IA and AFME agree share-dealing code to improve liquidity

The Investment Association and the Association of Financial Markets in Europe have created a new code of conduct for brokers to enhance deals transparency in a bid to help investment managers find the best prices in their share deals.

The new guidelines aim to make it easier for investment professionals to process large trading deals with a more predictable market impact.

The code, in particular, deals with ’Indications of Interest’ which are used by brokers to show their interest in buying or selling shares at a given price.

The IA and AFME believe a more standardised definition of IOIs will further improve transparency and consequently help investors find liquidity.            

IA chief executive Daniel Godfrey says: “The investment industry is taking a lead on improving the efficiency of equity capital markets. Our framework will limit potentially misleading market noise, allow investment managers to see where the real liquidity is and obtain the best price to the benefit of their clients.” 

The new framework will see IOIs labelled in two ways. ‘Client Natural’ IOIs are those that can be satisfied immediately and don’t have market impact, while ’Potential’ IOIs are those that may involve information leakage and have market impact.            

AFME chief executive Simon Lewis adds: “It is encouraging that there was such a strong consensus between the investment managers and brokers for a simplified approach that goes beyond any regulatory requirement. The new code of conduct will increase transparency in IOI categories and improve market discipline.”