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Delivering Liquidity and Efficiency to the Investor
Community in the Fixed Income Market
Osijek, 13 May 06
Benedict Traill – MTS Group
1
Introduction:
How has electronic trading brought efficiency and liquidity in the Fixed Income
Markets in Europe?
•
Electronic Trading Platforms have built pools of liquidity over the past 5 years
•
Banks have shifted market making onto electronic systems
•
MTS Group and BondVision: Electronic platform of Choice
•
Electronic trading has brought benefits to Dealers and Clients alike
2
Why have electronic trading platforms built pools of liquidity over the past 5 years?
Electronic trading offers:
•
Liquidity & Transparency:
an asset class with consistent and transparent
pricing can attract new groups of investors
and increase overall turnover as the need to “shop
around” for prices is eliminated, creating market
confidence
•
Distribution:
maximising access to the number of counterparties is
convenient and cost efficient when delivering liquidity
•
Straight-through-processing:
elimination of errors due to mismatching or late
instructing, the simplification and automation of back
office procedures and the zero rate of fail due to
mismatching – these all bring significant cost savings
•
Access:
electronic trading offers the same advantages
to all, whereas traditional voice brokerage is
more likely to favour larger accounts
3
Why have Banks have shifted liquidity provision onto electronic systems?
•
Real-time, tradable liquidity:
helps create a consistent smooth bond curve; in the
medium term dampens the adverse effects of
illiquidity on bond yields
•
Flows visibility:
the market maker can monitor in real time if issues
are getting cheaper/richer because of market flows
•
Client Reach:
salesforce can now reach a much broader client
base globally
•
Sales force priorities:
electronic distribution frees the salesforce from
executing low margin business so that that it can
focus on higher margin areas & on giving valuable
feedback to clients
•
Analysis:
sales, traders, and the bank’s management have a
better way to measure the quality of market making
activity and the nature of client activity
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The Electronic System of Choice: MTS Group
MTS Inter-Dealer
Market
Trading Volumes –
EUR 80 billion daily
(Cash & Repo) via MTS
Liquidity –
70% Electronic
Interdealer Mkt via MTS
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MTS: Europe’s leading electronic government bond market
From local market to pan-European platform
EuroMTS
inception
MTS S.p.a.
privatisation
1998
MTS
Portugal
MTS France
MTS Belgium
1999
2000
MTS
Amsterdam
MTS - Highlights
•
Largest fixed income cash market in
terms of number of participants,
geographic reach, and turnover
•
First exchange with presence in all
EMU countries
MTS
Deutschland
MTS Finland, Spain
and Ireland
2001
2002
Merger MTS
Spa - EuroMTS
MTS
Greece
2003
MTS Denmark
MTS Austria
MTS Poland
NewEuroMTS
2004
2005
EuroMTS Global
Geographic presence
21 markets with
participants from 19
countries
690 participants
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The Electronic System of Choice: MTS Group
MTS Liquidity Providers : all European Primary Dealers
ABN AMRO BANK (POLSKA) S.A.
ABN-AMRO BANK NV LONDON
AIB CAPITAL MARKETS
ALPHA BANK
B. SANTANDER CENTRAL HISPANOSA
B.BILBAO VIZCAYA ARGENTARIA SA
BANC OF AMERICA SEC.LTD
BANCA AKROS S.p.A.
BANCA CABOTO S.p.A.
BANCA IMI
BANCA FIDEURAM
BANCA LOMBARDA S.p.A.
BANCA MEDIOLANUM S.p.A.
BANCA NAZIONALE DEL LAVORO
BANCA POPOLARE DI LODI
BANCA POPOLARE DI SONDRIO
BANCA SELLA
BANCO COMERCIAL PORTUGUES INVE
BANCO DI SARDEGNA
BANCO ESPIRITO SANTO S.A.
BANK BPH S.A.
BANK GOSPODARKI ZYWNOSCIOW. SA
BANK HANDLOWY W WARSZAWIE SA
BANK MILLENNIUM S.A.
BANK PEKAO S.A.
BARCLAYS BANK PLC
BAYERISCHE LANDESBANK
BAYERISCHE-HYPOVEREINSBANK AG
BHF-BANK A.G.
BNP PARIBAS SA
BRE BANK S.A.
C.R. DI FIRENZE S.p.A.
CAIXA GERAL DE DEPOSITOS SA
CALYON
CAPITALIA SPA
CITIGROUP GLOBAL MARKETS
COMMERZBANK AG
CREDIT SUISSE FIRST BOSTON
DANSKE BANK
DAVY STOCKBROKERS
DEUTSCHE BANK AG
DEUTSCHE BANK POLSKA S.A.
DEXIA BANK BELGIUM
DRESDNER BANK AG
DZ BANK AG
EFG EUROBANK ERGASIAS SA
FIONIA BANK
FORTIS BANK NV-SA
GOLDMAN SACHS INTERNAT.
HELABA HESSEN-THURINGEN
HSBC - CCF
HSH NORDBANK
ICCREA BANCA SPA
ING BANK
ING BANK SLASKI S.A.
IXIS CORPORATE AND INVEST. B
JP MORGAN SECURITIES LTD
KBC BANK NV
KREDYT BANK S.A.
LA CAIXA
LANDESBANK BADEN-WURTTEMBERG
LEHMAN BROTHERS INTERNAT. LTD
MCC SPA
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY INT LTD
MPS FINANCE BANCA MOBILIARE
NATEXIS BANQUE POPULAIRE
NATIONAL BANK OF GREECE
NOMURA INTERNATIONAL PLC
NORDDEUTSCHE LANDESBANK
NORDEA BANK DANMARK A/S
NYKREDIT
OKO BANK
PIRAEUS BANK S.A.
PKO BANK POLSKI S.A.
RABOBANK INTERNATIONAL
RAIFFEISEN BANK POLSKA S.A.
ROYAL BANK OF SCOTLAND PLC
SEB AG
SOCIETE GENERALE S.A.
SOCIETE GENERALE SA O W POLSCE
SVENSKA HANDELSBANKEN
SYDBANK SA
UBS LIMITED
UNICREDIT BANCA MOBILIARE SPA
WESTDEUTSCHE LANDESBANK
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Why is MTS the system of choice for Banks & Clients?
•
Corporate Structure
–
–
•
Governance
–
–
•
International ownerships between Euronext-LIFFE with Banking community
Banks are stakeholders in the business, resulting that there is market representation in
the decision making process of the Company.
Participation in the governance structure establishing and tailoring of rules to suit local
market needs and circumstances eg) benchmark size
Governance of each market is handed over to the local banking community
Network and Economies of Scale
–
–
–
Dealers can leverage on the technology already in use for the MTS markets allowing for
economies of scale at the front and back office level
Result is that new MTS markets can be established within 3-6 months whilst minimising
the cost for market participants who act as partners in the new venture
Dealers can access Cash, Repo and Derivative markets through a single network
•
•
Euronext can encourage its unparalleled pan-European and international network of participants
(782 on derivatives and 286 on cash markets) to trade more on MTS and BondVision
Euronext.Liffe’s and GL Trade’s international networks, in particular in North Amercia and Asia
(where Euronext also has a hub in Singapore); can provide additional connectivity points to global
investors
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Why is MTS the system of choice for Banks & Clients?
•
Cost
Increase trading efficiency and reduced costs for members
–
Brokerage Fees:
–
Custody Fees:
–
Middle/Back Office Savings:
•
Since 1998 the cost per million traded in the market has
dropped by around 98%
3-5 euros per million cost per trade vs 7-12 euros for
non-MTS trades and from 15+ euros for OTC
Full straight-through processing (STP)
Liquidity
–
–
The opportunity to rapidly build and unwind a position in a tradable instrument with
minumum impact on its price
Liquidity is positively correlated to:

•
Tightness of bid/offer spread; Size quoted; Size issued; Depth of market; Speed of execution; Traded
volume
Transparency
–
–
Real-time distribution of tradable prices to direct participants
Provision of price discovery to investors via quote vendors (Reuters, BBG etc)
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Achievements of the Platform in EU and beyond
2500
60
Launch of
NewEuroMTS
50
2000
40
Volumes
1500
30
1000
20
500
10
0
0
Mar-06
Feb-06
Jan-06
Dec-05
Nov-05
Oct-05
Sep-05
Aug-05
Jul-05
Jun-05
May-05
Apr-05
Mar-05
Feb-05
Jan-05
Dec-04
Nov-04
Oct-04
Sep-04
Aug-04
Jul-04
Jun-04
May-04
Apr-04
Mar-04
Feb-04
Jan-04
Dec-03
Nov-03
Oct-03
Sep-03
Aug-03
Jul-03
Jun-03
May-03
Apr-03
Mar-03
Feb-03
Jan-03
Dec-02
Nov-02
Oct-02
Sep-02
Aug-02
Jul-02
Jun-02
May-02
Apr-02
Mar-02
Feb-02
Jan-02
Date
NewEuroMTS Turnover
Czech Republic 4,125% 2020
Czech Republic 4,625% 2014
Poland 3,625% 2016
Poland 3,875% 2009
Poland 4,200% 2020
Rep. of Hungary 3,500% 2016
Rep. of Hungary 4,000% 2010
Rep. of Hungary 4,375% 2009
Rep. of Hungary 4,500% 2013
Rep. of Hungary 4,500% 2014
Rep. of Hungary 5,625% 2011
Rep. of Lithuania 4,50% 2013
Slovak Republic 4,5% 2014
Slovak Republic 7,375% 2010
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Bid Offer Spread (Ticks)
NewEuroMTS
Turnover
Universal Model: Extension to Local Currency Markets
Evolution of MTS Poland Volumes since Launch
25000
Volumes
20000
15000
10000
5000
0
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Date
CASE STUDY OF MTS POLAND
•
•
Growth in Liquidity as International participants joined the marketplace
Exceptional volume growth of 400% since launch of the market.
•
This has helped with the integration of Local financial community with EU market and the
internationalisation of the debt market
•
Since inception in Nov 2004, 88% of business has been transacted by locally-based liquidity
providers.
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 Model to be extended with launch of MTS Israel in July 2006
How can Clients access the MTS Liquidity?
BONDVISION:
•
Multi Dealer-to-Client Market powered by MTS, the leading e-trading platform in Europe
•
Regulated Market with a European Passport (4 June 2001) - MiFiD
•
Liquidity providers connect Using Existing Telematico (MTS) Infrastructure: full integration
with the Inter-dealer Market
•
Clients Connect via light and user-friendly technology across the public Internet or VPN
•
Fast growing Market (2006: +50% year on year in volumes activity Q1 06 vs Q1 05)
•
284 clients connected, 35 Liquidity Providers
•
Complete array of Fixed Income products available for trading
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BondVision Overview – Products Available
€ Sovereign
Bonds
Covered Bonds
Central Europe
Issues , Benchmark
Off the Run, Indexlinked,
Fixed/Floating,
Principals (BTP,
OAT, OLOs), T-Bills
1 bn + Issues
EUR, USD and local
currencies
Germany
Jumbo Pfandbriefe
Poland (EUR, USD,
EIB (EARNS
France
Obligations Foncières
PLN)
Prog.)
Italy
Cedulas Hipotecarias
Hungary (EUR, HUF)
Länder
Spain
Irish Cov Bonds
Czech (CZK)
KfW
ETF (based on
(ACS)
Bulgaria (EUR, USD)
Freddie Mac €
EuroMTS Index)
UK Cov Bonds
Croatia (EUR)
CADES
ABS (Italy)
Latvia (EUR)
CRH
Finnish covered
Lithuania (EUR)
ERAP
bonds
Romania (EUR)
UNEDIC
Dutch covered bonds
Slovakia (EUR, SKK)
Portugal
Austria
Ireland
Greece
Netherlands
Belgium
Slovenia (EUR)
Finland
Ukraine (EUR, USD)
EUR Agencies
Corporate
Bonds
Others
Investment grade
Min. Outst. € 0.5bn
Min. Maturity > 1 yr
over 700 issues
UK Gilts
Denmark (DKK)
US Treasuries
Cyprus (EUR)
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What advantages does BondVision bring to Clients?
LIQUIDITY PROVISION
•
Investors can access largest dealer panel – blend of global houses and regional specialistsand trade the largest available list of securities
•
MTS Dealers guarantee full commitment to Euro sovereigns ( incl. Fixed, Indexed, Zeros &
short dated) as well as US Treasuries, Gilts, Central and Eastern European bonds
(International and Local currency) within one trading platform
•
Possibility to set pre-set alert trading levels for clients
REGULATORY
•
BondVision satisfies both regulatory (ISD passport) and compliance needs (proof of best
execution) of Clients.

•
Client now has the electronic trail to prove the transaction was traded at the best possible level
BondVision enhances the automation of the process portfolio strategy and trading
orders/execution/post-trading which is becoming a key factor for the rating agencies view of
portfolios.
COST
•
FREE to investors. Also post trading functionalities and efficiency allows further cost savings
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What efficiency and liquidity does Electronic trading
bring to the marketplace?
CONCLUSION:
ENHANCED LIQUIDITY:
-
Liquidity and the availability of pricing on a wide variety of products established together
with tools to access this liquidity
Constant ability to trade provides comfort to investors to deal, which can grow the size
of the overall market
Better price dissemination and more efficient matching on bonds including illiquid
securities
REGULATORY BENEFITS:
-
Practice of best execution introduced in Europe has speeded up the transition to
electronic distribution of plain vanilla products
IMPROVED EFFICIENCY:
-
Possibility for customer to compare prices (for the full size of the order) from a number of
counterparties
Size and Scope of Trading network provides wide counterparty selection
Cost Savings : Brokerage & Settlement Costs
Straight Through Processing
Availability of statistics for Quantitative analysis
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