Viewpoint | Luigi Campa Leveraging
Blackrock’s Aladdin Trading Networks and Goldman Sachs’ GSessions are only two of the latest trading venues that are entering the growing space of electronic bond trading. Since MiFID II will extend to non-equity financial instruments’ requirements for liquidity and transparency, the fixed income world has started to reshape. There is, however, one country in Europe
where the effects of MiFID’s first release in 2007 have already translated into an increase in competition amongst all kinds of bond trading venues (regulated exchanges, multilateral trading facilities, and systematic internalisers). “Best Execution rules did not affect that much the Italian equity space, but they surely did for fixed income asset classes”, says Campa. “Of course, there are historical reasons behind Italy being so evolved in the e-trading of bonds, the main one represented by the strong public debt”.
In fact in 1808, when the first stock exchange was set up by the Milan Chamber of Commerce, this was done not to permit the industry to have access to a different financing channel, but for ensuring a secondary market for public debt issues, so that until 1863 only government bonds were tradable.
“It is during these years that the roots of our public debt can be traced back – when Italy was
50
historical know-how
The e-trading of bonds in Italy has more than a 10 year history, but is quite new to the rest of Europe. Best Execution speaks to Luigi Campa, head of business strategy and development at EuroTLX, a leading European MTF for the e-trading of fixed income securities, to see what lessons can be learnt in light of the upcoming MiFID Review.
reunited in 1861, the decision to recognise all government bonds of those states that came together in the Italian Kingdom was taken in order to assure foreign investors about the credibility of the newborn state”, explains Campa. “Since then, the country has always relied upon borrowing, with public debt multiplying by 1,885 times within one century”.
Thus, Italian investors have historically been used to handling debt securities, and not only the ones issued by the government. The whole banking system relies on issuing fixed income instruments as a main means of funding. “Italian banks have the highest bonds / total collection ratio in Europe, around 40%, and these bonds are mainly sold to private investors, representing 32% of their total financial assets”, explains Campa. The result of this is a highly competitive fixed income environment. When MiFID came into force in November 2007, Italy’s decision to extend pre- and post-trade transparency requirements to bond securities didn’t come as a surprise. At that time, there were already two regulated exchanges, four MTFs, 330 alternative trading systems (which shrank to 18 systematic internalisers right after November 1, with the rest declaring to be non-systematic) and at least two different Smart Order Routers awarding those venues with the best conditions.
Best Execution | Autumn 2012
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