CÍMLAP
Balogh Csaba - Kóczán Gergely
Secondary market trading infrastructure of government securities
CONTENTS, ABSTRACT
Contents
Abstract
1 The infrastructure of financial markets (basic notions, subject of this study)
2 Issues of optimal market architecture (literature review)
2.1 Main theoretical issues related to trading infrastructure
2.2 Trading transparency
2.3 Summary
3 Tendencies of trading infrastructure development in developed markets
3.1 The structure of government security trading
3.2 Exchange vs. OTC trade
3.3 Characteristic secondary trading practices of main financial centres
4 Secondary market trading practice of forint-denominated government securities
4.1 Actors and turnover of the forint-denominated government security market
4.2 Trading infrastructure
4.3 Market transparency and quality
5 Dilemmas related to regulation and policy
5.1 International Markets
5.2 The market for forint-denominated government securities
5.3 Summary
6 Conclusion
Bibliography
Abstract
The subject of our study is the trading infrastructure of government
securities markets, which has undergone fundamental changes driven by the
appearance of non-exchange electronic platforms and the rapid rise of
their share in the trading volume of developed markets. The summary of the
relevant literature indicates that improved trading transparency clearly
increases the efficiency of the market (its role in price discovery). Its
effect on market liquidity, however, is less clear-cut. While the loss of
anonymity most likely decreases liquidity, transparency on the quantity and
price of concluded transactions enhances liquidity.
The emergence of electronic trading on developed government securities
markets has not changed the fundamental structure of trading, which
continues to take place in two segments: between dealers (B2B) and between
dealers and clients (B2C). There is, however, no interbank trading platform
on the Hungarian government securities market, although data vendors and
other platforms serving clients have sprung up. Nonetheless, more than
90 per cent of trading takes place through traditional OTC channels.
Consequently, actors which are interested in market processes and prices,
but do not actively trade on the Hungarian market have trouble accessing
high-standard, quasi-real-time price information. The MiFID initiative -
launched at the European level - may contribute to improving the Hungarian
market's transparency by engendering the regulation of the bond market
similar to that of the equity market. Introduction of the euro in Hungary
will fundamentally change the country's market structure. The sovereign
debt manager's leeway will increase, and the key direct actors on the
government securities market are expected to be the major international
actors, which are interested in the centralisation of government securities
trading by currencies. Based on the broad electronisation of the euro-denominated
government securities market, it is likely that electronic platforms will
also gain ground on the Hungarian market, following the introduction of the
single currency at the latest