Achieving data democracy in APAC fixed income markets

In a rapidly changing and interconnected world, transparency in financial markets is more crucial than ever. We recently hosted a discussion titled “Transparency in APAC fixed income markets” in collaboration with the Asia Securities Industry & Financial Markets Association (ASIFMA) that focused on this very issue.

While the Americas and Europe have mandated data contribution from market participants, through regulatory bodies like FINRA, FCA, and ESMA, Asia-Pacific (APAC), in contrast, lacks the mechanisms needed to address the opaqueness of its fixed income markets. Given the vast size, diversity and fragmentation of APAC, there’s a growing consensus that a market-driven approach to transparency is the only way forward.

Our dialogue zeroed in on the APAC market's unique challenges and discussed how a collaborative new data ecosystem in APAC could meet the data needs of fixed income market participants. But before we navigate this journey to data democracy, let's discuss why accurate, timely, and easily digestible data is pivotal to both market makers and investors.

Why data matters?

The importance of data in today's financial markets cannot be overstated, serving as the lifeblood of trading activities, risk management, and long-term strategies. Here's how:

• Compliance: Regulatory norms such as MiFID II have made detailed reporting indispensable, ensuring firms maintain best execution practices.

• Risk management: For financial institutions, data helps assess and set aside capital buffers to mitigate risks.

• Trading: Real-time and historical data fuels price discovery, the launch of systematic and algorithmic strategies which boosts liquidity and increased electronification & indexation of fixed income markets.

• Research: Asset managers and quantitative analysts rely on data for in-depth market analysis.

• Liquidity: Identifying liquidity pools and deciding when to trade is streamlined with accurate data.

To put it succinctly, data isn't just a 'nice-to-have'; it is essential for the proper functioning and regulation of markets – enriching decision-making processes across various verticals in financial services, from the trading floor to the compliance office.

The West: TRACE and MiFID II

The U.S. pioneered fixed income transparency through the launch of TRACE by the Financial Industry Regulatory Authority (FINRA) in 2002. By providing real-time price reporting and dissemination of fixed income transactions, TRACE brought transparency to the U.S. fixed income market by making accurate, reliable, and timely data available to the public. In Europe, MiFID II was launched also with intent to bolster transparency across the European fixed income markets.

How much can the APAC markets leverage these systems?

Well, not much.

TRACE limits its publication to U.S. denominated bonds that are issued or guaranteed by a U.S. government agency, with operational limitations outside of U.S. trading hours. MiFID II, on the other hand, covers a broader range of currencies but faces challenges due to the fragmentation of approved publication arrangements (APAs) across the UK and EU as well as the lag in data availability (e.g., 4–6-week deferrals).

To address the need for transparency of U.S. denominated bonds outside of U.S. trading hours, MarketAxess TraX® has emerged as a comprehensive and timely source of transactional data across global trading hours and markets. Complementing regulatory datasets like TRACE & MiFID II (APA) whilst filling the transparency void in APAC.

TraX vs. TRACE coverage: Asia credit (USD)

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