The participation of the banks as per the MTS arrangement to act as good citizens and trade in the governments bonds for lucrative purposes is good for the bond market in , long run as it increases the trading in the market and makes room for cash flow to take place. However the mistreatment of this opportunity at the hands of the banks to take advantage of the speculative nature of the market to increase the revenues is a bad set of character for the bank as well as detrimental for the market in both the short as well as the long runs as massive losses are then to be borne by the traders, the buyers and the sellers in the market.
The US market in this regard with much fewer participants in the government bond trading market is much safer. However it is consequently much restricted as well in terms of the cash flows and the activity taking place in the market. The catastrophe that was the result of the Citibank speculative trading and taking advantage of the fixed quote Euro MTS bond marker with its large share depicts clearly a need for stronger regulators to be present to monitor such detrimental activity in the market. Essentially the banks are present to monitor such activity however as a result of Citibank’s actions additional central board and central bank responsibility is required for monitoring the bonds market against the occurrence of such trading again in the future.
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