November 2007


Bloomberg reports that the Bank of Korea are set to buy 1.5 tr won of govies (Korean)….wonder if they do it via Yahoo messenger as well?

Interesting article in the FT regarding the Grenwich Associates survey:

Euro currency is changing bond market

The top-3 of Deutsche Bank, Barclays Capital and JP Morgan corresponds with my Tier-1 of European e-Trading banks in May this year.

What the article fails to mention, re: BarCap’s growth, is the very good use of e-Trading in gaing this position. It is low margin but e-Trading IS the way to gain low margin market share, if that’s what you want to do.

From Dow Jones, the first dealer pulls out in protest against Hedgies and prop Houses potentially being allowed into MTS:
Credit Suisse Group decided to stop making markets in European government bonds on four trading platforms operated by MTS SpA, protesting MTS’s decision to open trading to hedge funds.

The Credit Suisse decision could pave the way for other banks to shift their bond market-making businesses away from MTS as platform requirements ease. Rivals include Bloomberg LP, Eurex Bonds, ICAP PLC’s BrokerTec platform and Espeed Inc., which is an affiliate of Cantor Fitzgerald LP.

The move comes at a sensitive time for MTS, which will face greater competition from these platforms next year when the Belgian and Dutch government debt agencies plan to relax their primary-dealer rules for the first time to allow banks to choose which platforms on which to make markets.

Some government debt agencies, such as in Belgium and the Netherlands, have required banks to trade on a platform run by MTS in order to centralize liquidity and make it easier to monitor dealer performance. Dealers have been lobbying European debt agencies for several years to be able to trade on the platform of their choice in order to create competition between them on fees and services. Some agencies are now responding.

Credit Suisse switched last month from operating on MTS France and MTS Spain as a price maker and became a price taker, according to Stanislas de Caumont, managing director of fixed income at Credit Suisse. The bank has switched to making a market in French bonds on BrokerTec and in Spanish bonds on Senaf, the local platform for Spanish debt, Mr. de Caumont said.

Credit Suisse also has told the Belgian and Dutch debt agencies as well as MTS Belgium and MTS Amsterdam that it intends to stop market making on those platforms when they allow dealers to choose their trading venue, he said.

Credit Suisse said Friday it was prompted to move its market-making business because of its opposition to MTS’s plans to allow nonbanking entities, such as hedge funds and proprietary trading firms, to trade on its EuroMTS benchmark euro-denominated bond-trading platform.

The bank, as with some other primary dealers, believes hedge funds could exploit the European market-making system. Mr. de Caumont said the funds aren’t interested in providing liquidity in the bond market by buying and selling bonds when counterparties need them to, but instead simply want to make money with high-frequency automated spread trading.

“Given MTS’s push to open its EuroMTS platform to hedge funds, we feel better fulfilling our quoting obligations on another platform that is restricted to primary dealers,” Mr. de Caumont said.

MTS said it is keen to work through banks’ concerns about the new market, which will be subject to rules that will prevent exploitative behavior. “Feedback from the banks is very important to us,” spokesman Boris Nadenic said. “We understand that they have questions, and we are working with the banks to structure a market that meets all participant needs.”

Tabb Group believe that the spend on low-latency technology is set to rise over the next three years. Not sure that is such a revelation, even in these troubled times.

GL Trade have bought a US provider of Fixed Income point-to-point services.

Interesting move, clearly they’ll have an eye on bond vs. futures basis trading.

Press release here from TW.

At the risk of being accused of beating up TW this week…………..why the hell has it taken so long to do this?

Why do I say this? Well, below are the positives and negatives.

Positive:
Project Fusion: having direct dealer ownership sures up liquidity in the face of the likes of LiquidityHub
– The no. 1 FI e-trading ECN
– Thomson-Reuters merger allows for greater resource access (esp. via Reuters salesforce in Asia and other EM’s)

Negative:
– lower volumes in Govt bonds, their bread and butter, due to the credit crunch
– these volumes are under further threat from Hedge Fund interest in joining MTS
– in over a year TW’s credit offering has failed to impact MarketAxess or Bloomberg
– despite the no. 1 status, TW’s functionality and architechture has failed to advance to any great degree and it is difficult to see this happening in 2008 (see next point). This ranges from the simple (market depth) to the more complex (API to accomodate algo trading)
– Thomson-Reuters merger means TW could get caught up in big firm bureacracy

Overall positive but not without a few things to watch out for.