Blogs & Comment

A central exchange for bond trading

FAIR Canada (Canadian Foundation for Advancement of Investor Rights) recently released the July issue of its newsletter. The lead feature calls for a transparent bond market.
Bonds are currently bought and sold over-the-counter (OTC), mainly through the desks of the six big banks. No explicit commissions are charged; they are embedded in the bid-ask spreads. But those implicit commissions are not alwayseasy to assess– which presents opportunities for gouging.
A central exchange, as exists for stocks, may be better. The bid-ask spreads will be clearly visible; investors will know what it exactly costs to buy and sell bonds.
Moreover, its possible the rather large bid-ask spreads that presently exist may come down through greater awareness and competition from other providers. Greater transparency may also invite greater participation, and, in turn, generate the kind of liquidity that can help reduce the spreads, says FAIR.