BrokerTec, a unit of leading financial derivatives firm CME Group, will launch a market-making programme on Nov. 1 for EU recovery fund bonds, a top executive told Reuters, in a move aimed at boosting transaction flows in the fast-growing debt programme.
Building liquidity in the bonds, which are being issued to finance the European Union's effort to aid member states' post-pandemic economic recovery, will likely help secure lower borrowing costs, thus saving taxpayers money.
The EU has transformed its bond market in the past year by issuing more than 150 billion euros ($163 billion) of debt, including over 60 billion euros towards the recovery fund.
The BrokerTec programme, created on its own initiative, will require participating banks, which act as dealers for the EU debt, to commit to trading obligations similar to those the bloc's governments require from their primary dealers, its global head John Edwards told Reuters.
These usually include a commitment to quote minimum amounts of the bonds for a certain period of time each day, at tight bid-offer spreads, to maximize liquidity.
BrokerTec will require dealers to quote the bonds for four hours a day in a minimum size of 5 million euros and at a pre-set bid-ask spread range, Edwards said.
Though participation in BrokerTec's programme is voluntary, by imposing similar requirements on those who do take part it will bring the EU, which aspires to become a leading debt issuer, further into line with sovereign borrowers.
Edwards said much of the trading in EU bonds so far has taken place between dealers and investors, rather than directly between primary dealers.
"If the dealer community is aware that there is a more liquid active market that they can access, this helps to support better pricing to customers as a result of that," Edwards said.
To incentivize participation, dealers will receive rebates from the fees they pay to trade on BrokerTec, he added.
BrokerTec isn't the only platform eyeing the EU's secondary market. Euronext's MTS platform is in talks with the EU for a similar initiative, while Deutsche Boerse's Eurex derivatives exchange is exploring launching futures contracts to trade the bonds.
BrokerTec and Eurex have also launched initiatives to further repo trading in EU bonds, enabling investors to borrow and lend the securities more easily.
(Reporting by Yoruk Bahceli; Editing by Sujata Rao and Jan Harvey) ((Yoruk.Bahceli@thomsonreuters.com; +44 20 7542 7571; Reuters Messaging: firstname.lastname@example.org))