MTS Group Profile

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MTS Group Profile

• 2005

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Europes leading electronic government bond
marketFrom local market to pan-European platform

MTS Poland NewEuroMTS
MTS Finland, Spain and Ireland

MTS Greece
MTS Portugal
MTS France MTS Belgium
EuroMTS inception
MTS S.p.a. privatization
1998
2000
2001
2002
2003
2004
1999
2005
2006

MTS Amsterdam
Merger MTS Spa - EuroMTS


MTS Deutschland
MTS Israel
MTS Denmark MTS Austria
EuroGlobalMTS
Geographic presence
MTS - Highlights

• Largest fixed income cash market in terms of
  number of participants, geographic reach, and
  turnover
• First exchange with presence in all EMU countries

21 markets in 14 countries Over 1000 connections
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MTS Group Structure
MTS S.p.A. (150)
EuroMTS Ltd. (71)
100
100
MTS Greece (27)
MTS Deutschland A.G. (45)
MTS Austria (35)
30
MTS Spain (24)
EuroCredit MTS (36)
30
MTS Amsterdam N.V. (28)
NewEuroMTS (25)
MTS Ireland (11)
22.5
MTS France S.A. (28)
EuroGlobalMTS (14)
15
MTS Israel (18)
MTS Portugal S.A. (24)
89.5
BondVision (210)
20
MTS Associated Markets S.A.
66.66
MTSNext Ltd
MTS Belgium (28)
MTS Finland (22)
100
MTS AmericasCorporation
MTS Denmark (16)
100
BondVision U.S. Corporation
25
MTS Poland (17)
Legend percentages indicate ownership in
entities and numbers in brackets denote number of
participants trading in each market.
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BlueLegal Entities, YellowDivisions,
GreenSegments
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Products and Functionality

• Products
• - Government Sovereign fixed-income
  securities- Quasi-Government, supranational,
  agency and covered fixed-income securities
• Functionality
• - Outright cash trading- Repo trading- Basis
  trading- Spread trading- Taps, Buybacks and
  Primary Auctions

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Technology

• Based on single central matching engine and
  proprietary network for high-capacity users
• Quotes are automatically matched with orders
  (click and trade) via price/time algorithm
  (execution in less than 1 second)
• Different technology providers are aggregated by
  MTS
• User access is centrally and directly controlled
  by MTS via permissioning system
• System is open, i.e. based on public protocol,
  allowing for integration with users internal
  systems

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One System - All Markets
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Wholesale Quote-Driven Cash Trading

• Only banks are admitted (no buy-side)
• Participants access MTS in either a Market Making
  or a Market Taking capacity
• MTS Market Makers are both entitled and required
  to commit two-way quotes, according to maximum
  bid/offer spreads, minimum sizes, for at least 5
  hours per day
• MTS Market Takers may hit bids and lift offers
  but are inhibited from posting prices
• The trading system features automated matching of
  trades, thus ensuring firm, tradable prices

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Order-Driven Repo Trading

• Participants include buy-side institutions
• No distinction between Market Makers and Market
  Takers
• One-side quotes are permitted
• Flexible functionalities
• - Central counterparty/bilateral settlement-
  GC/Special Repos- Classic Repos/Buy-Sellbacks

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Straight-Through Processing

• Settlement instructions are automatically created
  by the system and sent to the clearing
  institutions for both counterparts of a trade
• Automatic sending of the settlement instructions
  via Swift or RRG
• Eliminates mismatching, error cost reduced to
  zero
• Help desk for settlement problems
• Feedback to the participants on the concluded
  trades

No need for trade comparison less back office
work, dramatically lowers cost per ticket
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BondVision

• Web-based, multi Dealer-to-Client market
• Division of MTS SpA
• Regulated market with an ISD European passport
• Replicates phone market execution with Dealers
  via a competitive quote facility (auction) for up
  to 4 Dealers
• Clients connect through user-friendly
  application
• Trades are either outright cash or switch
• Dealers are MTS Market Makers

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The EuroMTS Indices

• The first range of independent, transparent,
  real-time and tradable eurozone fixed income
  indices, offering a standardized benchmark for a
  wide range of fund managers and producers of
  financial instruments
• The development of MTS as an independent,
  pan-European platform for centralised price
  discovery permitted the development of these
  indices, with the price discovery a cumulative
  result of hundreds of banks operating on MTS.
• The EuroMTS Indices currently consists of 4 main
  index groups including - the EuroMTS Government
  Bond Index family, the EuroMTS inflation linked
  index family, the EuroMTS New EU Index and the
  EuroMTS Covered Bond Index family. Each index
  family consists of an aggregate index along with
  various sub-indices.

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The Euro area bond markets - Liquidity
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The Euro area bond markets - Transparency

• Real-time distribution of tradable prices
• Provision of price discovery to investors via
  quote vendors
• Objective information on MM performance
• Development of Indices - Launch of European
  fixed-income Government bond index - All 11
  Eurozone Government debts - Based on tradable
  prices - Homogenous price formation -
  Guarantee of price through quote-driven model -
  Independent source

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Benchmark Yield Curve

• First major achievement and step towards wider
  distribution of debt
• Fundamental importance for financial system as it
  facilitates pricing of other debt instruments

Liquid Transparent Benchmark Yield Curve
Vitality of market (Liquidity)
Market infrastructure
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The Euro area bond markets - Efficiency

• The World Bank and the Bank of International
  Settlements have acknowledged the contribution of
  MTS to the efficiency of the Italian debt market,
  as well as other European markets
• Execution costs have been slashed from
  100/million to 3/million in 4 years
• Custody fees 3-5/million for MTS trades vs
  15/million OTC
• STP has reduced back office fees through
  automation
• Single technological platform for all markets
  promotes integration

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Role of the Authorities

• Endorsement of system reduces risk of liquidity
  fragmentation
• Monitoring and supervision of the market may
  participate in Governance and/or uses activity
  logs as feedback tool for policy
• Validation of Primary Dealer status and
  performance objective data allows more informed
  evaluation of market participants

All MTS domestic market companies allow for
different combinations and varying degrees of the
above elements
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MTS Mission and Targets

• B2B Secondary Market Cash/Repo/BTF/STF
• Primary market Taps, buy backs,
  exhange-auctions
• Post Trading OTC

CORE BUSINESS INITIATIVES

• Data /Information
• Licences/IP Rights
• Participations/Alliances
• Dealer To Client (BondVision)
• EuroMTS Indices

VALUE-ADDED INITIATIVES

• TECHNOLOGY PROVIDER AND
• MARKET ORGANISER FOR ALL
• INITIATIVES WITHIN THE GROUP

On these activities the TARGET is Average Zero
economic margin, but theres huge strategic value
(as MTS achieves lower marginal technology cost).
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Technology and the Changing Face of Debt Markets

• Integration of markets means integration of
  technology
• Network effect brings increasing marginal returns
  to users
• Enhanced monitoring capabilities
• Economies of scale
• Lower costs for all parties involved
• Globalisation and increasing economic
  interdependency are driving the process

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MTS Summary of areas of expertise

• System aggregation and administration
• Definition of market incentives for establishment
  of liquidity
• Implementation and management of market
  monitoring procedures
• Design of dedicated post-trading solutions
• Definition of market rules
• Identification of fee policies consistent with
  specific market model
• Understanding of regulatory environment and
  requirements
• Debt management policies

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Benefits for participants

• Substantial cost savings from operations, front
  and back office
• Access to transparent liquidity promotes
  development of client-driven business
• Ownership and governance of market
• Opportunity to access other MTS liquidity pools