Issue no. 22: ICMA Regulatory Policy Newsletter

partly because of the related need (eg in Ireland) to recapitalise
the banks. The European authorities have stepped in with the
IMF to provide official financial support, conditional on policy
changes in the recipient countries designed to reduce their
public deficits and increase their competitiveness.
But the perception has grown in the market that the policy
changes agreed so far will not be sufficient without sovereign
debt restructuring in one form or another. And the prospect
of sovereign debt restructuring raises difficult issues. How
should affected sovereign debt be valued when stresstesting
the banks? Should restructured debt still qualify as
a liquid asset and be eligible for use as collateral? Would
restructuring in one part of the euro area create contagion
elsewhere? And while restructuring would reduce the burden
on the public finances, it could increase the requirement to
recapitalise local banks which own government securities
in question, and it would impose losses on foreign banks
and investors. Underlying these questions is the market
perception that, if governments in the euro area do not
integrate their finances further, ultimately there is a risk that
parts of the euro area may fragment.
The other issue is the relatively high dependence on bank
finance and relatively low use of the international capital
market to finance economic activity in Europe, by comparison
with the US. Greater use of the capital market in Europe
would not only help to recapitalise the banks themselves but
also, by reducing reliance on the intermediating role of those
banks whose balance sheets have been weakened by the
crisis, make it easier to finance the economic recovery.
Conclusion
This Quarterly Assessment has described, in summary form,
the changing international context within which ICMA continues
to set standards of good market practice in the international
capital market in order to make the market more efficient
and safe. Market intelligence on the regulatory proposals in
prospect, together with an outline of the practical steps that
ICMA is taking on behalf of its members, on both the sell side
and the buy side, is set out in the report which follows.
Paul Richards
paul.richards@icmagroup.org
QUARTERLY ASSESSMENT
Recent practical initiatives by ICMA
Sovereign bond markets
1.
2.
3.
We have continued our work on sovereign
bond documentation relating in particular to the
transparency of contractual terms and to collective
action clauses; and we have participated in meetings
with the European Sovereign Debt Markets Group,
chaired by Philippe Mills of the AFT; certain individual
Debt Management Offices in the EU; the European
Central Bank; the European Commission; and the
European Financial Stability Facility.
ICMA’s Chief Executive has written to all ICMA
members concerning how ICMA might assist them
in the context of Greek sovereign debt; and related
information continues to be made available through
ICMA’s Sovereign Debt Information website page.
We have issued guidance on buybacks by EU
sovereign and sovereign agency issuers and by
supranational issuers, in consultation with the ICMA
AMTE Council.
Short-term markets
4.
5.
6.
The GMRA 2011 has been launched, together with
an adoption Protocol, and legal opinions have been
updated.
The ICMA ERC Committee has commented on the
repo-oriented aspects of the European Commission’s
consultation on financial sector taxation.
An ICMA staff paper has been circulated to our ECP and
ERC Committees setting out details of the Basel definition
of liquid assets for liquidity coverage ratio purposes.
Primary markets
7.
8.
ICMA has submitted a response to the European
Securities and Markets Authority’s (ESMA’s)
consultation concerning its guidelines on the
application of the endorsement regime under Article
4(3) of the EU Credit Rating Agencies Regulation.
ICMA is responding to ESMA’s consultation on its
technical advice to the European Commission on
Level 2 of the review of the EU Prospectus Directive.
ICMA Regulatory Policy Newsletter Third Quarter 2011 | 6