The Irish bond settlement system, one of the issues at the centre of the row between the National Treasury Management Agency (NTMA) and the Central Bank, is old-fashioned and in need of modernisation, market sources say.

The vast bulk of Irish government bond settlements is done through the Central Bank Settlements Office. But it does only one settlement at the end of each day and has an 11.30 a.m. deadline for receipt of transactions.

"In terms of settlement, I think we are very much behind," says a source at one of the stockbrokers. "Until quite recently, the Central Bank guys sat in a huddle and called every item to each other." The system was totally manual until a year ago when the Bank introduced an element of computerisation.

By contrast, some other European countries run continuous settlement through the day and some are even considering the use of electronic links to introduce real-time settlement systems, brokers say.

A working group, including representatives of all those involved in the area, was set up to examine the issue last September and is due to report by March 1999. Among the issues it is considering are the timescales involved in the settlement process and what mechanisation might be introduced to the system. However, it also has to weigh up the demand for new facilities against the capital cost of new technology. "The working party was set up more to bring us into the 20th century than the 21st," says one broker. "But the timing was very bad. Everyone was taken up with euro matters and at many of the brokers, an embargo had been put on developmental work."

However, improving the settlement system is important if the Irish market is to retain its attractiveness post-euro. "If the settlement system, which is elementary, is not up to scratch and you are trying to persuade a French insurer into Ireland, it makes the sell all the more difficult," one market source says.

Irish government bonds will make up just 1 per cent of the total euro bond market and although the strong position of the Exchequer finances means there is likely to be little new issuance in the foreseeable future, some £2 billion a year of the debt will need to be refinanced.

In a pan-European investment environment, Irish fund managers will no longer have to buy the same quantity of Irish bonds as in the past so the NTMA and the brokers will have to find new buyers for the debt.

"We will always be at a disadvantage relative to size so it's a question of making sure that in relation to the technical aspects of the market we are able to compete with other smaller markets," one dealer says.

The issue was brought into the open after the NTMA's chief executive, Dr Michael Somers, claimed in an Irish Times interview last week that the Central Bank was hampering NTMA efforts to widen the market for Irish bonds.

However, Central Bank governor Mr Maurice O'Connell has rejected the charge, claiming the bank instigated the establishment of the study group.