Euroclear Bank on Thursday, November 17, ran a second swap between consenting primary dealers in Greek government bonds with a new model, which enables primary dealers to close out positions, both long and short, in a secure and electronic manner. The initial swap was conducted on October 26.
Euroclear Banks Swapbox model targets Greek debt primary dealers, who are faced with the fact that the anticipated move by the Greek Debt Office (PDMA) to exchange sovereign paper (as part of the private sector involvement (PSI) scheme) only targets long positions. As liquidity providers, primary dealers generally have long positions in some Greek sovereign paper, while also off-setting short positions in other Greek debt.
The Swapbox model sees Euroclear’s customised algorithms pair off short risk positions with long settled positions within buckets of securities of the same economic value between consenting Euroclear Bank participants. While the clients’ net exposure to such sovereign debt remains the same, Euroclear’s tailor-made service reduces the actual volumes of short positions in such Greek government paper.
The initial swap covered an aggregate volume in Greek government bonds worth EUR33 million comprising about 70 different tranches of Greek government debt. The second swap covered about 4 million, reflecting recent optimism following changes in the Greek government, said a Euroclear spokesperson. However we expect further demand since the PSI scheme is widely anticipated, he added.
Ivan Nicora, director and head of Fixed Income Product Management at Euroclear, stated: “In general, primary dealers have to run long and short positions in order to offer liquidity to the market. In this instance, liquidity in the traditional inter-bank market became increasingly scarce. Euroclear Bank, as a seasoned infrastructure service provider, has responded by setting up a solution which minimizes respective short positions while also further contributing to the orderly management of bond positions ahead of the Greek PSI exchange.”
(JDC)