IOSCO/MR/36/2022 – Madrid, 16 November 2022
IOSCO today published a feedback statement summarizing the responses to its April 2022 Discussion Paper on ‘Corporate Bond Markets – Drivers of Liquidity during COVID-19 Induced Market Stresses’ (“Feedback Statement”).
The Feedback Statement summarizes stakeholder views on possible ways to help improve market functioning and liquidity provision in corporate bond markets. This includes assessing the feasibility, benefits, and costs of mitigating sudden shifts in liquidity demand and alleviating supply side market constraints, particularly in stress.
The Feedback Statement also considers the outcomes from the joint IOSCO and OECD Conference on Corporate Bond Markets held in June 2022.
The feedback received from stakeholders is broadly consistent with the outcomes and observations contained within the Discussion Paper. The responses are generally supportive of continuing work towards facilitating increased liquidity provision in corporate bond markets. However, there is acknowledgement that there is no “silver bullet” solution. This reflects the fact that corporate bonds are traded infrequently, even in normal times, when compared to other large developed markets such as equities.
The balance of evidence presented in the Discussion Paper, as well as the feedback received, nonetheless suggests there is potential scope to improve liquidity supply and market functioning.
IOSCO recognizes the importance of promoting corporate bond market liquidity, consistent with its mandate to support sound global capital markets, while recognizing that bond markets have certain inherent features that may make liquidity supply fragile in periods of stress.
The key findings from the Discussion Paper and the feedback received will inform IOSCO’s ongoing review of the sector and future consideration on ways to improve market functioning and the resilience of liquidity supply under stress. IOSCO will consider scoping further work on improving liquidity supply in IOSCO’s forthcoming 2023-2024 workplan, including coordination with other international organizations, as appropriate.
Mr. Jean-Paul Servais, Chair of the IOSCO Board said: “IOSCO continues to support global efforts coordinated by the FSB to improve the resilience of non-bank financial intermediation. The significant growth of credit intermediation outside the banking sector underscores the critical importance of market infrastructure functioning and the resilience of market liquidity – both on the demand and the supply side – to the financial system’s capacity to absorb systemic shocks. The focus of international policy has, so far, mostly been on dampening liquidity demand in stress. It is also critical for the international regulatory community to work together to consider means to improve liquidity provision and market functioning, particularly in stress.”