Euronext (ENX.PA) is bidding to become a key service provider for European Union bonds, a top executive said, as the pan-European exchange seeks to leverage its newly-acquired Milan stock and debt exchange group to snatch business from rivals.
Euronext — which runs stock markets in Amsterdam, Brussels, Dublin, Lisbon, Milan, Oslo and Paris — bought Italian bond platform MTS this year as part of its 4.3 billion-euro ($5 billion) takeover of Italy’s bourse group.
It has now trained its sights on EU debt, given the bloc’s 800 billion-euro borrowing plan for its pandemic recovery fund, which could lay foundations for a potential European “safe asset” that would be widely traded.
The EU has already issued more than 50 billion euros in long-term debt, and is holding regular auctions, using nearly 50 primary dealer banks to arrange the sales and trade the bonds.
The European Commission currently uses the Luxembourg Stock Exchange to list these bonds, while Deutsche Boerse’s (DB1Gn.DE) Clearstream provides custody and other services for the notes.
The EU debt already trades on MTS. However, the EU has not outlined plans for a full-fledge secondary market yet as, unlike several European governments, it does not stipulate that banks managing its bond sales trade the notes for a certain volume each day and ensure liquidity to the market.
MTS has offered the European Commission its market infrastructure, data and reports on the activity of primary dealers, its CEO Fabrizio Testa said.
It has also proposed its platform to help the EU Commision organise buy-backs and exchanges.
“The new EU bonds are already traded on MTS, but introducing incentives for primary dealers to continuously trade the notes on a regulated platform like ours would really make the difference,” said Testa, who sits on Euronext’s extended managing board.
This would give investors unbroken access to prices and trading, even in times of market volatility, he said.
“At the moment there is an open dialogue with the European Commission … We hope there will be a decision at the beginning of next year,” Testa added.
Euronext has also suggested its Dublin Bourse for the listing and Monte Titoli for the custody services of the EU bonds, as an alternative to the Luxembourg Stock Exchange and Clearstream, Testa said, confirming what sources said.
A Commission spokesperson declined to comment specifically on the Euronext proposals, but said the EU was “in active contact with all relevant stakeholders”.
“Our bonds are currently listed on the Luxembourg Stock Exchange (LuxSE) and we would not speculate about any other solutions,” the spokesperson added.
Asked for a comment on Euronext’s offer, LuxSE said it currently had a 45% market share on the listing of international debt securities issued by sovereign, supranational and agencies.
“The exchange has longstanding relations with European institutions and agencies,” a LuxSE spokeswoman said, adding the EU’s inaugural 12 billion-euro green bond was listed on LuxSE.
Clearstream said that the recent growth of the Eurobond market proved the confidence that both issuers and investors have in the company’s services.
“We will continue to work with our partners to develop and further grow Europe’s largest debt market,” said Guido Wille, head of Clearstream’s Eurobonds business in an emailed comment.
Introducing bond obligations for primary dealers and creating a liquid secondary market for EU debt would bring benefits, independent experts said.
Traders noted that EU bonds pay a premium over comparable German bonds despite enjoying the same triple-A credit rating. One trader, who requested anonymity said Brussels could save “a handful of basis points” at auctions if the MTS proposals boosted transparency and liquidity.
Another trader at an EU primary dealer bank, Nils Kostense at ABN Amro, agreed that improved liquidity would lead to cost savings.
“If (investors) can offload what they have onloaded easily… they would participate more easily in an auction. That could also benefit the EU because of more clients participating,” Kostense said.
($1 = 0.8661 euros)