EuroMTS says it is planning to introduce yield spread and basis spread functionality, to support its cash and repo trading platforms.
Given the significant market share of turnover on the Telematico system together with the fact that EuroMTS benchmark bond prices are widely accepted as the reference market, EuroMTS is in a unique position to offer such a product.
The new spread trading system will allow for government securities to be traded against other government as well as non-government securities. Spreads will be quoted and traded as yield differentials. Upon execution of a trade, the system will calculate the price and quantity of each of the two legs of the spread, taking in real-time as reference the price of EuroMTS benchmark securities and using a duration based formula to ensure market risk free exposure. The spread trades executed on EuroMTS will therefore enjoy the maximum level of accuracy; as market exposure will be correctly limited to the relative movements in the yield curves of the relevant country or issuer.
The new functionality will also allow for fixed income securities to be traded against futures as basis trades. The exchange-traded futures to be traded for this purpose are Eurex’s German government bond futures and LIFFE’s Swapnote futures.
For German basis trades and Swapnote futures traded against Pfandbriefe, quasis and other eligible bonds, all trading will be blind as per the market standard.
EuroMTS is currently liaising with the relevant market committees in order to agree a set of transparent trading rules. Upon acceptance of functionality from this group of participants together with agreement of the rules by the official designated committees, the Spread System will be launched.
With the introduction of the Yield Spread and Basis Spread functionalities, EuroMTS extends its services further from the cash and repo markets, to provide participants with a comprehensive trading platform for fixed-income benchmarks.
Trading activity has significantly increased on EuroMTS as evidenced by the new record volumes. On June 14, 2002, the Repo Trading Facility of MTS markets reached a new daily record level of €65.024 billion, a 60% increase from the same period of last year. Overall MTS market volumes have surpassed the €85 billion mark, also on June 14.