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Capital Markets

Sovereign Debt: Debt trading to open up under DMO plan

Dramatic change ahead for quoting obligations and multiple trading platforms in sovereigns market.

Europe’s debt management offices are set to put in place a new mechanism for monitoring their primary dealers’ performance in meeting quotation obligations. The European Primary Dealers Association meeting that takes place on October 24 is likely to see market participants approve proposals discreetly made in May by Belgium, Denmark, Finland and the Netherlands that seek to reconcile the DMOs’ objectives of monitoring their primary dealers’ market-making obligations with supporting competition among electronic trading platforms.

DMOs use the EuroMTS platform to measure the performance of their primary dealers. Before the euro was introduced, the smaller European sovereigns’ debt was marginalized to a large extent because dealers concentrated on trading the larger markets such as Germany, France and Italy. So these peripheral countries embraced MTS – which was the first platform to give them the ability to check on quotation obligations electronically. They made secondary market-making commitments on the trading platform part and parcel of score cards used to evaluate overall primary dealership performances. Scoring well is essential to winning the bond mandates that pay fees and boost new-issue league table positions.

But this arrangement has raised the ire of other platform players that have complained that it effectively amounts to unfair competitive practices.

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