Citi trades prompt MTS limits
Citigroup ignited a major market movement in the European government bond markets last week, prompting electronic execution platform provider MTS to implement temporary limits on orders, an industry source familiar with the situation told RiskNews’ sister publication Dealing With Technology .
The restrictions, which are already in effect, limit dealers to sending no more than €1 billion ($1.24 billion) worth of orders or 20% of average daily volume calculated over the preceding 10 days in any given two-minute period — whichever is the greatest, said the source. The MTS board will review the changes on September 10.
The limit collectively applies to EuroMTS, MTS Austria, MTS Ireland and MTS Greece, the source said. The entire amount of the restriction applies to MTS Italy, while MTS Germany and MTS France are both restricted to €500 million ($620 million) or 20%. All other MTS markets are as yet unaffected, the source said.
Problems via Citigroup erupted just before midday on August 2, when Citigroup traders pushed through €11 billion ($13.6 billion) worth of sell orders in a period of just two minutes, according to sources familiar with the situation. The MTS platforms succeeded in handling the volume of order flow generated by Citigroup without causing disruptions to the price. All orders were submitted, executed, processed and settled according to market rules, said sources familiar with the situation.
However, prices began to move as soon as MTS market-makers, who had taken on the Citigroup orders, dipped into the derivatives markets to hedge their positions. Some market makers pulled their quotes from MTS as they realised futures markets no longer offered a perfect hedge. When quotes returned to the MTS cash markets, prices reflected the movement that had occurred in the futures markets. With prices now lower in the cash markets, Citigroup came back in with buy orders totalling €4 billion ($5 billion), closing out a portion of its position.
“On a regular day, swaps and futures would have been much more liquid and prevented such a large move,” said a government bond analyst.
Citigroup officials said the growth of electronic trading platforms for European government bonds has prompted significantly increased capacities in the European cash markets and Citigroup continues to provide liquidity on these platforms.
Sources added that Citigroup has not broken any rules in its recent behaviour.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Risk management
Eurex product co-head departs
Zubin Ramdarshan’s exit comes after exchange CEO Robbert Booij confirms departure
Off the grid? Dealers mull XVA cloud shift
Risk Benchmarking: 69% of European banks still run core XVA calculations predominantly on-premises, and 75% of global dealers
Banks want AML data upgrade to complement US regulatory reform
FinCEN’s proposed overhaul sparks debate on whether it will lead to smarter or weaker supervision
Swiss franc loan losses are a grey rhino for EU consumer finance
Impact on Polish banks exposed a blind spot on modelling legal risk that has wider implications, says mBank CRO Marek Lusztyn
CROs urged to use ‘creative’ stress tests for interconnected risks
Risk Live Asia: AI, cyber security and geopolitics mean faster shock transmission across risk types
Trading platforms evolve for a cross-asset market
As trading becomes increasingly cross-asset, platforms are evolving to deliver consistent workflows, connectivity, intelligence and end-to-end execution efficiency
Industry pushes EU exchanges to solve equity post-trade frictions
Deutsche Bank, Goldman Sachs and JP Morgan join calls for mandatory cash CCP interoperability
US Treasury clearing: competition, choice and readiness move to the fore
US Treasury clearing mandates and market reforms are reshaping clearing models, risk transfer and market infrastructure ahead of key implementation milestones