[Update: for some incomprehensible reason the embedded video clips below only work on YouTube. Click the image for a link to the YouTube page]
Andrew Canter (of Future Growth) makes some strong statements about the “phone and dealer” approach to the South African bond market. When one of the arguments against Andrew’s preferred centralised, electronic order book is “we like the information we get from deal flow” I have to say I agree with Andrew.
and part 2 (which also includes some discussion of Covered Bonds with the clear links to Basel and indirect links to Solvency II and SAM)
Anything that makes it easier to determine an objective market price for valuation purposes, provides more information and transparency on an equal basis rather than advantaging a few select players sounds good.
The arguments that Primary Dealers are only viable through the information they gain from deal flow is a typical example of unfortunate cross subsidies between different, barely related economic activities which almost invariably drives inefficiencies.
Given the debate around recognising illiquidity premiums for IFRS and Solvency II / SAM purposes, a more liquid, more transparent market in bonds, particularly corporate and quasi-government bonds, would be immensely useful and would surely decrease illiquidity premiums and thus decrease the cost of raising debt financing for corporates.