Polish case: Electronic Trading Platform
for Treasury securities
4th Annual WB Government Bond Market Conference
and Technical Workshop
March 12-14, 2014
Bucharest, Romania
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Content
1. Polish Primary Dealership System in short
1) Treasury Securities Dealers in 2014
2) Duties of Treasury Securities Dealers
3) Rights of TSDs
4) Selection of TSDs
2. Electronic trading platform
1) History
2) Market structure and segments
3) Participants
4) Settlement
5) Statistics
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Treasury Securities Dealers in 2014
The title of Treasury Securities Dealer for the year 2014 was awarded to the following
banks (the alphabetical order, in the competition held from October 31st, 2012 to
September 30th, 2013):
1. Bank Handlowy w Warszawie S.A. (Citibank)
2. Bank Millennium S.A. (BCP)
3. Bank PEKAO S.A. (UniCredit)
4. Bank Zachodni WBK S.A. (Santander)
5. Barclays Bank plc
6. BNP Paribas S.A.
7. Deutsche Bank Polska S.A. (Deutsche Bank AG)
8. Erste Group Bank AG
9. Goldman Sachs International
10. HSBC Bank plc
11. ING Bank Śląski S.A.
12. mBank S.A. (Commerzbank)
13. PKO BP S.A.
14. Société Générale S.A. Oddział w Polsce.
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Duties of TSDs
• Participation in auctions of Treasury bonds and bills
• Purchase each quarter no less than minimum required share (50% divided by the
number of TSDs selected for a given year) of the total weighted face value of
Treasury Securities sold at auctions (weights: for TS with maturity less than 4 years
– 0.5, for TS with maturity equal or above 4 years – 1.5)
• Submitting bid and offer prices for benchmark TS on the electronic market for at
least 5 hours per day
• Participation in everyday fixing sessions of TS
• Quoting bid/offer TS prices at any request of the Minister of Finance
• Cooperation with the Minister towards further development of the transparent, liquid
and efficient TS market
• Undertaking actions aimed at widening of the investor base.
• Promotion of the TS market
• Duly fulfilment of duties resulting from the participation in the depository/clearing
systems.
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Rights of TSDs
• Exclusive right to submit bids at all auctions (including switching and buy-back
auctions) of Treasury Securities
• Purchase of TS at non-competitive auctions
• Exclusive rights or preferences in concluding individual transactions with the
Minister of Finance, including:
• repo and buy-sell back transactions
• hedging transactions
• private placement transactions
• securities issuances on foreign markets
• other financial transactions defined by the Minister
• Exclusive right to use the title of a Treasury Securities Dealer in a given year (during
the term of the Agreement on fulfilling the function of TSD)
• Regular meetings with representatives of the Minister of Finance in order to discuss
issuance policy, plans for financing state budget borrowing needs and financial
market conditions and to solve material, organizational and technical problems
connected with functioning of the TS market (Market Participants Council)
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Selection of TSDs
• Competitive process – rules of candidates’ performance evaluation defined in The
Rules and Regulations Governing the Activities of the Treasury Securities Dealers
(updated annually)
• Competition organized every year, lasting 12 months (4 quarterly assessments)
• Competition for TSDs in the year T starts in October of the year T-2 and ends in
September of the year T-1
203 2014 2015 2016
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Example
Competition for TSDs in 2015
Beginning date: 1 October 2013
End date: 30 September 2014
Results announced: October/November 2014 TSD
1 October 2013
Final results / Signing of agreements
C O M P E T I T I O N
30 September 2014
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Selection of TSDs – details
Criteria used for evaluation of TSDs’ and candidates’ performance:
1. Activity on the primary TS market (40%)
• Percentage share of total (weighted) face value of TS sold at auctions within
a given Competition period
• Positive or negative scoring possible
2. Activity on the secondary TS market (40%)
• Quality quotation index - evaluation of the activity on the interbank market,
calculated as weighted mean of spread (75%) and volume (25%) and of
quoting time
3. Co-operation with the Minister (20%)
• Consultations on issuance policy (market preferences, expected demand on
auctions)
• Consultations on current financial markets situation
• Quality of quotations of TS and other financial instrument provided at the
Minister’s request
• Other activities (duly participation in the depository systems, cooperation
towards further development of the transparent, liquid and efficient TS
market, widening the TS investor base and promoting the government TS
market).
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Further assessment of TSDs
1. Three additional measures of TSDs’ performance, linked to the TSDs’
requirements listed before
2. Measures are binary, i.e. „requirement fulfilled” or „requirement not fulfilled”
3. If any of the requirements is not fulfilled in two consecutive quarters, TSD looses
its status
• Meeting the minimum required share a TSD is obliged to purchase in each
quarter
• Performance for TS benchmark quotation not lower than 90%
• Performance for TS fixings not lower than 90%
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Electronic trading platform
• Treasury BondSpot Poland is an
electronic secondary trading market for
Treasury Securities and has become an
integral part of the Primary Dealership
system which was developed by the
Ministry of Finance in cooperation with the
National Bank of Poland, the National
Depository for Securities, and banking
environment in 2002 (former Electronic
Treasury Securities Market by 2004, then
MTS Poland and since 2009 under the
present name).
OTC market (93.3%)
TBS Poland (6.7%)
Warsaw Stock Exchange (0.01%)
Domestic Treasury bonds
turnover structure in Jan 2014
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Electronic trading platform – history
• The TBSP platform is operated by BondSpot S.A.
Jan 1996
Centralna Tabela
Ofert S.A. (CeTO)
Jun 2001
”new” CeTO
due to consolidation of CeTO and Polska Giełda Finansowa (Polish Financial Exchange)
mid-2001
Creation of Electronic Treasury Securities Market
May 2004
MTS CeTO S.A. due to alliance with MTS group
Sep 2009
BondSpot S.A. as WSE increased its shares to 92.47% (May 2009)
April 26, 2002
1st transaction on
the electronic
market
ING Bank Śląski
bought TS-bonds
of PLN 5mio from
Raiffeisen Bank
Polska
Recently:
Feb 2011: Treasury BondSpot Poland Index
(TBSPIndex) - Poland’s first official T-bonds index,
universal market tool and benchmark for retail and
institutional investors to measure their investment
decisions; portfolio comprises of 3 zero coupon
bonds and 14 fixed rate bonds of 5Y, 10Y, 20Y
maturity; denominated in PLN)
Jan 21, 2013: EUR denominated T-bonds on
TBSP (12 bonds maturing from 2014 to 2025)
2005
Foreign
banks
entered the
market for the
1st time
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Electronic market structure
BONDSPOT S.A.
TREASURY BONDSPOT POLAND
Organized, non-regulated
market
CATALYST
wholesale markets
Regulated market
Alternative Trading System
WSE
CATALYST
retail markets
Regulated market
Alternative Trading System
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Catalyst
• Launched together with the Warsaw Stock Exchange on Sept 30, 2009
• Electronic trading platform for debt securities:
• Corporate bonds
• Municipal bonds
• Mortgage bonds
• Treasury bonds (less popular)
• Operates on 4 transaction platforms:
• Regulated market operated by BondSpot (wholesale market)
• Regulated market operated by WSE (retail market)
• Alternative Trading System operated by BondSpot (wholesale market)
• Alternative Trading System operated by WSE (retail market)
• Operated by 22 domestic brokerage houses and banks (BondSpot platforms)
• Dedicated to institutional and individual investors - adapted to all issuers’
needs seeking for financing their capital needs via private placement or public
offering for securities of different size and parameters
• As of Jan 2014 over 240 series of 90 local and foreign issuers have been
listed on two markets operated by BondSpot with turnover value of almost
PLN 90mio and outstanding value reaching over PLN 500bn (0.02%)..
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Electronic trading platform - segments
TREASURY BONDSPOT POLAND
CASH market
(2002)
TS Fixing
TBSP.Index
REPO market
(2003)
Sell/Buy Back
Repo
General Collateral
(2009)
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Electronic market participants
1. Bank Handlowy w
Warszawie S.A.
2. Bank Millennium S.A.
3. Bank PEKAO S.A.
4. Bank Zachodni WBK S.A.
5. Barclays Bank plc
6. BNP Paribas S.A.
7. Deutsche Bank Polska SA
8. Erste Group Bank AG
9. Goldman Sachs
International
10. HSBC Bank plc
11. ING Bank Śląski S.A.
12. mBank S.A.
13. PKO BP S.A.
14. Société Générale S.A.
Oddział w Polsce.
15. Banco Espirito Santo
de Investimento S.A.
16. Bank BPH S.A.
17. Bank Gospodarki
Żywnościowej S.A.
18. Bank Gospodarstwa
Krajowego
19. FM Bank PBP S.A.
20. JPMorgan Securities plc
21. Raiffeisen Bank Polska S.A.
22. UBS Ltd
1. Alior Bank S.A.*
2. Bank Pocztowy S.A.*
3. Bank Polskiej
Spółdzielczości S.A.*
4. OFE PZU "Złota Jesień"
1. Deutsche Bank AG
2. Getin Noble Bank S.A.
3. Merrill Lynch International
4. Morgan Stanley & Co.
International plc
5. Nomura International plc
6. Standard Bank plc
7. Unicredit Bank AG
TREASURY BONDSPOT POLAND
Market Maker (TSDs)
Market Makers (non-TSDs)
Market Takers Institutional
Investors
* Repo market only
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Electronic market participants – cash market
Market Makers
• Eligible financial institutions designated as TSDs by the MoF and other
institutions willing to participate as MM
• Must have net worth of at least EUR 50mio
• Must commit to market making obligations for assigned securities with a
defined maximum spread and a minimum size according to the market rules
Market Takers
• Eligible financial institutions
• Must have net worth of at least EUR 30mio
• Cannot enter quotes into the system but can place orders against quotes
provided by Market Makers
Institutional Investors:
• Must fulfil two from the following:
• Balance sheet total of at least EUR 20mio
• Annual net turnover of at least EUR 40mio
• Must have net worth of at least EUR 2mio
• Allowed to trade on the repo market as well as on the cash market in
a separate institutional segment (B2C) or act via RFQ.
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Electronic market participants – MM
Market Makers’ obligations:
• Two way proposals must be displayed for benchmark securities for at least
5 hours per day with a defined maximum spread and a minimum size
Maturity Max B/A spread Min quantity
Short term up to 1yr - -
Bucket A +1yr – 2.5yrs 20 ticks PLN 10mio
Bucket B +2.5yrs – 6yrs 30 ticks PLN 10mio
Bucket C +6yrs – 11 yrs 45 ticks PLN 10mio
Bucket D +11yrs 60 ticks PLN 10mio
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Electronic market– traded securities
SERIES ISIN CODE MATURITY COUPON FIXING BENCHMARK
OK0714 PL0000107009 25-07-2014 0.00% X
WZ0115 PL0000106480 25-01-2015 floating X
PS0415 PL0000105953 25-04-2015 5.50% X X
OK0715 PL0000107405 25-07-2015 0.00% X
DS1015 PL0000103602 24-10-2015 6.25% X X
OK0116 PL0000107587 25-01-2016 0.00% X
PS0416 PL0000106340 25-04-2016 5.00% X X
OK0716 PL0000107926 25-07-2016 0.00% X
IZ0816 PL0000103529 24-08-2016 3.00% X
PS1016 PL0000106795 25-10-2016 4.75% X X
WZ0117 PL0000106936 25-01-2017 floating X
PS0417 PL0000107058 25-04-2017 4.75% X X
DS1017 PL0000104543 25-10-2017 5.25% X X
WZ0118 PL0000104717 25-01-2018 floating X
PS0418 PL0000107314 25-04-2018 3.75% X X
PS0718 PL0000107595 25-07-2018 2.50% X X
WZ0119 PL0000107603 25-01-2019 floating X
DS1019 PL0000105441 25-10-2019 5.50% X X
DS1020 PL0000106126 25-10-2020 5.25% X X
WZ0121 PL0000106068 25-01-2021 floating X
DS1021 PL0000106670 25-10-2021 5.75% X X
WS0922 PL0000102646 23-09-2022 5.75% X X
IZ0823 PL0000105359 25-08-2023 2.75% X
DS1023 PL0000107264 25-10-2023 4.00% X X
WZ0124 PL0000107454 25-01-2024 floating X
WS0429 PL0000105391 25-04-2029 5.75% X
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Electronic market – repo market
Market Makers
• Repo transactions:
• Classic repo
• BSB/SBB
• T-bonds subject to repo transaction:
• individual traded securities (excluding indexed bonds)
• baskets of traded securities under General Collateral transactions
(TS subject to fixing excluding indexed bonds and T-bills, 4 series max)
• Minimum trading quantity on the Repo Market is
• PLN 2.5mio for securities denominated in PLN
• EUR 0.5mio for securities denominated in EUR
• The conditional (repo) transactions may be concluded through:
• anonymous Proposals and Applications
• non-anonymous Proposals, Applications and RFQ (collectively called
proposal on the repo market) made by Participants
• Conclusion of transaction is made by the Participants’ manual acceptance of
the whole or partial order and its manual confirmation by the other party of the
contract.
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Electronic market – trading and settlement
• Trading hours: 9.00 a.m. - 5 p.m. Monday to Friday, excluding holidays
• Real-time information on current offers and transactions concluded on TBS
Poland (distributed via MTS and WSE) and the fixing on bonds are presented
in the news bulletins Bloomberg and Reuters
• Daily market data and statistics are published after a trading day is finished
Settlement
• All trades executed on BondSpot markets are settled by the National
Depository for Securities (T-bonds and other debt instruments) and the
National Bank of Poland (T-bills)
• Cash market transactions in traded securities are settled:
• at T+2 time, where T is the date of the transaction.
• at T+3 time for securities denominated in EUR
• Conditional (repo) transactions are settled:
• at T+0 time or another time agreed by the parties of transaction in case of
the opening transaction
• at time agreed by the parties of transaction, after the day of settlement of
opening transaction but no later than 365 days after the opening transaction
settlement day in case of the closing transaction.
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Electronic market statistics – monthly
average turnover
• Significant change since Nov 2011 when new regulations were introduced
• The highest increase in TBSP market share in the T-bonds market; in 2012 above
the level of 12%, by 2013 at the level of 9%.
* Turnover single counted.
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• Significant contraction in bid-ask spread since the new regulations were introduced
Electronic market statistics – effects of new
TSD rules on spreads
Thank you for your attention
Ministry of Finance
www.mf.gov.pl
Bloomberg: PLMF <GO>
Reuters: PLMINFIN
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Selection of TSDs – previous rules
Criteria used for evaluation of TSDs’ and candidates’ performance until the
competition in 2012:
• Market share in OTC outright inter-bank transactions on TS
• Market share in OTC outright transactions on TS with non-banking clients
• Market share in outright transactions on the Electronic Market (calculated
for own price and another entity’s price separately)
• Market share in repo, sell-buy back and buy-sell back transactions on TS
• Share in the turnover on FRA and IRS market (in Polish Zloty)
• Market share in transactions on Polish government securities
denominated in euros
• Other (location of dealing activities, quality of TS quotations submitted at
the request of the Minister of Finance, cooperation with the Minister of
Finance with regard to issuance policy and financial market functioning).
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Selection of TSDs – rationale for changes
• Preservation of the stimulating mechanism of TS market development and
selection of banks with the greatest potential and activity on the market
• Preservation & strengthening of the mechanism that ensures safety of financing of
State borrowing requirements
• Preservation of the mechanism promoting Electronic market transactions as the
one significantly increasing transparency of the TS market
• Simplification of rules that used to be in force and elimination of redundant criteria
• Eliminating as much as possible those elements that might distort proper
evaluation of banks
• Taking into account propositions submitted by current TSDs
• Taking advantage of practices of other European countries with TSD system.