Earlier this year, DG Competition had sent a questionnaire and information requests to debt management offices (DMOs) in the eurozone and the UK amid concerns that the restrictions applied to traders in government debt were limiting competition. 

But movements by some governments – most significantly in Belgium and the Netherlands – to go beyond a single platform to a multi-platform model seem to have satisfied the commission that market-led solutions are under way and a formal probe into the sector is not necessary.

The commission was looking into the exact way governments make their debt available, usually to a specified group of banks – known as “primary dealers” – who are then obliged to trade the debt over a designated platform. The rules for becoming a primary dealer can be stringent and may limit the secondary market. 

The previous questionnaires had asked whether “the structure of enforced market-making on a single platform is holding back development of liquid markets in Europe,” according to one official.

But now DMOs seem to be moving towards opening up their platforms and the commission has welcomed the moves. 

Speaking at the European Government Bond Summit yesterday, Baudoin Richard, director of financial markets at the Belgian treasury's debt agency, welcomed the DG Competition's involvement in facilitating the process of bringing all the debt management offices to talk about the issues of platforms and liquidities simultaneously.

He stressed, however, that the offices would have done this anyway. Other debt office sources add that it is in their own interests to have the best functioning structures and there was never any intention to restrict markets.

Furthermore, at a meeting of DMOs and regulators on Wednesday the commission is understood to have signalled it would not pursue its probe formally for the moment but would nevertheless keep a watchful eye on the sector. 

The Dutch and Belgian DMOs have been at the forefront of change and hope to have some multi-platform functionality in place by 1 February 2008, following a consultation procedure with the primary dealers and the platforms over the coming months. 

Speaking at the same conference, Erik Wilders of the Dutch DMO threw down the gauntlet, stating that the “time for talking about more than one platform is over. We should put our money where our mouth is.”

MTS is the designated platform for most government debt trading in Europe but there have been questions raised about systemic risk as well as competition concerns over concentrating trades on one platform. 

Many debt management offices would like to see an open trading landscape where dealers could have access to several competing platforms and then choose the best prices. But the MTS model succeeds in concentrating liquidity – an all important factor in the marketplace. 

Jeffrey Hogan, managing director at BGC International, a firm of inter-dealer brokers, stressed that creating multi-platform trading may lead to copy-cat platforms which “would be of no use to anyone”. Rather, market participants should concentrate on “supplementing the existing offerings to create additional trades”. 

In September, MTS also signalled that it intended to allow hedge funds to trade directly on its platform – a crucial step in opening up access. 

Benoit Coeure of the Agence France Tresor was wary of allowing hedge funds access to the platform, saying that they only had “short-term commitments”, while the banks which act as primary dealers look rather to the long-term and so are more beneficial for the market. 

By Lewis Crofts