Deutsche Börse has unveiled plans to stimulate liquidity in the fixed income market with the addition of bonds to its Xetra continuous order book.
From 1 October, Xetra will offer trading in more than 2,000 government and corporate bonds and 60 German government bonds.
The venue will offer a depth of five price levels in its open order book, showing the five best bid and ask limits, which it claims will boost trading efficiency and transparency.
Sponsors will also provide additional liquidity by offering continuous quotes on bid and ask prices. The first firms to come on board will be Optiver, Florint and Close Brothers Seydler Bank. Deutsche Börse’s clearing house Eurex Clearing will clear all bond trades on Xetra.
Rainer Riess, managing director Xetra market development at Deutsche Borse, said the venue preempted efforts by regulators to inject more transparency in the bond market.
“We already meet the transparency requirements of the revised MiFID financial market regulations which will be mandatory in two to three years’ time,” Riess said. “Exchange trading always means transparent pricing. However, a large number of government and corporate bonds are still traded OTC – with a lack of transparency, high risks and unclear prices for trading participants and investors."
Riess believes the change could offer increased liquidity in bonds trading across Europe with continuous quotes.
“Xetra Bonds is a pan-European bond trading model with high transparency and binding quotes, designated sponsors and specialists provide high liquidity - so all market participants profit equally,” Riess said.
MiFID II, which is currently being debated by European policy makers and is scheduled for implementation in 2014-15, will seek to impose equity-like transparency on a pre- and post-trade basis in the fixed income market. However, the low levels of liquidity that characterise bond trading has led some market participants to question how this could be done in practice.