Bond market ‘monopolists’ under fire

The European Commission is being urged to remove restrictions on the European government bond markets which are allegedly blocking innovation and costing investors millions of euros a year.

A new study, sponsored by securities dealer ICAP, which is trying to expand its bond-trading business in Europe, claims that government restrictions in eight EU countries are ensuring that MTS, a bond-trading platform owned by Euronext, the international securities trading group, has an effective monopoly in the trading of European cash government bonds. The report was written by Avinash Persaud, of Gresham College, London, a recognised authority on financial markets.

MTS fiercely rejected the ICAP claims saying that it had used electronic trading to drive down costs and pointing out that the research had been sponsored by a competitor.

Charlie McCreevy, the European commissioner for the internal market, is pushing hard for deeper cross-border integration in financial markets, so claims that individual states are protecting local bond markets are likely to be heard sympathetically. The issue has also been raised with the Commission’s competition department.

Presenting his findings in Brussels last week, Persaud pointed out that the Commission’s expert Giovannini Group had, in 2003, identified competitive restrictions on so-called primary dealers, banks that have exclusive rights to make non-competitive bids at or after government debt auctions, as one of the barriers to integration which should be removed.

A Commission report earlier this year on securities trading also questioned national restrictions placed on primary dealers.

Persaud said that the apparent depth of EU cash government bond markets was "illusory" and claimed that "the US government bond market significantly outperforms the European market by all measures of liquidity, cost-efficiency and volumes".

Persaud said that in eight EU countries, including Italy, Belgium and Portugal, government restrictions effectively require primary dealers to trade on national, Euronext-controlled, MTS trading platforms. This, he said, meant that MTS "maintains a market share of 71.9% of the electronic trading of cash government bonds".

The European Commission is being urged to remove restrictions on the European government bond markets which are allegedly blocking innovation and costing investors millions of euros a year.