This chapter compares the Swedish corporate market with selected European and non-European markets. It also discusses some of the regulatory aspects that affect the secondary corporate bond market and its functioning, such as transparency rules in trading and pricing.
The Swedish Corporate Bond Market and Bondholder Rights
OECD Capital Market Series
3. The Swedish corporate bond market in an international comparison
Abstract
To fully understand the developments that have taken place in the Swedish corporate bond market as it has grown, it is useful to consider it in an international context. This chapter provides a comparison of the Swedish market with a number of peer countries/regions with respect to both the primary and secondary markets.1 Note that the quantitative analysis in this section does not include real estate companies.
3.1. Market size and characteristics
Testament to the sharp growth in Swedish bond markets, since 2005 the share of debt securities in non‑financial companies’ total financial debt has grown faster in Sweden than in any of the peer regions shown below. Between 2005 and 2020, the share increased by 45% in Sweden, compared to 16% in the United Kingdom, 15% in the United States and 42% in the Euro Area (Figure 3.1, Panel A). However, as Panel B shows, this sharp increase comes from a comparatively low initial share, which remains substantially lower than those in the United States and the United Kingdom. In 2020, the share of debt securities in total financial debt for Swedish non-financial companies was 16%, compared to 13% in the Euro Area, 26% in the United Kingdom (2019) and as much as 65% in the United States.
Figure 3.1. Debt securities’ share in total financial debt
Note: Panel A shows the share of debt securities (long-term and short-term) in total debt financing (the sum of total loans and total debt securities) for non-financial companies. In Panel B, due to limited data availability the UK y-axis value is for 2019.
Source: ECB; Swedish Financial Accounts from Statistics Sweden (SCB); UK Office for National Statistics; US Federal Reserve.
In term of outstanding amounts, Sweden has the largest non-financial corporate bond market in the Nordics. At the end of 2021, the total outstanding amount was USD 77 billion, slightly higher than in Norway (USD 71 billion), and roughly three times those of Denmark (USD 28 billion) and Finland (USD 25 billion). However, it is still significantly smaller than certain European peers, notably the Netherlands, where the total outstanding amount is 6.6 times higher than that in Sweden (for reference, Dutch GDP is roughly 1.7 times higher than Sweden’s) (Figure 3.2, Panel A).
The Swedish market’s development over time differs from many of its peers. Panel B below shows how the number of issuers and median issue size have changed between the period 2010‑15 and 2016‑21 (averages for both periods). A movement upwards (downwards) indicates an increase (decrease) in the number of issuers, whereas a move to the left (right) indicates a decrease (increase) in the median issue size. Notably, Sweden has moved upwards to the left, almost doubling the number of unique issuers while decreasing the median issue size by more than 60%. As mentioned when discussing Figure 1.10, this shows how the market has expanded to include a larger number of smaller companies. In fact, in 2021 Sweden had about 1.5 times as many issuers as the (much larger) Dutch market. Norway has followed a similar trajectory. Contrarily, in the Netherlands both the number of issuers and the median issue size have increased. The Danish and Finnish markets remain limited in size, with no more than 8 and 13 issuers in 2021, respectively.
Figure 3.2. Non-financial corporate bond markets, international comparison
Source: OECD Capital Market Series dataset, Thomson Reuters Datastream, see Annex for details.
While the industry composition of corporate bond issuances in Sweden has changed substantially, as shown in Figure 1.12, the degree of concentration has not. As shown in Figure 3.3, while the dominant industry changed (from utilities to industrials) between 2000‑10 and 2011‑21, the share of the top industry in total issuance barely did (from 32% to 34%).2 This level of concentration places Sweden around the middle among its peers. Norway has the highest degree of concentration, with the energy sector representing 54% (57%) of total issuance in 2011‑21 (2000‑10). In the past decade, the country with the lowest industry concentration was the United States (consumer cyclicals, 18%), which has large and very active bond markets used by a wide array of industries (Panel B).
Figure 3.3. Industry concentration, total non-financial issuance
Source: OECD Capital Market Series dataset, Thomson Reuters Datastream, see Annex for details.
Looking at the share of the top ten issuers in total issuance offers another measure of market concentration as well as an indication of how the market has changed over time. Figure 3.4 below provides an international comparison of how that share changed in the decade from 2011 to 2021. Concentration (measured as the share of the top ten issuers) decreased in six out of the eight countries/regions shown below, by an average of 29%. Concentration increased marginally in the United States (although from a much lower level than its peers) and in Australia. In Sweden the decrease was as much as 48%, indicating how much the market has broadened in the past decade. The country has gone from having the second‑most concentrated market among the peers below in 2011 to the fourth least concentrated, after the United States, the United Kingdom and France.
Figure 3.4. Top ten issuers’ share in total issuance
Source: OECD Capital Market Series dataset, Thomson Reuters Datastream, see Annex for details.
Many companies are active internationally and have revenues in several different currencies, making foreign currency borrowing a useful tool for matching payments and revenues and reducing exchange rate risk exposure. It may also be a strategy for obtaining lower financing costs, as illustrated through the fact that between 2015 to 2017, when US and Euro Area interest rates diverged as the Federal Reserve began tightening monetarily policy while the ECB maintained an expansionary position, US companies issued record levels of euro-denominated debt (8% of total issuance during the period) (Çelik, Demirtaş and Isaksson, 2019[25]). Companies issuing exclusively in the domestic currency presumably do not have significant foreign operations, and may be known primarily by domestic investors. Panel A below shows the share of domestic currency issuance since 2010. The increase in domestic currency issuance in Sweden shown in Figure 1.6 is clearly visible. Unsurprisingly, companies in the United States (95% in 2021) and the EU (76%) predominantly finance themselves through domestic currencies, given their globally dominant currencies and the significant size of their internal markets. In 2021, 56% of Swedish non-financial bonds by amount were issued in the domestic currency, higher than companies in the UK (which issue significant amounts in both EUR and USD) and Australia (primarily USD).
Panel B shows the average (between 2010-21) foreign currency-denominated issuance as a multiple of the average domestic-currency issuance across countries. A higher multiple indicates a larger difference between average amounts raised in foreign currency and domestic currency. As expected, smaller countries (with smaller capital markets) show higher multiples, suggesting that companies that issue in foreign markets issue larger amounts compared to those issuing domestically. In Sweden, the average foreign-currency denominated bond is 3.8 times larger than the average SEK-denominated bond. In Norway, which has a smaller non-financial corporate bond market than Sweden but a set of very large companies (notably in the energy sector), the multiple is as high as 5.7x.
Figure 3.5. Foreign/domestic currency issuance across regions
Note: Foreign issuances within the EU could for example be an EU country outside of the euro zone issuing a bond in euros.
Source: OECD Capital Market Series dataset, Thomson Reuters Datastream, see Annex for details.
As discussed in Chapter 1 (and shown in Panel C of Figure 1.3), Sweden has a high share of bonds without credit ratings. As is evident from Figure 3.6, this is true also relative to peer countries. In terms of amounts, Sweden had the third highest share of unrated bonds among peers in the two decades from 2000 to 2021. At 19%, it is three times higher than the share in France and almost six times higher than the share in the Netherlands. The figures are similar when looking at the number of unrated bonds instead (which is generally higher since larger issues are more likely to have credit ratings). In addition, unrated issuers in Sweden include smaller companies as well as large well-known companies (Wollert, 2020[17]).
Figure 3.6. Share of unrated corporate bonds in total non-financial issuance, 2000‑21
Note: Refers to bonds not rated by either S&P, Moody’s or Fitch.
Source: OECD Capital Market Series dataset, Thomson Reuters Datastream, see Annex for details.
Issuing a bond involves a number of costs that can be significant to smaller companies. The issuance cost varies across regions. For example, in the United States the cost is estimated to be around 0.6% of the total proceeds, whereas in Europe the median cost is approximately 0.4% (OECD, 2017[26]). In addition to the more substantial fees paid to the underwriting bank and other advisors as well as the cost of obtaining a possible credit rating, if bonds are to be listed on an exchange, issuers must also pay listing fees. Table 3.1 below provides a comparison of the fees charged by the four most common exchanges used by Swedish non-financial companies that list their bonds: Nasdaq Stockholm, Luxembourg, London and Dublin (see also Figure 1.7). The figures are calculated for two different principal amounts, EUR 50 million and EUR 500 million, and assumes a five‑year maturity. All fees refer to the full five‑year period. Notably, the Stockholm exchange has no registration fees, only annual maintenance fees. The opposite model applies on the London Stock Exchange, which only charges fees at the time of listing but not afterwards. For both a smaller bond with a face value of EUR 50 million and a larger one of EUR 500 million, the Luxembourg exchange charges the lowest fees, although the differences are relatively marginal, especially compared to the London and Stockholm exchanges.
Table 3.1. Cost of listing a bond with maturity of five years, by exchange
Note: Assumes listing on the Standard/Regulated Tier of each market. Includes approval fees paid to regulators. Excludes VAT. Maturity is assumed to be five years, and costs refer to the full cost over that period. It is assumed that it is the issuer’s first bond listing – discounts are sometimes given for subsequent listings. For Euronext Dublin, approval fee includes: Euronext Document Fee and Central Bank of Ireland Document Fee, while listing fee refers to the formal notice fee.
Source: Nasdaq Stockholm, Bourse de Luxembourg, London Stock Exchange and Euronext Dublin.
As noted in Section 1.4, investment funds make up a substantial share of domestic ownership of Swedish corporate bonds. Figure 3.7 below shows that it is also higher than in peer countries, most notably Denmark, the Netherlands and France where levels are about one‑third of that in Sweden. That has financial stability implications, because investment funds, most notably open-ended ones, need to trade actively in the secondary market in response to fund in- and outflows. Open-ended corporate bond funds effectively offer short-term liquidity on the basis of mostly illiquid instruments. When the share of total ownership by such funds is high, it exposes the market to significant selling pressure in times of financial turmoil. The regulatory measures taken with respect to investment fund redemptions in response to the COVID‑19 crisis discussed under Section 1.8.1 seek to mitigate that risk. Contrarily, long-term investors such as pension funds and insurance companies trade in the secondary market to a much lesser extent, if at all, typically holding bonds to maturity. As also shown in the graph below, the share of such investors is low in Sweden compared to many peers. In the Netherlands, for example, the share is almost three times higher than in Sweden. However, while long-term investors tend to offer more stability, the tool through which they do so – holding until maturity – has detrimental impacts on secondary market liquidity. Nevertheless, the reverse is not necessarily true, i.e. having a large share of active investors in secondary market trading does not necessarily create more liquidity. If active secondary market investors’ demand is highly correlated (for example selling in a downturn in response to increased redemptions), the market will be one‑sided, with no beneficial effects on liquidity. Indeed, the fact that Sweden has a high share of investment fund investors does not seem to have had any significant positive impact on secondary market liquidity.
It is worth noting that increasing ownership of corporate bonds by open-ended funds is a Euro Area wide trend. Over the past ten years, their corporate bond holdings have increased two and a half times (AMF, 2022[27]).
Figure 3.7. Domestic ownership of non-financial corporate bonds by investor, end‑2021
Note: 2021 data are from ECB Financial Accounts, meaning there may be minor differences compared to Figure 1.13, showing detailed end‑2020 data from Statistics Sweden.
Source: ECB.
3.2. Transparency and disclosure rules for corporate bond trading
An important aspect of the functioning of a corporate bond market is the rules that apply with respect to transparency and disclosure. These affect the liquidity and price finding mechanism of the market as well as investor confidence. Transparency rules, when properly functioning, can also help regulators detect potential misconduct and unfair pricing. However, a fine balance needs to be struck to ensure adequate transparency without discouraging dealer intermediation, in particular for illiquid bonds. As discussed under Sections 1.8 and 2.2, the exceptions applicable for these reasons under the MiFIR/D II framework has actually led to a decrease in transparency in the Swedish bond market. In order to put the Swedish and European frameworks into context, this subsection offers an international comparison of how transparency and disclosure rules apply on other bond markets, notably in the United States.
Since different rules typically apply depending on the listing status of a bond, it is useful to first clarify the terminology used. Table 3.2 below provides a summary, in line with IOSCO (2017[28]). Note that, according to the IOSCO definitions, a bond that is only admitted to trading on a non-exchange trading venue such as an alternative trading system (ATS), an organised trading facility (OTF) or, most notably in Sweden, a multi-lateral trading facility (MTF), is considered unlisted, which thus differs from the national understanding of what it means to be “listed”.
There are substantial cross-country differences in transparency and reporting requirements, both in terms of design and application. In addition, there are differences with respect to pre‑ and post-trade transparency rules (as mentioned in Chapter 1, due to exceptions in MiFIR/D II, all investment firms trading in Swedish bonds are exempt from pre‑trade disclosure). For example, for regulatory reasons, most corporate bonds in the EU are listed, while trading is primarily done OTC. However, under MiFIR/D II transparency rules apply based on listing status rather than mode of trading, meaning that any trade – including OTC – in a listed bond is subject to the rules under the MiFIR/D II framework. In the United States and Canada, where most bonds are unlisted and traded OTC, there are elaborate transparency rules applicable to trading in these securities. Listed bonds usually have to comply with the rules set by the exchange on which they are listed (IOSCO, 2017[28]).
Table 3.2. Terminology – bond types
Source: IOSCO (2017[28]), Regulatory Reporting and Public Transparency in the Secondary Corporate Bond Markets, https://www.iosco.org/library/pubdocs/pdf/IOSCOPD578.pdf.
The United States has a particularly developed system for OTC trading called the Trade Reporting and Compliance Engine (TRACE), which has been in place since 2002. TRACE is operated by the Financial Industry Regulatory Authority (FINRA), a self-regulatory organisation authorised by the US Congress to oversee broker-dealer operations.3 All broker-dealer member firms are obliged to report OTC transactions in TRACE‑eligible securities under rules approved by the Securities and Exchange Commission (SEC) (FINRA, n.d.[29]). Through this system, prices and trade volumes are disseminated to market participants in near real time for OTC trading. In addition to intra-day data, the system also provides aggregate trading statistics (e.g. most active bonds, total volume traded, etc.) at the end of each day (at 19.00 Eastern Time). As discussed above, due to their specific characteristics, the impact of increased transparency on the liquidity of corporate bond markets is not entirely clear-cut. For this reason, TRACE was phased in gradually, allowing for a continuous study of its effect on liquidity. In the first years, the reporting window was successively shortened from 75 minutes after a transaction was completed, down to within 15 minutes since early January 2006. The scope of securities was also gradually expanded, initially including primarily large (USD 1 billion or above) bonds with high credit ratings. By early 2005, it had been expanded to cover 99% of all public transactions in eligible securities. After a transaction has been reported, it is immediately disseminated through TRACE. These data are then accessible through all major data vendors and to retail investors on the FINRA website (CFA Institute, 2011[30]).
Contrary to some expectations, TRACE has not lead to a greater concentration in dealers (see discussion on dealer incentives under section 1.80). Dealer activity has instead remained rather high and no significant detrimental effects on dealer-provided liquidity have been observed. More generally, a meta‑study of the effect of transparency on liquidity (including other markets and systems than the US and TRACE), found that a majority of studies indicated that higher transparency is at least somewhat beneficial (CFA Institute, 2011[30]). As discussed in Sections 1.8 and 2.2, despite the intentions of MiFIR/D II regulations to increase transparency in the corporate bond market, the exceptions included in have de facto led to less transparency. This experience is not unique to the Swedish market; in a late 2019 survey regarding MiFID II the International Capital Market Association (ICMA) found that a number of challenges remained to be addressed, most notably a continued lack of post-trade transparency even two years after the implementation of the new rules. The report also points out that certain rules on the primary market have led to greater administrative burdens for companies without much benefit, in particular the allocation justification recording (where firms providing placing services to issuers need to keep an audit trail, a non‑public written record of the justification for each investor allocation made). Several respondents also indicated that it is difficult to identify whether a counterparty is a systematic internaliser (SI), which is important to know since it has implications for the post-trade reporting requirements for OTC transactions. Finally, the report highlights the difficulty of accessing post-trade data published through Approved Publication Arrangements (APAs), and the fact that many respondent firms consider the vast majority of such data to be unusable due to low quality. However, it bears mentioning that while 60% of respondents in 2019 said price discovery had not improved following the implementation of MiFIR/D II, this was a decrease from 70% in 2018 and almost a third said it had improved somewhat. Further, the regulation has likely been a driver of the observed increase in electronic trade flows (ICMA, 2019[31]).
In order to contextualise the transparency and disclosure framework in Sweden and the EU, Table 3.3 below provides a comparison between the reporting delays applied under the MiFIR/D II framework and those that apply in a selected number of peer countries, drawing from a comparative study conducted by IOSCO (2017[28]). The table shows how the rules apply depending on 1) the trading venue (exchange, non‑exchange trading venue or OTC) and 2) whether disclosure is pre‑ or post-trading. Rules for listed and unlisted bonds (in line with the definition given in Table 3.2) are shown separately. Please refer to the notes for an explanation of the symbols used.
It should be noted that while the table shows that the EU rules require near real-time transparency both pre‑ and post-trade, the many exceptions applicable significantly affect how these rules work in practice, in particular in smaller markets where liquidity is low, as discussed in Sections 1.8 and 2.2. As the table illustrates, many jurisdictions make data available for listed bonds in real-time to the public only against a fee, releasing it for free after a delay (often 15‑20 minutes). Self-regulatory organisations (SROs) play an important role on many markets, notably in the United States (FINRA), Korea (KOIFA) and Canada (IIROC), as well as in Japan (JSDA, not shown above).
Before any trading takes places, an important part of the bond issuance process is the allocation of bonds. In order to find a consensus price, the lead manager(s) (the bank(s) mandated to manage the issuance process) will seek to gather a sufficiently large number of possible investors. Consequently, bond issues are often oversubscribed. In response to this, certain investors will inflate their orders so as to receive a larger share of bonds in the allocation process, to the detriment of investors that are constrained by internal rules forbidding them to place orders in excess of what they actually want to invest. The allocation is supposed to be carried out according to rules agreed with the issuer, and lead managers are to keep records of the process. However, the process tends to be less transparent for high-yield bonds (European Commission, 2017[32]). Under the European Union’s MiFIR/D II framework, firms providing placing services to issuers are obliged to keep an audit trail justifying each investor allocation.
Table 3.3. Regulatory reporting in selected jurisdictions
Note: For listed bonds, real-time data are often made available to the public against a fee. This is indicated by the ✓$ symbol. Cases where the information is available in real-time for a fee, but made publicly available for free after a certain time period are indicated by ✓$ (x min), where the brackets indicate the delay before information is made available for free.
* Australia has no alternative market license framework.
** Available in real time if the venue in question maintains an order book or displays quotations.
*** Displayed to users in real time if in an order book and otherwise displayed.
Source: IOSCO (2017[28]), Regulatory Reporting and Public Transparency in the Secondary Corporate Bond Markets, https://www.iosco.org/library/pubdocs/pdf/IOSCOPD578.pdf.
3.3. On-exchange secondary corporate bond markets
Secondary corporate bond trading normally takes place over-the‑counter (OTC). This is also true for Sweden, as discussed under Section 1.2. However, in some markets corporate bonds trade on-exchange. In order to provide an example of different trading models, which can help contextualise the OTC trading model, two such cases are presented here, the Israeli and Chilean markets.
3.3.1. The Israeli corporate bond market
In Israel, most corporate bonds are traded on the Tel Aviv Stock Exchange (TASE) rather than OTC. Corporate bonds listed on the exchange are traded in the same manner as other financial instruments such as stocks, and follow the exchange’s listing rules and information disclosure requirements. Some research has found that these features of the Israeli corporate bond market encourage retail investors4 to participate more actively in corporate bond trading and contribute to increased liquidity.
In addition to ordinary bonds, structured bonds, bonds that are paid in shares5 and hybrid bonds6 are listed and traded on TASE. Table 3.4 summarises the listing rules that companies must follow when listing their bonds on the exchange. A company’s post-listing equity shall not be less than NIS 24 million (USD 7.7 million), alternatively post-listing equity shall not be less than NIS 16 million (USD 5.1 million) subject to the issuer having a local bond rating of at least BBB- or Baa3 before the prospectus publication. However, companies can be exempted from these requirements by either having a local rating of A-, A3 or Baa3, or an international rating of BBB-. Companies are also exempted from the equity requirements if the value of the bonds series is at least NIS 200 million (USD 64.3 million) or if the company also trade its shares and the value of all traded securities is at least NIS 200 million. In addition, public holdings shall be at least NIS 36 million (USD 11.5 million) and a bond shall be held by at least 35 investors, each with at least NIS 200 000 (USD 64 300). Other detailed regulations, such as conditions for early redemption, are set forth in the TASE regulations (TASE, 2022[33])
Table 3.4. Summary of listing rules
Source: TASE (2022[33]), Company Guide, Listing of Securities for Trade, Regulations pursuant ot the second part of the TASE rules, https://info.tase.co.il/Eng/about_tase/rulesandregulations/Pages/Companies_L.aspx.
TASE has 24 members, consisting of banks and brokers, who can connect directly to the TASE trading system. An investor, i.e. TASE member clients, can submit orders online and check the status and the order book. Unlike OTC trading, the accessibility and transparency offered by the exchange allows retail investors with small investments to participate in the corporate bond market, which in most countries is accessible only to institutional and qualified investors. Trades are conducted from Sunday through Thursday, just as with shares. The phases of trading are pre‑opening, opening, continuous trading, pre‑closing, and the closing auction trading phase. TASE also has another platform, TASE UP, which is designed for private companies and does not include the requirement to publish a prospectus when listing securities. On TASE UP companies can list warrants, shares, bonds, convertible bonds and participation units. However, the market is dedicated to accredited and institutional investors.
In terms of market conditions, the number of companies issuing bonds listed on TASE as of end 2021 was 92 and the number of TASE UP companies was 21, for a total of 740 bonds traded on TASE and TASE UP. In 2021 alone, the number of bonds issued to the public was 244 (Table 3.5). Figure 3.8 shows the annual traded volume and the turnover ratio – measured as annual traded volume over market value at the end of the year – of corporate bonds traded on the TASE and on the TASE UP markets. Between 2007 and 2021, the annual traded volume on TASE averaged USD 60 billion. In 2021, the traded volume was USD 56 billion on‑exchange, compared to USD 1 billion off-exchange, meaning 98% of the volume traded of corporate bonds took place on-exchange in Israel. The turnover ratio has fluctuated around 50% over the analysed period, and stood at 42% in 2021. This level of liquidity is in line with other markets, such as the European Economic Area where the turnover ratio in 2020 was 46% (ESMA, 2021[16]). The figure also shows the liquidity of the TASE UP market. Since this market is dedicated to smaller companies, the issuance sizes are smaller and therefore the traded volume is relatively small when compared to the TASE market. In 2021 the traded volume in this market was USD 284 million, with a turnover ratio of 2.9% (TASE, 2022[34]).
The fact that most of the trading take place on the exchange increases both pre‑trade and post-trade transparency. Despite not showing significant differences in terms of liquidity compared to other markets, there may be large differences in terms of spreads. Evidence suggest that corporate bond spreads tend to be narrower in Israel compared to those in the US market. One possible explanation for this is the higher pre‑trade transparency on-exchange trading offers compared to OTC trading. Another factor driving lower spreads is the fact that corporate bond trading in Israel is not concentrated in a few brokers, but rather open to the public or directly offered to qualified investors. Notably, retail investors account for 8.8% of the double‑sided volume traded in Israel. In addition, the cost of trading on-exchange is low and the minimum denomination is also lower compared to other markets (Menachem Meni Abudym, 2018[35]).
Table 3.5. Indicators of the Israeli corporate bond market in 2021
Note: No. listed companies includes the companies that issue structured bonds. No. listed bonds includes TASE UP bonds and structured bonds.
Source: TASE (2022[36]), Trading Statistics, https://info.tase.co.il/Eng/Statistics/TradingStatistics.
Figure 3.8. The secondary market for corporate bonds in Israel
Source: TASE, IMF, U.S. Bureau of Labor Statistics.
3.3.2. The Chilean corporate bond market
In Chile, the corporate bond market is only accessible to qualified investors. However, contrary to most other corporate bond markets, in addition to OTC trading, bonds trade through the Santiago Stock Exchange (BCS) via two open systems. Instruments such as treasury bonds, central bank bonds, corporate bonds, bank bonds, mortgage notes, securitised bonds, commercial paper and certificates of deposit can be traded on these systems. The first system automatically matches buy and sell orders through a continuous order book (BCS, 2016[37]). This system, called TELERENTA, matches orders on a given instrument based on price and timing, giving priority to the lowest market-clearing price. The other one, also operated by the exchange, is a periodic English Auction system. This system operates in three phases: in the first one offered instruments are entered into the system, including quantity and interest rate; during the second phase buyers can select the instruments they want to invest in; and during the last phase investors submit their bids. This phase allows bidders to increase the price, in response to which the system automatically adjusts to the new price. While phase 3 is ongoing, new orders with a higher price can always be submitted. If another investor submits a bid offer at higher price, the current price is changed; if no one offers a higher price before the auction closes, the bidder at the current price wins the auction. Note that each offer is cleared at its specific closing price (differentiated price for each offer).
The Financial Market Commission (CMF) is the supervisory authority for securities issued and traded on the Chilean market. Corporate bond issuers have to register with the CMF and with the BCS for each bond. However, the information requested by the BCS will depend of the type of security and issuer. Issuers registered with the CMF whose corporate bonds are already traded on the exchange are required to submit the same information requested by the CMF for the registration process. Issuers are also required to submit on a continuous basis all the information requested by the regulator following the same deadlines. In addition, issuers must submit additional information requested by the stock exchange board (BCS, 2022[38]).
Figure 3.9 looks at the secondary market for fixed income in Chile and shows that there has been a downward trend in the traded volume, with on-exchange trading falling from USD 379 billion in 2019 to USD 207 billion in 2021. On‑exchange transactions make up the lion’s share of trading, accounting for 73% of all traded volume in 2021. Traded volume is not reported broken down by instrument type, so the reported traded volume includes not only corporate bonds but also other financial instruments such as treasury and central bank bonds. By the end of 2021 there were 168 companies with outstanding corporate bonds, up from 126 in 2017. The outstanding amount of corporate bonds in 2021 was USD 36 billion (BCS, 2021[39]).
Figure 3.9. The Chilean fixed-income market
Note: The data collected in Chilean Pesos were converted to USD and adjusted by 2021 US Consumer Price Index. Due to lack of disaggregated data, Panel B includes financial companies.
Source: BCS, CMF, IMF, U.S. Bureau of Labor Statistics.
The main investors in corporate bonds are pension funds and insurance companies (Miranda, 2018[40]). Looking at the actual holdings of corporate bonds (excluding bonds issued by banks), pension funds held approximately USD 12.3 billion in corporate bonds by the end of 2021 (SP, 2021[41]) and life insurance companies held another USD 21 billion by the end of 2020 (CMF, 2022[42]). Notably, pension funds in Chile are required to trade on the exchange, which has been a large driver of the development of on-exchange trading (IOSCO, 2011[43]).
Notes
← 1. Depending on their relevance to the particular area discussed as well as on data availability, the peer countries used for comparison may differ.
← 2. When including real estate companies in this analysis, that becomes the dominant sector in Sweden from 2011‑21, but the top issuer’s share in total issuance does not change much (35%). The top industry does not change for any other country.
← 3. FINRA was previously known as the National Association of Securities Dealers (NASD).
← 4. Menachem Meni Abudym, 2018, defined Retail Investor as a low-volume investor with less than NIS 2 million (USD 559 000) in all TASE securities excluding options. The same definition is used here.
← 5. A company whose shares are included in the TA‑125 index may decide, in the terms and conditions of its bonds, that the redemption and/or the interest payment may be paid in its shares in addition to cash.
← 6. Hybrid bonds are long-term bonds for which interest payments may be deferred by the issuing corporation for a period of up to six years without such action being treated as a default (TASE, 2019[44]).