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Four years ago, the head of the investment industry's self-regulator said that a plan to create surveillance to protect fixed income investors was a priority. At last, the final step needed to make that happen appears to be here.

The regulator has been taking things in bites. First, in 2009, there was a demand for better disclosure of what people were paying banks and securities firms to trade debt. Then, in 2011, a rule demanding that all securities firms "ensure clients received fair prices on debt transactions."

The fact that such a rule was even necessary tells you something about the state of pricing in the debt market. With no central market or detailed reporting, there was a lot of wiggle room for firms to quote prices far from the real market. It was buyer beware.

But even with a rule, effective surveillance is the only way to make sure people follow it. Otherwise, you have a highway with posted speed limits but no cops.

So now, the Investment Industry Regulatory Organization of Canada is amping up trade reporting requirements to create something at least resembling the kind of surveillance that has long been there in equity markets, where a computer system watches every trade to ensure investors are getting the best available price at any given point.

The new rule will require securities dealers to report every trade, once it's done. IIROC will use that to build a database that is the start of a real surveillance mechanism. It's still not the real-time computerized flagging of trades that aren't done at the best possible price, but it's perhaps the biggest step yet toward that happening.

The rule now goes out for comment. There's every chance that fixed income traders will try to stand in the way of more transparency.

They should not. Banks should do their best to put their customers first and support the regulator in making this system work.

More sunlight on bond trading may mean smaller margins on individual transactions, but if investors are more confident that they aren't going to be hosed when buying a bond, volumes should make up for that.

(Boyd Erman is a Globe and Mail Capital Markets Reporter & Streetwise Columnist.)

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