On 28 August 2020, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) announced that a study from the AFM on the effectiveness of the MiFID II regulatory framework for the fixed-income and derivatives markets has shown that price formation still needs to be more transparent and that the MiFID II rules are also considered less suitable for the fixed-income markets.
In anticipation of potential changes to the current MiFID II framework, the AFM has conducted an analysis of the fixed-income and derivatives markets focusing on the primary bond markets and the secondary fixed-income markets. The AFM’s recommendations include increasing the degree of standardisation in fixed-income instruments. The AFM notes that transparent price formation requires a financial instrument to be sufficiently liquid, which in turn means a certain degree of standardisation. Furthermore, the AFM points out that transparent and liquid bond markets are essential for efficient price formation for both issuers and investors. This makes it easier to issue new fixed-income instruments, which will ultimately lead to lower financing costs. According to the AFM, broadening the mix of available finance and reducing dependency on tailored bank loans fits within the philosophy of the Capital Markets Union.
Finally, the AFM notices a shift of trading in bonds and derivatives towards trading platforms. Especially trading in derivatives subject to the clearing obligation has moved to multilateral platforms. The AFM observes an increase in the use of electronic trading platforms in the fixed income markets, but at the same time the AFM notes that this has unfortunately not led to greater transparency in price formation, due to the low liquidity of most of these instruments.