The battle over bond market transparency highlights why securities regulators must do more to get input from investors.

The market for bonds has never been as clear as the market for equities, particularly for retail investors. Many brokers are captive to their firms when it comes to bonds, and find themselves powerless to get clients a good deal. Earlier this year, regulators proposed adopting added transparency requirements for the bond market. With a couple of notable exceptions, the vast majority of comments submitted on the issue suggests that most industry players think that is a bad idea. They worry that greater transparency could harm liquidity, that rules adopted to help retail investors could hurt the institutional business and that research to justify new requirements isn’t there.

These are all valid concerns and should be balanced against the interests of retail investors. However, the interests of retail investors are decidedly uncertain.

As usual, there is no comment from the retail investor. One survey is being carried out in an effort to get that perspective, although it is using retail brokers as a proxy for their clients — a welcome, but imperfect, effort.

The problem is retail investors aren’t organized, or funded, in a way that allows them to contribute to the policy debate; nor can they be expected to be, given their number and heterogeneity. It would be like expecting cats to herd themselves.

The result is regulators often find themselves imagining what investors want and taking a paternalistic approach to their rules. This can lead to regulations that impose too many unnecessary requirements on firms; and to regulators giving in to industry wishes because they haven’t heard from investors and have no idea what their real concerns are.

Both the industry and investors would benefit from more information. Issuing dense, legalistic rule proposals isn’t the way to get it. Whether regulators do more consumer research, initiate more inclusive consultations, or expand the Ontario Securities Commission’s Investor Advisory Committee to make it a more meaningful voice for investors, greater input from investors would help put the “fair” in fair and efficient markets.