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European Commission regulators are prepared to take action against EU member states for failing to open up government bond markets to multiple trading platforms, arguing such restrictions may be moves to protect incumbent operators in possible breach of European anti-trust laws.
The push for greater competition and decreased trading costs comes as sovereign debt market volumes are set to soar as European governments fund the bail-out of the financial services industry and possibly other sectors of the economy.
European Commission regulators are prepared to take action against EU member states for failing to open up government bond trading markets to multiple platforms, in possible breach of European anti-trust laws.
Irmfried Schwimann, who heads DG Competition’s financial services unit, said recent developments in four countries,
Her view on the success of multiple platform approach appeared to be backed by a survey by the European Primary Dealers Association that reported half its members surveyed in the applicable countries said the choice of multiple platforms had been positive, half were neutral and none were negative. About one third of members said the changes had resulted in a decrease in costs while there was no evidence of a loss of liquidity as had been feared.
Schwimann, speaking at the EPDA-backed European Government Bond Summit in Brussels, said that some other member states had indicated they would change their practice to open up platforms to competition, but were adopting a "wait and see" approach.
"We would encourage them not to wait too long," Schwimman said.
There were indications, or at least suspicions, that some member states simply wanted to protect the incumbent from competition. While the commission was sensitive to concerns that some states felt their markets may be too small to support multiple platforms, the experience to date suggested such an approach could be made to work.
"Refraining from taking action to protect the incumbent is not acceptable to us," she said.
In 2007, DG Competition undertook a review with questionnaires and information requests to debt management offices (DMOs) in the euro zone and the
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 commission’s view is that favouring one platform might be in breach of Article 86 of the EC Treaty gives the European Commission a specific duty to monitor public undertakings and undertakings to which Member States grant special or exclusive rights. Trading restrictions may also be in breach of other relevant Articles of the EC Treaty including anti-trust rules under Articles 81, 82 and financial services rules under MIFiD.
"The European Commission will have to consider all its options, up to and including competition law," said Schwimann.
By Robert McLeod