A legal dispute over a bid of just 68 pence has thrown the UK's plans to modernise its bond market into disarray, exposing significant tensions between financial regulators and the industry they oversee.
A Noble Ambition Meets a Problematic Auction
In 2023, the Financial Conduct Authority (FCA) embarked on a mission to overhaul the bond market. Its central proposal was the introduction of a consolidated tape (CT) – a system designed to aggregate trade data on prices and volumes, making the market more transparent and efficient.
The regulator argued this single source of data would cut trading costs, boost liquidity, and help investors evaluate their brokers. To deliver it, the FCA decided to outsource the project via a procurement contract, initially valued at nearly £30 million.
The contract was to be awarded through a reverse auction on a platform called WebBidder, run by DotEcon. The rules were simple: the lowest bid would win.
The Bidding War That Crashed to 68p
The auction began on 4 August, with an opening bid of £1,209. However, the FCA's £30m estimate proved wildly inaccurate as a fierce price war erupted. By 14 August, the price had plummeted to £100.
The race to the bottom continued relentlessly. By the 54th round on 22 August, the winning bid stood at a mere 68p. It was at this critical juncture that the process unravelled.
One bidder, Ediphy, claimed a technical fault on the WebBidder platform prevented its final bid from being properly recorded. Despite frantic calls to the FCA, the auction closed. The contract was awarded to rival firm Etrading.
Legal Challenges and a Frozen Contract
Outraged, Ediphy wrote to FCA chief Nikhil Rathi, calling the process "demonstrably and fatally flawed and unfair." The company subsequently launched a lawsuit, alleging the auction software was "not fit for purpose."
Ediphy also raised a potential conflict of interest, noting that after the contract award, Etrading's chief product officer joined the FCA's board. The FCA dismissed this, stating the appointment occurred after the decision was made.
The lawsuit triggered an automatic freeze on the contract, threatening to delay the consolidated tape's launch by months, or longer if the court ordered the process to be rerun.
In its defence, the FCA stated it ran a "fair, competitive 2-stage process" to ensure value for money. DotEcon's Dr Christian Koboldt robustly defended WebBidder, stating: "The platform has been used successfully to run numerous high-stakes auctions around the world."
A Temporary Reprieve With Lasting Consequences
Late on Wednesday, the immediate crisis eased. Ediphy agreed to lift the contract suspension "to avoid further delays," opting instead to pursue damages. This allows Etrading to proceed with the project.
Ediphy's chief, Chris Murphy, said the firm was "clearing the path for the contract to be signed because the market needs certainty," while maintaining its view that the procurement was flawed.
However, the jeopardy for the FCA is not over. The regulator has already begun a parallel process to establish a consolidated tape for the equity market. A damaging court ruling in the bond case could have undermined both projects simultaneously.
This 68p lawsuit serves as a stark warning. It highlights the pitfalls of complex procurement in highly technical markets and the immense disruption that can stem from the smallest of sums. The FCA will be hoping its lessons from this penny auction have been learned before it rolls out its next major market reform.
