Hedge funds could cause a big shakeup in European sovereign-debt trading if they are able to get direct electronic access to the €4 trillion market, The New York Times reports. Earlier this year, hedge funds, including Citadel Investment Group, sat down with MTS, the largest European bond-trading platform, and now MTS is working with European bond dealers to gauge their interest in having hedge funds trade on the platform. “I can confirm that I have received interest from hedge funds, have been discussing the issue with banks and have received suggestions, but that it’s too early to reach any conclusion,” MTS CEO Gianluca Garbi told the Times. If hedge funds win access, their algorithmic trading models could cause a substantial increase in trading volume, but with the increased volume comes the potential for instability. Octavio Marenzi, CEO of Celent Communications, told the Times, “I would say under 10% of fixed-income trading is algorithmic. It could increase to as much as 30% or 40% if hedge funds got direct access to interdealer pools of liquidity and those pools of liquidity started trading more like the equity markets.”
