International Capital Market Features

and identify the emergence of unforeseen risk issues and inform regulators and official sector stakeholders. We have carried out significant work with IOSCO in particular on market resilience initiatives, and myself and senior members of the ICMA team meet regularly with the leadership at key official bodies such as the European Securities and Markets Authority, European Commission, European Central Bank, Bank of England and the Financial Conduct Authority in the UK to discuss and feed back on market conditions, our members’ concerns and our views on how best to tailor regulatory measures to ensure they are robust but do not choke off market activity or lead to reduced or fragmented liquidity concentration.

We are working consistently with many of these stakeholders to review and promote structural and regulatory initiatives to improve the operational efficiency and resilience of the market, such as enhanced market transparency through the introduction of a consolidated tape for bonds, the acceleration of settlement cycles, collateral usage and efficiency, review of leverage ratios to increase banks’ capacity to hold government bonds in times of stress, broader usage of central clearing and better calibration of margin requirements and supportive developments in the repo market such as the introduction of standing repo facilities or the broadening of counterparty eligibility.

Digitalisation and electronification represent a critical area where great potential exists to improve market efficiency, transparency and resilience. The wholesale and dealerdriven model I touched on earlier, and still central to secondary market activity, in no way dilutes the importance of technology and digitalisation initiatives to improve market liquidity, enhance reporting capabilities and reduce risk. While we have seen the growth of so-called “all-toall” trading platforms which can reduce the need for bank intermediation, automated portfolio trading where investors ask dealers to bid on large blocks of individual bonds and execution and order management systems, all of which have improved liquidity and resilience to some degree, their impact so far in the bond markets has yet to be material. The market essentially remains over-the-counter and voicedriven, particularly in times of stress. More fundamentally, transformational initiatives such as the use of Distributed Ledger Technology in bond market issuance and securities’ lifecycle management remain very much in the testing and pilot phase. We saw one important such innovation in Hong Kong recently with the Government issuing the first ever Government digital green bond globally. Again, ICMA is fully involved in market developments through its FinTech Advisory Committee made up of members from all areas of market activity with a key focus to ensure market initiatives and regulatory engagement, promote harmonisation and operational efficiency and reduce fragmentation across the industry. Any broad-based and scalable benefits from the application of such technology are still realistically several years away.

In concluding, and focusing on the present, the market globally got off to a very strong start in 2023 but uncertainty over the rates outlook and the broader implications of the SVB collapse and Government-orchestrated takeover of Credit Suisse by UBS have soon drawn a line under that. We cannot afford to be complacent at any time. And we should not underestimate the scale and importance of the global bond markets which provide a critical function in economic stability and growth and will be highly instrumental in meeting the financing needs of the transition to net zero in the next 20-30 years. The market is certainly not bullet-proof and has been challenged, and weaknesses exposed, by a number of significant market, operational and regulatory developments and shocks leading to the build-up of concentration, unforeseen risks and market bottlenecks that I have mentioned. That said, the market continues to function largely well, and we need to focus on improvements. Encouragingly, awareness of the issues faced by the market is high among practitioners and regulators, who are increasingly working together to bridge gaps and facilitate structural changes. Well-calibrated regulation is important but it needs to be proportionate and to better assess potential impacts across the entire bond and repo market ecosystem. We need to boost the uptake and use of automated trading and other digitalisation initiatives to improve liquidity and transparency, which in turn will encourage the involvement of more retail investors to invest in bond funds and bring greater breadth to the underlying buyer base. Further, improvements in settlement processes and the use of central clearing should be fostered to build robustness in market structure and reduce risk where appropriate. There is too much at stake not to have a robust and integrated international bond market and I believe this only reinforces the role of trade associations such as ICMA to identify and assess issues and challenges, bring stakeholders together and provide solutions that optimise market efficiency and resilience through the setting of market standards and effective advocacy.