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ICMA Studies and Papers
ICMA and ISDA European Single Name CDS Market study

As part of its ongoing work related to both corporate bond market liquidity and evolution, ICMA, in cooperation with ISDA, proposes to conduct a study into the state and evolution of the European single name credit default swaps (SN-CDS) market.

The report of the study is intended to provide a comprehensive overview of the structure of the European SN-CDS market, including market participants, trends, regulatory and economic impacts, potential challenges and opportunities, and a description of how the market has evolved over time.

Anybody active in the European SN-CDS market and  interested in participating in the study should contact Andy Hill at ICMA.

The terms of reference for the study can be found here.

A final report of the study is provisionally projected for publication in early July 2017.

ICMA European Credit Repo Market Study

As part of its ongoing work related to both corporate bond market liquidity and evolution, as well as repo market functioning and efficiency, ICMA proposes to conduct a study into the state and evolution of the European credit repo market. Accordingly, this study is a joint initiative between the European Repo and Collateral Council (ERCC) and the Secondary Market Practices Committee (SMPC), while also involving input from members of ICMA’s Asset Management and Investors Council (AMIC).

As with previous studies relating to both bond market and repo market conditions and evolution, the research will be based on qualitative data provided through interviews with market participants, and, as much as possible, quantitative analysis and data. The study is further intended to inform the work of the European Commission’s Expert Group on Corporate Bond Market Liquidity, of which ICMA is a member.

The terms of reference for the study can be found here.

A final report of the study is provisionally projected for publication on May 2 2017.

Times they are a-changin’: the corporate bond market liquidity conundrum and the changing buy-side paradigm
November 2016

While various market, authority, and academic studies and their conflicting conclusions continue to add more fuel to the fire of the liquidity debate, raising questions about the appropriate way to define and measure market liquidity, what becomes clear is that regardless of who might be right, buy-side firms are having to rethink their business models as they adapt to a rapidly evolving market environment, with very ‘different’ liquidity conditions. This article by ICMA’s Andy Hill, draws on the July 2016 ICMA study of secondary bond market liquidity, particularly with respect to the interviews and survey of asset managers and institutional investors, to discuss this changing buy-side paradigm. In particular, it highlights how buy-side firms are embracing e-trading solutions and ‘big data’ to help re-shape the market structure.

The article can be found here

On 30 September 2016, ICMA was pleased to submit its response to the IOSCO Consultation Report: Examination of Liquidity of the Secondary Corporate Bond Markets.

ICMA very much welcomes IOSCO’s interest in the functioning and liquidity of the corporate bond markets and the resulting Consultation Report, as well as the opportunity to provide suggestions and data to assist IOSCO in further refining its analysis. While the general conclusions of ICMA’s analysis of the European corporate bond market and IOSCO’s more global perspective may differ in a number of respects, based on its own work, ICMA fully appreciates the challenges of sourcing comprehensive and meaningful data, as well as identifying and assessing the relevant indicators and metrics.  

ICMA was therefore pleased to provide, in consultation with the members of its Secondary Market Practices Committee, a number of constructive and targeted recommendations designed to expand and enrich IOSCO’s analysis.

The response can be found here.

ICMA has published two studies based on in depth interviews with market participants represented by ICMA, including investors, issuers, banks and broker-dealers, intermediaries and infrastructure providers, looking at the challenges faced by the European investment grade bond market and how the market is adapting to rapid change driven by extraordinary monetary policy and unprecedented regulation. Both focus specifically on liquidity.

Both studies are initiatives of ICMA’s Secondary Market Practices Committee.

The current state and future evolution of the European investment grade corporate bond secondary market: perspectives from the market, was published in 2014.

In July 2016 ICMA published a further study ‘Remaking the corporate bond market’ exploring the evolution of the European investment grade corporate bond market and updating the earlier research. It adds quantitative input to the in-depth interviews with market participants and provides recommendations to support the long-term efficiency and functioning of the market.

Since the first ICMA study, the conversation around bond market liquidity, and its potential implications, has entered mainstream thinking, particularly when assessing market risks or explaining market behaviour. The conclusions of a range of recent market studies have been mixed, with most suggesting that market conditions, in general, are becoming more challenged, while a number of more academically-based studies published by authorities and regulators tend to be more confident. Understanding the reasons for this apparent divergence of perspectives is one of the motivations for this second study.

The main findings from the new ICMA study are:
  • Providing and sourcing liquidity is more challenging. Market participants cite the causes of this as the interaction of various regulatory initiatives and extraordinary current and future monetary policy, and the undermining of the market-making liquidity model, largely due to greater capital constraints on banks and broker-dealers. It is increasingly difficult to trade in large sizes, to execute orders quickly, or to establish reliable prices.
  • European corporate issuers are increasingly concerned about the state of the corporate bond secondary market. They note an unsustainable disconnect between primary market stability and secondary market liquidity that is being perpetuated primarily as the result of ongoing central bank intervention. This directly impacts their ability to raise capital necessary to fund investment.
  • Stakeholders are in the process of adapting to the challenged environment by changing their business models. While sell-side firms continue to reshape their models around balance sheet efficiency, acting more as principal brokers than market-makers, the buy-side is taking more initiative in terms of locating and creating liquidity. Technology is playing an increasingly important role in the market, there is growing recognition that a significant part of the market will always need to be ‘people based’, and so values such as trust and relationship building are becoming ever more important as market conditions becomes more challenged.
Based on the stakeholder interviews the study makes a number of recommendations, which could improve the long-term efficiency and functioning of the European corporate bond markets.
  • Provide capital relief for market-making. Given the heterogeneous and inherently illiquid nature of credit markets, the market-making model is the optimal, and perhaps the only viable, source of true market liquidity. Policy makers and regulators should at the very least consider the possibility for less stringent capital charges related to this activity, including associated hedging and financing.
  • Revitalize the single-name CDS market. Single-name CDS not only provide an efficient and standardized tool for market-makers and investors to hedge credit exposures, but given its close relationship with the underlying reference bonds, an active and liquid single-name CDS market could help stimulate liquidity in the corporate bond market. Measures to revitalize the market could include reviewing CVA capital charges and NSFR funding requirements under CRD IV/R.
  • Review and re-assess harmful regulation. It becomes clear that there are a number of regulatory initiatives that seem to offer no obvious benefits to fixed income markets, and, in certain cases, are likely to cause significant harm.
  • Bring all market stakeholders together to review the market structure. All market stakeholders, including investors and asset managers, corporate issuers, banks and broker dealers, intermediaries and infrastructure providers, relevant market associations and representative bodies, as well as policy makers and regulators, need to work together in a formalized and structured forum to share views and ideas on market structure and development.
The data collection for this study predates the referendum on the United Kingdom’s membership of the European Union on 23 June 2016. The outcome may well have serious implications for corporate bond markets, in particular the sterling market, but also for the euro and other markets. In many ways, this makes the findings and conclusions of this study even more relevant, as we enter a period of even greater economic uncertainty, and when market efficiency and liquidity will, potentially, be tested.


Andy Hill
Senior Director, Market Practice and Regulatory Policy; secretary to the ICMA Secondary Market Practices Committee.
Direct line: +44 20 7213 0335