Title: From a quote-driven to an order-driven market: The case of the EuroMTS government bond trading platform
Authors: Hanyu Zhang - University College Dublin (Ireland) [presenting]
Alfonso Dufour - ICMA Centre (Italy)
Abstract: The liquidity of the EuroMTS market is analized before and after an important rule change, which has allowed every market participant to post limit orders and not just designated market makers. We demonstrate that liquidity measures, such as the bid-ask spread and quantity of government bonds available for trading at the best quotes, improve across maturities and countries. We also consider the execution costs for bond trades with a greater size than the minimum quoted size. In particular, we show that the relative bid-ask spread for trading 10 million bonds decreases with the rule change. The proportion of time when the relative bid-ask spread stays low also increases. Several bond portfolios have been constructed, dividing the whole maturity range into three categories: short-term, medium-term and long-term bonds. The results are robust to the on/off-the-run phenomenon and other influential variables, suggesting that greater competition amongst liquidity providers improves liquidity.