PS24/14: Improving transparency for bond and derivatives markets

Read PS24/14 (PDF)[1]

What we are changing

We have established a simpler and more timely post-trade transparency regime based on fewer deferrals for bonds and certain OTC derivatives while ensuring that liquidity providers are sufficiently protected against undue risk.  

We have specified transparency requirements only for bonds admitted to trading on a trading venue and certain derivatives subject to the clearing obligation.  

The over-the-counter (OTC) trading of non-specified instruments by investment firms will not be subject to public trade reporting.

For trading venues, we have set out standards and criteria they should consider when calibrating their transparency requirements.  

For recognised investment exchanges, our supervisory approach to transparency will reflect the high standards that apply to them in relation to exchange-traded derivatives such as futures and listed options.

We have made changes to:

• reduce instances where transactions that do not contribute to price formation are reported to the public
• improve the content of post-trade reports and the correct identification of derivatives

Liquid instruments

We are removing the requirement to perform transparency calculations which had been used to determine whether an instrument was liquid.  

We will now rely instead on a set of reliable proxies to determine whether an instrument should be categorised as liquid.

Financial Instruments Transparency System (FITRS)

We are discontinuing the use of the Financial Instruments Transparency System (FITRS) for bonds and derivatives, given the new transparency regime does not depend on rigid liquidity calculations based on fixed parameters.

Systematic internalisers

We have updated the definition of an SI from a quantitative to a qualitative definition. We do not expect the new definition will alter which firms are designated as SIs.  

Existing SIs who have notified us of their status, and who appear on our register of SIs, will not need to notify us again of their SI status under the new definition.

Why we are doing this

Our changes to the bond and derivatives transparency regime aim to establish a better balance between the needs:

• to support market participants to offer liquidity
• for better and more timely transparency for the market as a whole

Who this is for

• Trading venues which admit to trading, or trade, bonds and derivatives
• Investment firms dealing in bonds and derivatives
• UK branches of overseas firms undertaking investment services and activities
• Systematic internalisers in all types of financial instrument

Our changes will also interest:

• firms looking to become a consolidated tape provider (CTP)
• approved publication arrangements (APAs) who publish trade reports for bonds and derivatives
• central counterparties (CCPs)
• asset management firms
• law firms
• market data and analytics firm
• consultancies
• retail investors and their related trade associations

Responding to feedback

We’ve made targeted changes to our proposed approach, following feedback to CP23/32[2] which closed on 6 March 2024.

This includes broadly finalising the rules, with some changes:

• We modified the framework for bonds to have 3, instead of 2, deferral durations. We have also altered the length of, and threshold size for an order to qualify for, those deferrals.
• We refined the grouping criteria for bonds.
• We created longer deferrals for swaps with non-benchmark tenors and lowered the threshold sizes for SONIA (Sterling Overnight Index Average) swaps.
• We removed systems relying on negotiation from the scope of pre-trade transparency, rather than asking requiring trading venues to apply for a waiver from the obligation to provide pre-trade transparency for these systems.
• Firms do not need to report both the Unique Product Identifier (UPI) and International Securities Identification Number (ISIN), but only the UPI where one exists – that is, for OTC derivatives – and an ISIN otherwise.

Given the breadth of changes made through the Financial Services and Markets Act 2023, we are asking discussion paper questions about the future of the SI regime.

Next steps

Changes to the transparency regime come into force on 1 December 2025.  

Trading venues, investment firms and APAs should:

• familiarise themselves with our rules to ensure they can comply with the relevant requirements
• assess their current arrangements so they can provide adequate transparency once our rules take effect

Under transitional provisions:

• trading venues do not need to apply pre-trade transparency to voice and request-for-quote trading from 31 March 2025
• SIs in bonds and derivatives do not to need to provide public quotes from 31 March 2025
   

What we will do next

We will speak to trading venues, investment firms and approved publication arrangements to:

• monitor the implementation of our new rules  
• ensure an orderly implementation of the changes

The bond consolidated tape will only go live after the changes to the transparency regime take effect.  

We expect to start the tender to appoint a UK bond consolidated tape provider in December 2024. Firms wishing to take part therefore have some time to familiarise themselves with the new rules.  

We plan to publish a Consultation Paper on the future of the SI regime in Q2 2025, following responses to our discussion paper.

The changes to the substance of the SI regime should take effect alongside the new qualitative approach to determining SIs on 1 December 2025.

We’ll update our Handbook to reflect the finalised transparency regime for bond and derivative markets by 1 December 2025, when the rules in the instrument in our PS are due to come into force.

Background

CP23/32 was developed in response to industry feedback that the current transparency regime has:

• not delivered meaningful transparency  
• had limited impact on price formation while imposing a high cost to industry

We therefore proposed to recalibrate the regime to properly account for the diverse nature of bond and derivatives markets.