Abstract
Although the European Union (EU) has implemented initiatives and common rules regarding securities settlements, no similar integration initiatives have been proposed for the issuance and initial distribution of debt securities. The EU does not function as a single market given that issuers of euro debt instruments still have to use multiple and non-harmonised channels and procedures. A harmonised European framework for the issuance and initial distribution of debt securities or the establishment of a new European market infrastructure service is widely considered a way to create a deep and liquid single market for debt instruments. While such a paradigm shift promises significant improvements compared with the existing debt issuance and distribution landscape, a hasty and poorly designed public intervention would risk distorting the market, thereby increasing complexity and bringing more fragmentation.
Highlights
The European Union (EU) has implemented initiatives and common rules regarding securities settlements, no similar integration initiatives have been proposed for the issuance and initial distribution of debt securities
A new European secondary law instrument on the issuance and initial distribution of debt securities could promote standardisation and heighten connectivity between platforms, improving the access of market participants to debt securities. Such a harmonised European framework should be based on the principle of neutrality, which ensures that “the desired market structure is such that it does not put the location of issuance in a privileged position over other intermediaries and end users that wish to access the securities” (ECB, 2019a)
A new central service would allow for a single pre-issuance and an initial distribution process as well as ensure a level playing field for euro debt issuers, investors and other market participants, facilitating the establishment of a genuine single market
Summary
A European Mechanism for the Issuance and Initial Distribution of Debt Securities. the European Union (EU) has implemented initiatives and common rules regarding securities settlements, no similar integration initiatives have been proposed for the issuance and initial distribution of debt securities. In May 2019, the Eurosystem launched a public consultation and invited relevant market participants to provide their views on the establishment of a European mechanism for the issuance and initial distribution of debt securities in the European Union (European Central Bank [ECB], 2019b) Establishing such a mechanism would have an impact not just on issuers and investors, and on the central securities depositories (CSDs), custodians, dealers, issuing agents, paying agents and other stakeholders who would have to learn how to work with the new mechanism. Under the current fragmented regime, local investors are facing a smaller number of intermediaries and lower costs of holding assets compared with foreign investors (Goldberg, 2002) Such a privileged position in terms of issuance location and local participants prevents the entry of other investors – a situation that is incompatible with a single capital market.
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