The Cyprus Stock Exchange says the Exchange is ready to accommodate active bond trading as part of its efforts to diversify and introduce new services in order to attract foreign institutional investors, but its Chairman acknowledges that the issue is complicated and needs a “political” decision.
CSE Chairman Akis Kleanthous expressed his frustration at the long delays at the Finance Ministry regarding which authority in Cyprus should be entrusted with the task of trading in government bonds.
Officially, Kleanthous would not comment on whether or not the main source of opposition to the CSE assuming control of bond trading is coming from the Central Bank, but he insists that a top level decision needs to be made.
There is intense debate as to which organisation should be entrusted with hosting the primary and secondary market in government bonds, which are currently eagerly sought in view of the convergence game that investors might wish to play in the run-up to euro adoption.
The Central Bank on the other hand, favours keeping the primary market to itself and shifting the secondary market to a different platform, not under the auspices of the CSE.
Under the present system, the Finance Ministry auctions 2, 3, 5, 10 and 15 year bonds through an auction system held under the auspices of the Central Bank, after which the bonds are listed on the CSE.
Due to lack of liquidity and no serious incentive for brokers to make a proper market in bonds, the bid and offer spreads are very wide and the quoted prices are always off the true expected value of the bonds.
The Finance Ministry has been working on several plans to introduce primary dealers and market makers in bonds, but has deliberately failed to come to a conclusion, leading Kleanthous to say that its a political decision.
The legal framework has also not been completed.
Upping the stakes in the battle for control of bonds and in response to a question by the Financial Mirror, Kleanthous made an open challenge, saying, “give us for two months the right to run the bond trading, and if during that time, we don’t get 7-8 primary dealers, then let them take it back, but at least give us the chance.
