| Eirik Winter | ||||||
The launch of Coredeal MTS may be seen by its founders and the banks that part-own it as the great white hope of liquidity and transparency in the European corporate bond market, but at the moment, its function is very limited.
The platform says it will offer two-way pricing on each of the corporates listed from at least five market-makers on tickets of e10 million. But at the moment, only euro-denominated transactions over e3 billion in size with two years remaining to maturity qualify for the platform, which means there are fewer than 10 companies listed on it (see chart) and GMAC and Ford are the only non-telco credits involved. The argument goes that smaller deals would not offer enough liquidity for market-makers to be able to make a commitment. But this means that to begin with at least, the platform can only aim to enhance liquidity in the telecoms sector, which is the largest and most liquid already.
| First corporate Coredeal MTS deals | ||
| Date | % | |
| France Telecom | Mar-04 | 5.75% |
| Olivetti | Jul-04 | 5.37% |
| GMAC | Feb-06 | 5.75% |
| British Telecom | Feb-06 | 6.13% |
| Telecom Italia (Sogerim) | Apr-06 | 6.13% |
| Deutsche Telecom | Mar-08 | 6.75% |
| France Telecom | Mar-08 | 6.75% |
| Vodafone | May-09 | 4.75% |
| Deutsche Telekom | Jul-11 | 6.63% |
| Ford | 14/2/2005 | |
| Source: Coredeal MTS | ||
EuroMTS has taken a minority stake in Coredeal, which is also owned by the International Securities Market Association (ISMA) and 11 participating banks: ABN Amro, BNP Paribas, Dresdner Bank, ING, Lehman Brothers, JPMorgan, Nomura, SG, UBS Warburg, Unibank and Morgan Stanley. Coredeal MTS says it will reduce annual participation fees and says it has received significant interest from other market-makers in joining the platform, but at the moment, key bond houses such as Schroder Salomon Smith Barney are absent from the list.
“Eventually, yes, we will be involved,” explains Eirik Winter, head of European corporate debt at SSSB. “They’ve had a lot of success with their government platform, so we will see how they go with the corporate credits. As we’ve been one of the key members of EuroMTS, it seems natural that we should look at the new platform at some point.”
For some time competition had seemed the name of the game among electronic bond trading platforms, but now Coredeal and EuroMTS have formed this strategic alliance, they could be a dominant force. Coredeal was going to go ahead with the platform alone, but abandoned software that it was going to use before linking up with EuroMTS and will now use EuroMTS’s existing Telematico trading system, which already processes an average of e45 billion in transaction volumes every day. Coredeal MTS hopes this will make it easier to access the platform, particularly for existing users of EuroMTS, and also cheaper.
Despite increased competition between electronic bond trading platforms, EuroMTS has successfully established a reputation as the benchmark pan-European system for the trading of large, liquid sovereign bond issues, as well as Pfandbriefe and Obligation Foncieres.
Yet the Telematico system has not been without its technical glitches in the past. EuroMTS was forced to suspend trading for a number of hours at the end of last year following problems with order confirmations.
EuroMTS’s chief executive, Gianluca Garbi, claims the Coredeal MTS platform will “change the face of the corporate bond market”. And bank participants claim that corporate deals listed on the platform will trade at tighter levels than they would elsewhere and that, as a result, corporates will begin to tailor their new issues to meet the platform’s listing criteria.
The corporates that are already listed are hopeful of the potential upsides of the platform, but hardly seem willing to tailor issues to meet the platform’s qualification requirements. One issuer said that although it is optimistic about the launch, Coredeal MTS is really just a bank deal in which it is a willing participant. Nevertheless, Ford’s latest e5 billion three-year deal led by UBS Warburg, BNP Paribas and Dresdner Kleinwort Wasserstein will be listed on the platform, which suggests participating banks have been selling the possible liquidity benefits to corporates planning new issues for some time.
The platform will start off with cash trading in euro-denominated issues and will embrace other currencies later, along with spread trading. The plan is to also bring more corporates onto the site, although a spokesman for the company says it is too early to say when this will happen: “We want to establish liquidity for the first set of corporate benchmarks. We will see how that goes before we extend this to other issuers.”
