Bond-Issuance Standard Released
A standard for fixed income new issues in Europe has been released which includes banks making their allocation policies available to issuers and all market participants, and investors only submitting clear orders which are a true reflection of their demand.
The FICC Markets Standards Board, an independent body with members from investment banks, asset managers, exchanges, custodians and users, published a proposed standard last November for consultation. The board was set up following the publication of the Fair and Effective Markets Review by the UK Treasury, the Bank of England and the Financial Conduct Authority in 2015 which criticised practices in FICC markets.
The new standard covers a range of topics from the granting of a mandate to the publication of deal statistics and is intended to apply in respect of all best efforts syndicated offerings of fixed income bonds in the European wholesale markets, including investment grade, high yield, securitised and emerging market debt.
Mark Yallop, chair of the FMSB, said in a statement: “The new standard is the result of extensive discussions between banks, corporate issuers and investors, both among our membership and from a large number of other important market participants during the Transparency Draft process. It is a significant step in clarifying practices in the market and ensuring it is both fair and effective.”
The FMSB expects the standard will be adopted by primary markets participants in other jurisdictions over time. All 38 FMSB member firms are expected to comply on a global basis, unless otherwise specified in the relevant standard. If FMSB members are unable to comply with specific details or in certain jurisdictions, they have to explain their reasons for not complying.
Jonathan Brown, head of investment grade syndicate EMEAPAC, at Barclays, said in a statement: “The paper goes beyond recent and upcoming regulation and will lead to a more open and transparent process thanks to input from issuers, investors and lead manager banks.”
Future standards from the FMSB will focus on the secondary market aspects of new bond issuance such as hedging activity, the appropriate process covering the dissemination of information and market colour in commodities and other wholesale markets, and conduct issues that relate to the use of trading technology in financial markets.
The European Union is also due to issue a new prospectus regulation to replace the current directive. The International Capital Market Association said in its latest quarterly report that perhaps the most important element for debt securities is the approach to detailed disclosure requirements. Regulators want to encourage issuers to prepare shorter and simpler disclosure, and to make it easier for companies to enter and raise capital on public markets by reducing burdens on issuers, and Icma has made some recommendations.
“The Icma proposal could therefore achieve two key policy goals: (i) moving towards shorter prospectuses; and (ii) minimising costs and burdens for issuers to make it easier for them to enter and raise capital on public markets,” added the report. “An alternative approach of reviewing the current annexes to the prospectus directive regulation to amend or delete individual requirements is unlikely to achieve these goals.”
In the UK, the London Stock Exchange has announced the launch of a new debt multilateral trading facility, the International Securities Market, in the second quarter of this year, to operate alongside the group’s other markets.
Icma said: “The consultation paper notes that the UK Government is seeking to ensure that UK debt markets can compete internationally on an equal footing by ending the anomaly which leads UK companies to issue debt on overseas venues in order to benefit from a UK exemption.”
Nikhil Rathi, chief executive of London Stock Exchange plc, said in a statement: “London Stock Exchange welcomes the UK government’s commitment to implement an exemption from withholding tax for interest on debt traded on a MTF. The London market has always provided an efficient process for UK and international companies to raise debt capital and the ISM will further reinforce London’s standing as an international finance centre and a dynamic place to do business.”
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