1 New Global Note structure for international bearer debt securities issued through the ICSDs 1 June 2006

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New Global Note structurefor

international bearer debt securitiesissued through the ICSDs

1 June 2006

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• The international debt market

• New Global Note

• Legal framework

• Market impacts

• Additional information

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International debt marketKey features

The international debt market features instruments that are initially issued (and subsequently traded) across borders and has the following features:

• Wide range of issuers• Different jurisdictions• Deposited with ICSDs• Multi-currency• Multi-product• Can be offered simultaneously to investors in a number of

countries

• Often stock exchange listed (although the bulk of trading is over-

the-counter)

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Data source: www.bis.org

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Q1

2003Q2

2003Q3

2003Q4

2004Q1

2004Q2

US D

ollar

Billi

ons

International Debt Securities

France

Germany

Italy

International debt marketAttractiveness of international debt securities

Key features:

• Accessibility

• Price

• Liquidity

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International debt marketEurosystem collateral eligibility

• Eurosystem: the ECB and the National Central Banks of member states which have adopted the single currency

• Principal objectives of the Eurosystem are price stability and support of the general economic policies of the European Community

• Eurosystem uses monetary policy instruments to help steer interest rates and manage liquidity

• Liquidity provided to the market via monetary policy instruments usually requires the placement of “eligible collateral”

• More information on www.ecb.int

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International debt market Eurosystem collateral eligibility

Eurosystem collateral eligibility criteria (amongst other requirements):• euro-denominated• debt • issued by an EEA , G10 or supranational issuer• meets high credit standards • is listed or quoted on a regulated market or an approved non

regulated market• is settled in the Eurozone• is held with a Securities Settlement System (SSS) complying

with further Eurosystem criteria• More information on

http://www.ecb.int/pub/pdf/other/gendoc2005en.pdf

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• The International debt market

• New Global Note

• Legal framework

• Market impacts


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International securities issued in CGN form

ICSD

Clients

Issuer

Common Depositary

New Global Note Classical Global note (CGN) Structure

Euroclear

Clearstream

IssuerAgent

Issuing & PayingAgency

Agreement

Common DepositaryAgreement

Terms & Conditions / Operating

Procedures / Customer Handbook

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New Global NoteTrigger of the new structure

• Request from Eurosystem leads to the proposal of a new structure for securities to be recognised as eligible collateral

• The new structure will be mandatory for Eurosystem collateral eligible securities as of 1 January 2007

• The NGN structure can also be used at issuer’s choice for other bearer debt securities

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New Global NoteNew structure

ICSD

Clients

Issuer

CSK

Euroclear

Clearstream

IssuerAgent


Agreement

CSKAgreement


procedures / Customer handbook

CSP

CSPAgreement

Issuer- ICSD Agreement


ICSD

Clients

Issuer

CSK

Euroclear

Clearstream

IssuerAgent


Agreement

CSKAgreement


procedures / Customer handbook

CSP

CSPAgreement


International securities issued in NGN form

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• Bearer form securities

• New type of global certificate: New Global Note (NGN)

• Issue Outstanding Amount (IOA) = ICSDs’ records → No need for physical annotation of the Global Note

• Issuer-ICSD agreement

• Two new types of agents:– Common Safekeeper (CSK): commercial banks or ICSDs– Common Service Provider (CSP): commercial banks

New Global NoteKey features

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New Global NoteOverview of the dual structure

CGN NGN

Type of security International securities International debt securities

Legal form of security Global Bearer or Registered Global Bearer

Asset servicing CD CSP

Safekeeping CD CSK (Bank or ICSD)

Legal record keeper CD ICSDs

Date of existence Since 1986 As from 30 June 2006

Eligibility for Eurosystem monetary policy and credit operations

Yes, for securities issued before 1 January 2007

Yes, if deposited with ICSD CSK

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As from 1 January 2007 collateral eligible international debt securitiesin bearer form will have to comply with:

• The current collateral eligibility criteria, AND

• New criteria:

– NGN form– Kept in safe custody with an ICSD CSK

Grandfathering will apply for securities issued before 1 January 2007

New Global NoteCollateral eligibility

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New Global Note Collateral eligibility for securities issued through the ICSDs

As from 1 January 2007, Eurosystem collateral eligibility

= current Eurosystem criteria + NGN form + ICSD CSK

CGN

CGN

NGN + ICSD CSK

NGN + Commercial bank CSK

Potentially eligible

Not potentially eligible

Potentially eligible

Not potentially eligible

30 Jun 1 Jan

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• New Global Note

• Legal framework

• Market impacts


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New or updated legal documents:

• New Global Note (NGN)

• Effectuation authorisation

• Issuer-ICSD Agreement

• Legal Opinions for four jurisdictions: England, Germany, Netherlands, New York

• Model provisions for offering documentation

• Standard clauses for Trust Deeds / Issuing and Paying Agent Agreements

Legal frameworkPrinciples

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• New Global Note

• Legal framework

• Market impacts


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• New operational flows had to be designed for the NGN structure when necessary

• Changes led to optimisation of the operational flows

• Harmonisation of the current and new flows

• Standard Market Protocol to promote the changes to the market

Market ImpactsGeneric

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Market impacts Issuance process

CS358F

Common Safekeeper

LeadManager

NIAccount

Syndicate/Allottees

Positioning

Euroclear

ClearstreamCommon Service Provider

Confirm receipt and validity of the NGN

Confirm Mark Up + Instruction

to credit LM account

Mark Up Instruction

Issuer€

€ €€

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• Specific form of security (NGN) deposited with a CSK

• Updated offering documentation

• Issuer-ICSD Agreement

• Legal opinion on validity and enforceability of NGN (except in four markets covered by WG opinions)

• Effectuation authorisation

Market ImpactsImpact for issuers

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For issuer agents and lead managers: • Specific form of security NGN

• New issue documentation

• New procedure for New Issue issuance process.

For issuer agents only:

• New procedures/systems for reconciliation

• Enhanced procedures for Income and Corporate Actions processing

• New responsibilities created by the Issuer-ICSD Agreement

Market ImpactsImpact for issuer agents and lead managers

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• Eurosystem-eligibility maintained

• Communication of new criteria

• Improved asset servicing

Market ImpactsImpact for investors

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• New Global Note

• Legal framework

• Market impacts


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Additional informationProject organisation

• Working Group

• Market Advisory Group

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Additional informationDocuments covering the NGN structure

• NGN brochure • FAQ• Legal pack including:

• NGN templates• standard provisions for agency agreements• standard provisions for offering documentation• Issuer-ICSD agreement• Effectuation authorisation • Operating & Administrative Procedures Memorandum

• NGN New Issues Procedures

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Additional informationWhere to obtain additional information

www.icma-group.org

[email protected]

www.euroclear.com

[email protected]

+ 32 2 224 4527

www.clearstream.com

[email protected]

+ 352 243 32119

www.capmktserv.com

[email protected]