there is an opportunity for Sweden to push for increased demands for transparency.”
Dioukarev said he finds it “concerning” that Bolund “has not addressed this problem in a serious way.” The lawmaker said his next step will be to secure broad support for the motion, and “open an otherwise closed bond market.”
Some asset managers say authorities already have the tools they need to help the market function better.
Fredrik Edlund, CEO of Captor Investment Management, says Sweden’s financial watchdog could issue clearer guidance on when an asset can be considered listed.
“The FSA could then take liquidity issues and transparency into account, he said. “Such guidance could disqualify a lot of junk found in many corporate bond funds and push the market in a more transparent direction,” he said.
Read More: Swedish Watchdog Blames MiFID 2 for Credit Market Dysfunction
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