The Canadian Securities Administrators are proposing changes to the trading rules that would enhance transparency in the bond market, among other things.

The CSA are proposing a phased-in approach for adding transparency to government bond markets. Under the proposed changes, marketplaces and inter-dealer brokers would be required to report order and trade information for designated benchmark government debt securities to an information processor.

It notes that CanPX’s approval as the information processor for the debt markets expires on December 31. “To the extent that transparency of more debt securities, including government debt securities, is phased in, the importance of having a robust system increases. While we will be considering extending CanPX’s approval, we are publishing with this notice a separate notice to invite other entities that are positioned for the role to apply,” it says. In a separate notice, the CSA also requests that interested parties apply to be chosen as an information processor for equity securities.

Under the proposed system, order information would be reported in real time and trade information within one hour from the time of the trade. The information displayed would be subject to volume caps of $10 million for fixed income securities issued or guaranteed by the government of Canada, and $2 million for all other government debt securities.

“This approach, consistent with that currently taken by dealers trading in corporate debt securities, would allow for a phased-in approach for transparency as information would be reported for designated government debt securities and would be disseminated subject to volume caps. The number of benchmark securities and the size of the volume caps could change over time,” it explains. “This would give the industry time to adapt and assess the impact of transparency.”

The CSA adds that it also believes that mandating transparency for benchmark government debt securities may have a beneficial “spill-over” effect for other government debt securities and would eventually lead to greater overall transparency.

The current transparency requirements for corporate fixed income securities are different than those for government debt securities. The CSA is not proposing changes here. “Specifically, marketplaces, IDBs and dealers would continue to be required to provide post-trade information regarding designated corporate debt securities to an information processor, subject to volume caps (within one hour of the trade),” it says.

The regulators say they expect that, for government bonds, the information processor would designate securities representative of the government fixed income market, as CanPX does for corporate bonds. It seeks comment on how well that process is working.

It also addresses the question of Electronic Audit Trail Requirements. The CSA says that some data modeling into building a TREATS facility remains to be done. It expects to complete the preliminary work by September. After it is completed, it is expected that a cost benefit analysis will be done. The decision whether to proceed with building the facility will depend upon the results of the data modeling and the cost benefit analysis. This decision will likely take place in the fall of 2006, however, the timelines and steps may change, the CSA allows.

The CSA also aims to clarify best execution obligations in a world of multiple markets. It says, “we expect that a dealer will take into account order information from all marketplaces where a particular security is traded (not just marketplaces where a dealer is a participant) and take steps to access orders, as appropriate. This may include making arrangements with another dealer who is a participant of a particular marketplace or routing an order to a particular marketplace, where appropriate.”

Comments are due by October 12.