11 January 2016

ICMA Quarterly Report

To be internationally competitive, wholesale markets in the EU need to be free from barriers across borders. But there are also barriers in the EU to retail investment across borders. While retail investors need to be offered more investor protection than wholesale investors, it is important that the remaining retail barriers across borders are removed, because retail investment is one of the largest potential markets for growth in the EU (eg in response to provision for retirement) in the period ahead. Steps need to be taken to make cross-border retail issuance (eg by pan-European issuers) more attractive. Retail investors traditionally have a “home bias”.

Private placements: European corporate issuers have often issued private placements in the US rather than in their home market. The pattern is changing in response to the pan-European private placement initiative, which builds on national market precedents (eg in Germany, France and the UK). In the Action Plan, the Commission states that it is supportive of the steps which ICMA has taken under the pan-European private placement initiative.

Securitisations: The reputation of securitisation in the EU was damaged by the crisis, even though losses were much lower for securitisations originated in the EU than in the US. In an attempt to overcome the problem, the Commission has proposed new legislation to promote simple, transparent and standardised (STS) securitisations. There are two main issues to be resolved: first of all, linking STS to a sufficient reduction in capital charges to incentivise investment, without the reduction being offset by increases in capital charges elsewhere (eg as a result of the Fundamental Review of the Trading Book); and second, devising a fail-safe procedure for deciding whether a securitisation should be categorised as STS or not. If successful, the revival of the securitisation market, through sales by banks to investors, should free up bank balance sheets for more lending (eg to small businesses).

Covered bonds: The Commission has consulted stakeholders on the feasibility of a pan-European framework for covered bonds, owing to differences between a number of well-functioning national covered bond frameworks.

Green bonds: The Commission is monitoring developments in the green bond market, which is coordinated through the Green Bond Principles, for which ICMA provides the Secretariat.

Benchmarks will be subject to requirements appropriate to their size and nature, while at the same time respecting a core set of minimum requirements in line with the applicable internationally agreed principles of IOSCO. Critical benchmarks will be those used as a reference for financial instruments or financial contracts, or for the determination of the performance of investment funds, having a total value of at least €500 billion on the basis of all the range of maturities of the benchmark; or benchmarks based on submissions by contributors mainly located in one member state and recognized as being critical in that Member State. Benchmarks of at least €400 billion can also be considered critical if they have no or very few appropriate market-led substitutes, and if their absence would have significant and adverse impacts on markets integrity, financial stability, consumers, the real economy, or the financing of households and corporations. Significant benchmarks are those which fall below the critical level but still have a total average value of at least €50 billion on the basis of all the range of maturities or tenors of the benchmark over a period of six months.

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