European Primary Dealers Association (EPDA) issued a discussion paper warning that any change to the current structure of the Eurozone dealer markets on electronic trading platforms should not be implemented without extensive consultations with the industry at large, and in particular, the sovereign issuers of Euro zone debt.
EPDA believes that allowing third party access, in the form of order routing, would introduce external commercial pressure which may upset the delicate balance in the Euro zone government market.
If Primary dealers were put under commercial pressure to allow largely unregulated clients to route orders through, that could introduce risk into the system because such participants would not be incentivised to adhere to the rules in the same way as primary dealers.
Primary Dealers may not be in a position to exercise control over third parties as they would be squeezed between the commercial pressure of their prime brokerage business and the inability to regulate the activity of third parties trading in the Primary Dealer’s name. Lack of control could give rise to a potential misbehaviour by rogue traders.
Additional risk could be extremely disruptive to the Euro government bond market where sovereigns strive to issue debt at the lowest cost to their constituencies.
Mark Austen, Executive Director of the EPDA said 'An integrated European financial market must be subject to prudential safeguards and investor protection. In our opinion, any proposal should be made to the market with enough time to allow for a full and open discussion on its merits with all interested parties including issuers before such proposal may be implemented.'
Discussion paper
© EPDA - European Primary Dealers Association
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