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Securities Settlement

In: Payment Systems

Author

Listed:
  • Dominique Rambure
  • Alec Nacamuli

Abstract

On 2 August 2004, in less than two minutes, Citibank issued sell instructions on government bonds from 11 euro-zone countries for a sum of 11 billion euros. The trade involved over 200 instruments on the different electronic trading platforms of MTS, the Italian system which runs the market in euro government bonds. The purchase of government securities, mainly French, German and Italian, generated liquidity through the simultaneous sale of futures contracts, mainly German (Bunds 10 years, Bobl 5 years and Schatz 2 years). Between 20 and 30,000 futures contracts for a value of 100,000 euros each changed hands in a few seconds. This naturally pushed the price down. Half an hour later, Citibank repurchased the government bonds for 4 billion euros, making a profit of 10 million euros through this perfectly legal operation. Six of the 55 principal trading institutions on MTS are reputed to have lost around one million euros. To avoid a repetition, MTS has since imposed limits on the amounts that can be traded within a defined short period of time. Trading such high volumes in such a brief time interval, involving hundreds of diverse instruments (securities, derivatives, and cash) in different countries requires very efficient settlement infrastructures in terms of execution time, resilience and cost so as not to impact the profitability of such an operation, 0.001 per cent in this case.

Suggested Citation

  • Dominique Rambure & Alec Nacamuli, 2008. "Securities Settlement," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Payment Systems, chapter 11, pages 148-157, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-22721-7_11
    DOI: 10.1057/9780230227217_11
    as

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