28 May 2019

Consultation on a potential Eurosystem initiative regarding a mechanism for the issuance and initial distribution of debt securities in EU

The Eurosystem is exploring the possibility to support a harmonised issuance and distribution of eurodebt instruments in the EU.In order to analyse the underlying issue, this Eurosystem market consultation invites responses from a wide audience of stakeholders, including issuers and investors.

From the perspective of a European or third-country entity interested in issuing debt in euro within a truly European market, the securities distribution ecosystem might present a number of challenges. First, although large issuers can already reach a wide range of European and international investors5, there is no pan-European issuance mechanism, and in particular one operating in central bank money6, offering issuers the possibility to efficiently reach all European investors on an equal basis, and thereby fostering a single and deep European capital market. Second, in the existing, largely national, securities distribution channels, the location of issuance might put local actors in a preferential position compared with other investors and market actors in Europe. In today’s practices, an issuer might choose primarily its own domestic market and CSD or rely on the services of an international CSD which serves its primarily international participants by settling in commercial bank money.

In addition to harmonisation, the perceived lack of neutrality and pan-European reach could potentially be addressed by the establishment of a European market infrastructure service, which would be offered on a level playing field basis.

The objective of such a service would be to enable euro debt issuers to access the whole EU market as if it was a single domestic market, both in terms of a single issuance process and a streamlined, commoditised service layer. The service could be based on a multilateral governance arrangement, encompassing all interested stakeholders, e.g. issuers, banks, CSDs and potentially investors.

The provision of such a service does not need to be an alternative to the harmonisation work considered above. On the contrary, the delivery of a European service and the work on the pre-issuance harmonisation agenda could reinforce and support each other.

EDDI could be envisaged as a centralised service interlinking issuers and CSDs to facilitate the pre-issuance and initial distribution of debt securities in the EU. EDDI would have two business components and would be based on a modular approach, i.e. leaving full freedom to its users as to which (if any) they want to use.

The pre-issuance component would be a technical toolkit available for issuers (or their issuer agents and/or dealer banks upon authorisation) offering them functionalities which support the definition and communication of an upcoming debt issue, the creation of the order book, the collection of orders from investors and the allocation of the debt instrument issuance to these orders.14

The post-trade component would receive the final allocation from the pre-issuance component (and potentially from private pre-issuance tools). On that basis it would facilitate the creation and the centralised distribution of the EDDI-issued debt instruments via the EDDI-participating CSDs. The issuance and initial distribution function could be provided by EDDI only in close collaboration with the CSDs connected to EDDI. This function would also include the notary service (i.e. ensuring the integrity of the global amount issued) and support the relevant corporate actions (e.g. information flows, interest payments) throughout the life cycle of the securities. The EDDI post-trade component would rely on T2S in order to provide the necessary real-time realignment between CSDs in order to enable secondary market cross-CSD transactions across the EU. EDDI’s objective is not to replace existing commercial arrangements, but rather to support the participants in the pre-issuance and initial distribution end-to-end process with standardised interactions and information flows.

Full consultation paper

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