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LONDON, Jan 29 (Reuters) - Societe Generale will become the second bank to stop acting as a primary dealer for British government bonds in just over three months, the UK Debt Management Office said on Friday, as tougher regulation and low margins dent the role’s appeal.
SocGen follows the lead of Credit Suisse, which resigned as a gilt-edged market maker (GEMM) in late October to cut costs, and will lower the number of wholesale GEMMs to 16.
GEMMs have the exclusive right to bid at British government bond auctions and run debt syndications.
Earlier this week, the DMO said dealers were finding the gilt market “particularly challenging” and were reviewing their business plans due to the high capital costs of maintaining stocks of British government debt to trade.
SocGen will cease acting as a GEMM for both the index-linked and conventional gilt markets at close of business on Feb. 5.
Unlike Credit Suisse, it will remain active in other European government bond markets.
“The regulatory framework is unfortunately more and more restrictive. So we are trying to refocus on our core activities,” a SocGen spokeswoman in Paris said.
Increased regulation and lower margins have now seen six banks exit various countries in recent months, eroding the infrastructure through which governments raise debt.
Volatile markets contributed to the weakest demand in nearly seven years from GEMMs at a British government bond auction last week.
Bankers have told Reuters it is getting harder to justify the costs of being a primary dealer, even though they establish a relationship with governments that can generate other revenues in areas like derivatives and privatisations. (Reporting by David Milliken and Leigh Thomas; Editing by Andy Bruce)