Toward an efficient euro-frontier
The advent of the euro is expected to consolidate trading - and competition is moving from products to systems. As far as derivatives are concerned, strong competitive pressure is not only concentrating liquidity to just a few futures contracts but is also encouraging derivatives markets to use electronic systems to establish links to stay alive. More recently equity markets have come under the same strong pressure.
Cash bond markets will probably be the next candidates to be forced toward consolidation, and this will be less controversial because there is a wide consensus on the inevitability of the move. As electronic trading is increasingly perceived as the cheapest and most efficient way to trade, head-to-head competition to develop a pan-European electronic platform and attract business from over-the-counter trading is likely to emerge in the next few months with new players entering the competition.
In cooperation with the International Securities Market Association, the London Clearing House is developing an automated trading system which will remove counterparty risk in bond delivery. The Deutsche Börse is changing its electronic system to combine it with the one currently used for equity trading.