ISIN Update: European Corporate Bonds Under Spotlight
What can be achieved in European Union (EU) politics in less than four years? The European Commission certainly has ambitious plans.
In February 2015 the Commission published a Green Paper on building a Capital Markets Union (CMU) in Europe, with the aim of making it functional by 2019. The goal of the CMU would be to enhance growth and jobs in the EU and to increase the role that capital markets play in the financing of the economy, for example, by increasing the funding of small and medium-sized enterprises (SMEs) through safe and transparent securitisation. This directly affects the International Securities Identificantion Number (ISIN) and here’s how.
As reported by the WSJ in May a key aspect of the plan includes further developing corporate bond markets by standardizing some aspects of bond issuance, but that plan is proving controversial.
In a response to the European Commission this month, The Bank of England argued that while companies only trade a handful of stocks in the equity markets, some firms have hundreds of different bonds outstanding – and investors find it costly to determine the details of each bond to make comparisons. That hurts liquidity in the European corporate bond market, the bank said.
Corporate treasurers, however, oppose the idea. In a letter this month the European Association of Corporate Treasurers said it is “concerned” about suggestions to impose standard maturities and coupons on corporate bonds, because it could encroach on the ability of a bond to match an individual business’s needs, essentially separating the business’s financing needs from its cash flow requirements.
To read the full article, click here.