What is market transparency?

“Market transparency” has to do with the amount of information about the market that is available to market participants. Broadly speaking, “market transparency” can be broken down into two categories:

• pre-trade transparency - refers to information about the prices at which trades can be executed- i.e. the bid and offer prices and sizes (also known as volumes) in which market participants are willing to trade. Pre-trade prices can be indicative or firm.
• post-trade transparency - refers to information about the prices and volumes of trades that have already taken place.

All markets need a certain degree of trade transparency to function effectively and efficiently. Trade transparency allows market participants to make better, informed decisions. From an academic perspective, transparency can increase the efficiency of the price discovery process, stimulate more competitively priced quotes and possibly reduce transaction costs. However, markets can suffer if there is too much trade transparency and in some cases, even reduce participation in the market. The FSA has said, “transparency should be viewed as a facilitator of market efficiency and investor protection, not an end in itself. ‘Maximum’ transparency is not necessarily optimal.”

The amount of pre-trade and post-trade transparency available to market participants can vary significantly from market to market, both in terms of:

• the kind of information is available – there tends to be greater transparency in retail markets than in wholesale markets. Additionally, some markets such as equity markets tend to have much greater levels of both pre- and post-trade transparency than other markets such as bond markets and over the counter (“OTC”) derivative markets.
• how frequently it is made available - information can be made available on a real-time basis (i.e. it updates as dealing interest changes) or it can be made available on a delayed basis (i.e. some time after the trade has been executed).

For more information on why levels of market transparency vary in different markets, an explanation of the working of OTC markets and regulatory assessments of bond market transparency see additional pages in this section.
ICMA’s initiatives on transparency for retail investors and empirical research into bond market transparency can also be found in this section

Contact: John Serocold +44 20 7213 0313 for details of ICMA’s bond market transparency work programme.