* New platform launch would ease criticism of local market
* But dealers worry planned July launch is too soon
* Ministry says launch date achievable
By Jason Hovet
PRAGUE, Feb 16 (Reuters) - Czech bond dealers have
cautiously welcomed Finance Ministry proposals to overhaul the
secondary bond market to raise transparency, but some doubt that
the changes can be implemented by July 1 as planned.
The ministry aims to switch the domestic bond market on that
day to the electronic trading platform MTS, already used by 13
European Union states, to bring greater visibility to a market
where 80 percent of state debt is sold.
The International Monetary Fund last year criticised the
current bond market system for opaqueness.
The move will shift dealers to a market-making system in
which market makers' performance will be regularly evaluated and
rewarded. It also sets up a unified, real-time market after
market making dried up during the financial crisis.
Czech price quotes can often vary widely, so dealers said
the change should bring more clarity and help attract more
foreign investors. But they also said the timeframe to get the
system operational may be too tight.
"It should increase liquidity and better visibility in the
market," said Ivan Varga, Komercni Banka's head of treasury.
"For local and mainly foreign investors, this was the weakest
point of the local market."
Secondary market trade volumes have run between 45-55
billion crowns in recent months, according to Prague Stock
Exchange statistics. Gross issuance on domestic and foreign
markets reached 216.2 billion crowns ($12 billion) last year.
The ministry started talks with market participants last
week on rules for market makers, whose job is to help keep bid
and ask prices firm and buy and sell paper. Those picked as
market makers would have access to primary auctions, which are
currently open to 11 banks.
Participants and the ministry said that while nothing has
been agreed so far, some of the possible rewards for banks that
take on market-making roles could be discounts in primary debt
auctions for the best-performing market makers, and access to
private placements among other things.
The ministry's debt department head Petr Pavelek also said
the ministry's presence on the secondary market was up for
discussion. Its practice of directly selling bonds off its books
-- which it stopped at the end of 2010 -- had irked some market
players.
He said the ministry was also considering raising the
proportion of bonds on offer in the competitive round of
two-round tenders from the current 85 percent.
TECHNICAL LAUNCH WORRIES
Dealers said the technical aspects are still an open
question, leaving little time to resolve any problems there.
Five of the six primary dealers contacted by Reuters had
reservations about the July launch target.
"Definitely others are not sure. There are many things to be
solved (from the technical point of view)," PPF Banka dealer
Josef Bednar said. "The July 1 date is too optimistic."
The ministry said last week that all 11 primary dealers and
one foreign group have expressed an interest in market making.
The ministry's Pavelek said talks would be ongoing and that
MTS officials would soon start one-on-ones with banks.
"The technical, legal and regulatory aspects of the project
will be further discussed and refined, in order to ensure that
the specific needs of the Czech bond market are appropriately
addressed," he said. "But we believe July 1 is achievable."
(Editing by Hugh Lawson)
