Just a few months after Borsa Italiana executed an option to buy cash bond platform MTS away from NYSE-Euronext, the platform is struggling to keep its lucrative franchise.
MTS changed the way European governments manage their debt, by restructuring debt for countries one nation at a time, and then centralizing all of the liquidity on its central order book. The platform’s value comes from the fact that many countries require their secondary bonds be traded on the MTS platform – a move designed to concentrate liquidity, which was a major goal of the restructuring.
In July, Borse boss Massimo Capuano canned the man who had built up MTS, Gianluca Garbi, and announced he would let hedge funds onto the MTS platform as part of his plan to build Italy into a center of hedge fund activity. It was a decision many say he had to take, as several European governments have spoken of easing MTS’s exclusive hold on their secondary bond markets, but market makers have been in revolt. Both the Belgian and Dutch governments say they will let rival platforms such as BrokerTec list their bonds in the future, while smaller countries like Portugal say they need the concentration of liquidity in one place.
Now Credit Suisse says it will stop making markets on MTS in protest of the hedge fund decision, which it says will open the market making system to abuse. MTS answers that hedge funds will have to follow strict rules of conduct.
