Electronic trading Country case: Hungary

Transcription

1 Electronic trading Country case: Hungary Zsolt Bangó Head of Treasury Department World Bank Government Bond Market Conference March, 2014 Bucharest, Romania 1

2 Former set-up Marketing making obligation performed via MMTS trading system operated by Budapest Stock Exchange MMTS system was designed for equity trading in the mid 90s, thus it was not able to support fixed-income products completely Still, in the late 90s it was an important market development step to channel the market making obligation of PDs into an organized electronic trading facility Nevertheless, it was not able to reflect real market developments in critical market situations (e.g. in Oct.-Nov. 2008) Liquidity of the system was negligible 2 X 1.5 hours daily quoting obligation for fixed minimum amounts & maximum spreads ( & ) The system was not flexible enough to support efficient market making 2

3 Current infrastructure MTS Hungary Launched in January 2012 Operated by MTS, division of EuroMTS Dedicated platform for performing market making obligation of PDs Government Securities are listed on the Budapest Stock Exchange, but MTS Hungary is the only one eligible platform for PD s market making Market participants: exclusively PDs Benefiting from liquidity provided by PDs is a critical issue Market rules are in line with Primary Dealer contract Market Committee Members: AKK, MTS & each PD MTS Hungary is not a regulated market! 3

4 Experiences Long lasting opposition of PDs First discussions with EuroMTS in 2003, final agreement among MTS, AKK & PDs only in Cost considerations Easier access for remote banks After the decision in place smooth implementation process: less than half a year Easy to join, not an issue of the PD accession (as oppose to Stock Exchange membership) Now, full support of PDs More liquidity, deeper order books, increased volumes Continuous price quotation and compliance even in difficult market situations (e.g. early 2012, June-July 2013, January 2014) But still far from OTC volumes 4

5 Market making obligation Primary dealers obligation, set in the PD Agreement (Agency Contract) Only MTS Hungary is available to meet market making obligation PDs are assigned as follows: Benchmark bonds: each Primary Dealer Off-the-run bonds: 6 Primary Dealers T-Bills: 3 Primary Dealers Altogether cca. 8-9 bonds & T-bills per PDs are assigned to quote Allocation of the new bonds are announced on the day before the first auction day List of market makers are published on AKK s website ( 5

6 Market making rules Mandatory quotation period: 9:00 9:15 a.m. Morning fixing 1:45 2:00 p.m. Afternoon fixing, benchmark fixing, calculation of benchmark benchmark indices Discretionary quotation period: 5 hours per day between 9:00 a.m. and 4:45 p.m. Predefined minimum amount and maximum spread Benchmark bonds & T-Bills HUF 500M (~EUR 1.6M); 20bps in yield Off-the-run bonds & T-Bills HUF 300M (~EUR 1M) ; 35bps in yield 6

7 Market making supervision Daily activity riport sent by MTS to AKK the next morning Available on the password protected dedicated site of MTS (www. mtsmarkets.com) Monthly evaluation of market making compliance Gradual system of penalties under the Agency Contract 1st level: penalty points 2nd level: penalty charge (HUF 500K =~EUR1.600); 3rd level: penalty charge (additional HUF 500K =~EUR1.600) & 2 weeks suspension of right to participate in the auctions) 4th level: exlusion of PD system; i.e. immediate termination of the Agency Contract 7

8 Post-trade functionalities Settlement performed by the local clearing house (KELER) KELER acts as a Central Counterparty Complete automated settlement network Direct link to KELER Automatic trade registration Settlement instructions are automatically created and sent via Swift in real-time by MTS to KELER on behalf of the seller and buyer Participants must be members of KELER and KELER CCP directly or indirectly One account per participant is allowed Settlement cycle T+2 Settlement calendar: Hungarian national holidays & TARGET holidays 8

9 Settlement framework Seller MTS Hungary Trades Buyer Real time Real time Seller GCM Real time Copy message MTS-PSE: Real Time Calculation of settlement values- Real Time Creation and transmission of settlement messages Real time Copy message Buyer GCM KELER GCM = general clearing member (not all PDs) Source: EuroMTS 9

10 Future plans Creating even more incentive environment for secondary market activity More emphasis on quality of market making Additional non-competitive purchasing facility based on relative performance Tighter spreads are rewarded More weight in the Best PD of the Year award Better position when lead managers of EUR & USD transaction are mandated or swap partners are shortlisted Real-time data vending Currently strong opposition of PDs 10

11 Current list of market makers 11