The development of the markets in Italy: historical framework

Mercato Telematico all’ingrosso di Titoli di Stato - MTS

The wholesale electronic market for government securities was established at the end of the 1980s thanks to the collaboration of the Bank of Italy, the Italian Treasury and market intermediaries. They wanted to increase the liquidity of the Italian government bonds market and thus help to reduce the cost of the public debt. By stimulating the creation of an efficient wholesale secondary market, it facilitated the placement of new bonds issued by the Treasury and encouraged investors to shift portfolios towards longer maturities.

Mercato Interbancario dei Depositi - MID

The interbank deposit market was launched in 1990 following a proposal by the Bank of Italy, with the objective of promoting efficient redistribution of liquidity within the banking system and of controlling short-term rates and the transmission of monetary policy impulses more effectively.

The development of these platforms marked an important step forward in the process of modernizing the institutional framework of Italian financial markets between the late 1980s and early 1990s. Over the years, new electronic markets have been launched, with the purpose of meeting the specific needs of the Italian financial community: the market for government bond futures (MIF), the electronic option market (MTO), the coupon stripping market (MCS) and the derivatives on rates market (e-MIDER). They were particularly innovative and anticipated trends that would characterize the structural evolution of the markets at international level in the following decade.

The markets were originally managed mutually by special committees comprising participants in trading activities. Their governance was later revised on the basis of Legislative Decree 415/96 (Decreto Eurosim), which transposed Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field. This attributed their management to a privately-owned joint stock company, MTS SpA (1998), which became a regulated market management company, and e-Mid SpA (1999), which later became e-MID SIM SpA. The private structure of the market guaranteed greater user involvement, and stimulated innovation and efficiency, in line with what would subsequently be established by the Consolidated Law on Finance (TUF) for the generality of market infrastructures.

At the beginning of 2009, in response to the financial crisis, the Bank of Italy, in cooperation with e-MID SIM SpA and the Italian Banking Association (ABI), created the Mercato Interbancario Collateralizzato - MIC, the collateralized interbank market, a temporary initiative designed to encourage the resumption of trading on the interbank circuits and a broader structuring of maturities. The MIC was therefore a new anonymous segment of the electronic platform managed by e-MID SIM SpA, in order to offer operators the opportunity to trade interbank funds while minimizing counterparty and liquidity risks. This purpose was pursued through specific safeguards for counterparty risk (individual collateral pools pre-established by the participants, mutualistic contributions) and through the role that the Bank of Italy would take on in the event of non compliance. The Bank of Italy would intervene between the time at which a participant defaulted  and  the point  at which the losses would be covered through the sale of the collateral of the defaulting participant and by drawing on mutual contributions. The anonymity of the negotiations offered the opportunity for participants in need of funds to express their requirements without running the risk of being identified as banks in a liquidity crisis. In October 2010, the MIC became wholly managed by private entities and took the name of NewMIC, a market for deposits guaranteed by a Central Counterparty, based on the Guarantee System managed by Cassa di Compensazione e Garanzia (CC&G).

In 2006 control (60.4%) of MTS SpA was first acquired by MBE Holding, a newly-established company owned by Euronext (51%) and Borsa Italiana (49%); then directly by Borsa Italiana, which exercised the purchase option established in the shareholders’ agreement in the event of a change in ownership structure. Finally, in 2008 MTS merged with the other Italian market infrastructures, within the London Stock Exchange Group (LSEG). On 31 December 2019, e-MID SIM SpA, which had been acquired by the UK group NEX, definitively ceased operations.