IBM and the Societa Interbancaria per l'Automazione (SIA) are touting the success of the new electronic wholesale trading market for European benchmark bonds, EuroMTS. Owned by a group of member banks, the EuroMTS market is operated using IBM's central matching engine, Integrated Trading Software. SIA supplies the market's middleware software, end-user maintenance, market operation and help-desk support. The new market members include large banks in Germany, Italy and France with banks in Austria, Belgium and the Netherlands scheduled to begin trading bonds via EuroMTS at the end of August. Spanish banks are set to begin EuroMTS trading in September.
The members trade government issued benchmark bonds, which all other government bonds are priced against within a particular country. Membership to the EuroMTS market is currently limited to large banks with a significant amount of capital. Actively trading members, known as primary dealers, provide quotes on the bonds to buy and sell at certain prices, says Linda Zetterstrand, product manager at IBM exchanges and electronic markets unit. Zetterstrand explains that these dealers, "function as market makers to ensure that anyone willing to buy or sell that bond that someone is on the other side."
"During the first three months of operation, the EuroMTS system has had a daily turnover of about 16 billion Euros, which is very impressive," said Piet Van de Velde, global head of IBM exchanges and electronic markets unit. The EuroMTS market was modeled after the original SIA Italian bond trading market launched in 1992. IBM became the trading engine provider at that point, and has been developing new functionality and enhancements ever since to accommodate the conversion to the Euro system.
Zetterstrand says the Integrated Trading System software was upgraded for the EuroMTS to operate across markets in order to handle the multiple membership structure of the European market. "A group of members in a country may want to trade only their local domestic bonds while others may want to subscribe to the French or German market. This software handles those multiple market members," adds Zetterstrand. The system also allows for trade settlement in multiple locations, so members can determine which of the eligible settlement locations they can select for particular trades. She notes that IBM is currently working on more enhancements with SIA as members are finding needs for new functionality.
The volume of trading and new member countries joining the EuroMTS market system is indication, notes Van de Velde, "that this market has the potential to become a major Pan European bond trading system with even greater volumes." IBM trading software is being used not only in global bond markets, says Zetterstrand, but also in equities and derivatives markets. Zetterstrand also says that expanding from government bonds into other instruments on the EuroMTS market would not be a problem.
"One of the strengths we have for providing trading and matching engines is that we've been present in the whole of the securities cycle, with order routing and Internet order routing capabilities," Zetterstrand explains.