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In this issue:1 Assessing the Impact of the
Prospectus Directive 3 Implementation of the
Transparency DirectiveBox: The TransparencyDirective in Brief
4 MiFID Implementation 5 Bond Market Transparency6 ECP and the UCITS
Implementing MeasuresBox: The ECP Market
7 Regulation of Audit Firms: Non-EEA Auditors and Auditors’ Liability
7 Clearing and Settlement8 ICMA’s Islamic Finance
Initiative9 Other Regulatory Policy News
10 Other ICMA News
This newsletter is presented by theInternational Capital Market Association(ICMA) as a service. The articles andcomment provided through the newsletterare intended for general and informationalpurposes only. ICMA believes that theinformation contained in the newsletter isaccurate and reliable but makes noreprsentations or warranties, expressor implied, as to its accuracy andcompleteness.
ICMA Regulatory Policy Newsletter 1
Assessing the Impact of theProspectus Directive
Kate Craven, Barclays Capital, Chairman ofthe ICMA Legal &Documentation Committee
Almost six years after the initial proposalfor the Prospectus Directive waspublished, a pan-European public offerand admission to trading prospectusregime is a reality. Now is, I believe, agood time to pause to think about whatimpact it has had so far. Has it created asingle pan-European primary market asits proponents argued? Or has itunnecessarily increased regulation ofinternational debt markets, increasingcosts and stifling growth and innovationin the market as some feared?
ICMA Regulatory Policy NewsletterIssue No. 5: April 2007
© International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
Some may argue that it is too early tosay. After all, the Prospectus Directivewas only really implemented across theEU last year while one member state stilldoes not have the implementing statuteon its books. I agree that it may bedifficult to predict any long-term impactat this stage. Market participants,however, have had over three years sinceits adoption to analyse the new regimeand adjust documentation and marketpractice. The short-term impact of thenew regime on the market shouldtherefore be clearly visible – and it is.
The comparability of prospectusesapproved in different EU member stateshas improved. It is indeed generallypossible to use a prospectus outside theEU member state where it was approvedwithout having to include additionalcountry-specific information, translate itinto the local language or go through alocal review and approval of theprospectus. Harmonisation of the
exemptions has simplified parallel privateplacements. This all involves real savingsand is a significant achievement.
We are, however, a long way away from asingle pan-European primary market.Having a prospectus approved in one EUmember state and using it to make anon-exempt public offer in one othermember state is easy; using it to makesuch an offer in five or ten other states atthe same time is difficult and sometimesimpossible.
Most importantly, having a passportedprospectus compliant with theProspectus Directive and Regulation isoften not enough. Many EU memberstates still impose additionalrequirements. Investigating andcomplying with them while co-ordinatingthe timing with other EU member statesis no easy task. Most of theserequirements are more or less clearlyagainst the principles of the Prospectus
Asessing the Impact of theProspectus Directive - continued
2 ICMA Regulatory Policy Newsletter © International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
ICMA’s response to CESR on the Prospectus Directive and RegulationWe have responded to CESR`sConsultation Paper on the supervisoryfunctioning of the Prospectus Directiveand Regulation. In addition to answeringthe specific questions asked by CESR, wetook the opportunity to provide a morecomprehensive summary of the market’sperception of the impact of theProspectus Directive and Regulation oninternational debt markets.
The most important observations wemade in our response were the following:
• We fully support the aims of theProspectus Directive and Regulation.So far, however, they have broughtabout only limited benefits. A truesingle EEA primary securities market (inparticular for retail investors) has notmaterialised.
• There are considerable differences inthe way the Prospectus Directive andRegulation have been implemented
and interpreted across the EEA andsome of these differences inhibit thedevelopment of a true single market forsecurities. This is partly due to different interpretations of the less clearprovisions of the Prospectus Directiveand Regulation and partly to thenumerous additional requirementsretained by some member states.
• The passporting mechanism hascontributed considerably towardscreating a single market for securitiesbut a number of direct and indirectobstacles to its efficient functioningretained by some member statesprevent it from providing its fullbenefits. Cross-border public offersand admissions to trading still involveunnecessary additional risks and costs compared to domestic ones.
• The range of investment opportunitiesavailable to a pan-EEA investor has notchanged substantially since the
introduction of the new prospectusregime. Regulatory obstacles and legalrisks have in fact reduced the choice of investment opportunities available toretail investors.
We continue to engage with CESR, theCommission and several nationalregulators on a range of topics related tothe Prospectus Directive and Regulation.We are also working on a number ofchanges to the existing suggested formsof selling restrictions and finalterms/pricing supplements which arepartly driven by the experience with theimplementation and application of theProspectus Directive and Regulationacross the EEA. Any comments, questionsor suggestions in this area would be muchappreciated.
Contact: Ondrej [email protected]
Directive and certain of them border onthe absurd. In some cases, one cannothelp but feel that their purpose is toprotect the local market from foreigninvestment products.
Secondly, numerous provisions of theProspectus Directive and Regulationlend themselves to differentinterpretations – which are inevitablywhat the issuer will be faced with if anon-exempt public offer is being made inmore than one EU member state. Thecurrent conundrum surrounding “retailcascades” is a good example but thereare others. In addition, certain crucialaspects of securities offerings – most
notably the liability for misleading orincorrect disclosure – have not beenharmonised at all.
To summarise, conducting parallelsecurities offerings in several EUmember states still remains difficult,expensive and legally risky. A cynic mightsay that, once the dust settles, we willsee that we are where we started, as thepreferred way still is to make an offer tothe public in one state and parallelprivate placements in several others. Theonly thing that will have changed, thecynic might argue, is that many moreissues will be in denominations of over €50,000, listed outside the EU or on
“exchange-regulated” markets and thatthe range of investment opportunitiesavailable to retail investors will be evenmore limited than before.
An optimist, however, would note thatthis is an outcome which is now widelyrecognised – and as a negative one atthat – and that the industry is workingwith the EU institutions and otherinvolved parties in identifying thevarious problems and addressingthem. A truly integrated single primarymarket may seem a bit too ambitious a goal at the moment, but I believe we are moving towards it – albeit in small steps.
The implementation of the TransparencyDirective (TD) has created significantchallenges for issuers of and investors insecurities on EEA regulated markets. Tohelp members deal with these issues,ICMA has set up a TD Working Group.
The deadline for implementation of theTD expired on January 20, 2007 at whichpoint only the UK and a handful of othermember states had transposed the TDand the Level 2 Implementing Directiveto which it refers.
ICMA was extensively involved inconsultations on the draft rules and islargely satisfied with the outcome,though a number of important issuesremain. In terms of periodic financialreporting these include: inconsistenciesbetween the liability rules applicable toTD periodic reports and those applicableto other market announcements; thepaucity of guidance on the content of TDinterim management statements; thescope of the exemption from periodicreporting for public sector guaranteedissuers; and the equivalency of non-EEAperiodic reporting regimes.
In terms of major shareholdingnotifications, outstanding issues include:the disclosure of holdings in assetmanagement entities to reflect client
agreement on discretionary or non-discretionary management; how to effectgroup aggregation or disaggregation ofvoting rights; how to treat new financialinstruments conferring unconditionalrights to shares; and the equivalency ofnon-EEA major shareholding notificationregimes.
From a pan-European perspective, theminimum harmonisation status of the TDis likely to lead to non-harmonisedimplementation and therefore problemsfor international participants. The extentof this issue is still undetermined asmany member states have not yetimplemented the TD and Level 2Implementing Directive. However, thismay also present an opportunity toadvocate the export of elements of theUK approach to implementation (asadapted where appropriate) acrossEurope.
In terms of the TD requirements (see thebox below) for establishing centralstorage mechanisms and interlinkingthem in a pan-European network, theCommission (DGMarkt) recentlypublished a Working Document(ESC/10/2007 rev1) setting out possibleminimum standards for entities chargedwith storing regulated information, and
minimum conditions for a pan-Europeannetwork of national central storagemechanisms.
The Commission invited interestedparties to comment on the WorkingDocument which was described asinformal and not a draft implementingmeasure. Having sought the views ofmembers, ICMA responded in support ofboth the central storage mechanismstandards and network conditions as asensible starting point. However, we alsoexpressed concern that a number ofareas critical to the operation of storagemechanisms and the network (includingdevelopment timescales and underlyinglegal and governance structures) werenot adequately addressed.
Building on the January 2007 seminar onthe implementation of the TD in the UK,and depending on discussions in the TDWorking Group, we anticipate a series offurther TD implementation events lookingat other key jurisdictions. We also intendto follow up with the Commission, CESRand individual regulators on the aboveand other implementation issues.
Contact: Christian [email protected]
The Transparency Directive in BriefThe TD (together with the Level 2Implementing Directive) imposes periodicand ongoing disclosure obligations onissuers admitted to trading on regulatedmarkets in the EEA. While transparencyobligations have long been covered byEuropean legislation, the TD introducessignificant changes to the details of theexisting regime. With certain exemptions,issuers will be required to publish annualreports, half-yearly reports and (in case ofissuers of shares) quarterly interimmanagement statements. The content,timing and publication requirements aremore demanding than previously the casein most EEA member states. Investors inshares and related financial instrumentsneed to comply with shareholding
disclosure rules. The TD has changed thescope of the notifiable instruments andholdings, the principles of aggregation anddisaggregation and the timing ofdisclosure.
All the information required to bepublished under the TD (together with theinformation published as insiderinformation under the Market AbuseDirective and the information publishedunder local requirements) must bedisseminated throughout the EEA andmade available throughout the EEA inelectronic storage mechanisms. With aview to allowing easy access to the storedinformation, the Commission and CESRare currently working towards establishing
minimum standards for the entitiescharged with the storage of regulatedinformation, and minimum conditions forinter-connecting these entities in a pan-European network.
As in the case of the Prospectus Directive,the TD is based on the “home/host”member state concept. Unlike theProspectus Directive, the TD is a minimumharmonisation measure: ie home memberstates are free to impose additional rulesand requirements.
For details of ICMA’s involvement with theimplementation of the TD and for ourcurrent concerns, please see the ICMAwebsite.
Implementation of the Transparency Directive
ICMA Regulatory Policy Newsletter 3© International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
MiFID Implementation
The timetable for firms preparing toimplement MiFID is very tight. Only threemember states (the UK, Bulgaria andRomania) transposed MiFID into theirnational laws by the deadline of January31, 2007, and there is some doubt aboutwhether the others will all do so by theimplementation date of November 1.There is a significant range of issues onwhich CESR is still consulting, or onwhich CESR guidance andrecommendations are still awaited: inparticular, passporting, inducements,transaction reporting and best execution.
Together with a wide range of otherassociations in Europe, ICMA hasparticipated in joint responses to CESRConsultation Papers on passporting andinducements (dated February 9). In theUK, ICMA has participated in a finalresponse to the FSA on CP06/19 onconduct of business regulation (datedFebruary 23). A joint response to CESRon transaction reporting was submittedon March 2 and a joint response on bestexecution (excluding the scope of thebest execution obligation) on March 16.In general, the market has been critical ofregulators’ propensity to reduce theflexibility available to firms under MiFID(eg on best execution), and to imposeadditional requirements beyond MiFID,including differing requirements indifferent member states (eg ontransaction reporting). All theseresponses have been published underMiFID on the Regulatory Policy section ofthe ICMA website.
Following consultations with theEuropean Securities Committee (ESC) inFebruary and March, the Commission’sreply to questions from CESR on thescope of the best execution obligation isexpected to be published shortly. Weunderstand that the Commission’sinterpretation is broadly consistent with ajoint buy-side/sell-side paper on scopesubmitted on February 7.
ICMA also continues to be involved in thework of MiFID Connect on helping firms
in the UK to implement MiFID. Drafts ofthe MiFID Connect industry guidelines onsuitability and appropriateness,outsourcing, investment research,conflicts of interest and best execution(excluding scope) have now beenpublished on the MiFID Connect website.
In addition, ICMA – on some occasions incollaboration with the European FinancialMarkets Federation (see back page) – iscontinuing to hold seminars on MiFIDimplementation to help members incountries outside the UK prepare for theimplementation of MiFID. Followingseminars in Zurich, Lugano and Genevain November and Luxembourg inDecember, a seminar was held inBrussels on February 7, in Paris onFebruary 15, in Milan on February 16 andin Vienna on February 28. Over 1,500people have participated in these eventsso far.
Contacts: Richard Britton and Paul [email protected]@icmagroup.org
The timetable forfirms preparing toimplement MiFID isvery tight. There isa significant rangeof issues on whichCESR guidance isstill awaited.
4 ICMA Regulatory Policy Newsletter © International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
Taking into accountthe comments wereceived from ICMAmembers on theDiscussion Paperon bond markettransparency, weare now consultingICMA members as awhole through aQuestionnaire.
ICMA Regulatory Policy Newsletter 5© International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
Bond Market Transparency
In our response in September 2006 tothe Commission Call for Evidence onbond market transparency (BMT), ICMAopposed the extension of MiFID to non-equities but indicated that we wouldreturn to the Commission with ourconclusions on proceeding with a self-regulatory initiative on enhanced post-trade data. In February, we published aDiscussion Paper with some preliminaryideas about how the industry mightdeliver benefits through increased post-trade bond market transparency. Takinginto account the comments on theDiscussion Paper we have received fromICMA members, we are now consultingICMA members as a whole through aQuestionnaire.
ICMA also responded to a CESR Call forEvidence on BMT re-stating ourconviction that there is no market failurerequiring regulatory intervention but thatwe want to engage with Europeaninstitutions to assess where market-ledsolutions may deliver benefits. Amongthe other respondents to the Call forEvidence, nearly all argued againstregulatory intervention and most werecautiously positive about the potential foran industry led post-trade transparency
initiative. CESR will use the evidencecollected to inform its BMT ConsultationPaper and ultimately its advice to theCommission, which is due to publish areport early next year on whether toextend the transparency provisions ofMiFID to bonds.
In March, a cross-market group ofassociations (ABI, EHYA, IMA, LIBA andICMA) published an independent studyon the transparency, liquidity andefficiency of high yield corporate bondmarkets in Europe. The research wascommissioned to inform theassociations’ input into theCommission’s BMT review. Key findingsinclude: the European high yield marketis relatively active; there is moreconcentration among high yield dealersthan in the investment grade sector; highyield spreads are wider than investmentgrade spreads; mandatory pre-tradetransparency would be detrimental to themarket; and market views on post-tradetransparency are varied within andbetween the buy and sell side.
Contacts: Christian [email protected]
After a long period of negotiation, in thecourse of which ICMA’s EuroCommercial Paper (ECP) Committee wasconsulted by the Commission, onJanuary 17 the ESC approved a newDirective on UCITS implementingmeasures. The Directive is intended toclarify (at Level 2) which assets areeligible for investment by UCITS, takingaccount of changes in the market sincethe original UCITS Directive (at Level 1)was adopted in 1985 (85/611/EEC).
The Directive was published on March 19in the Official Journal, and theCommission also published (on January17) a background note. In thebackground note, the Commissionargued that the new Directive will reducethe potential for divergent interpretations,
improve the functioning of the productpassport and improve legal certainty; itexplains why the new measures take theform of a Directive (which has to betransposed into the national law of eachEU member state) rather than aRegulation (which applies directly in eachMember State); and it also gives someguidance on each of the clauses.
The new Directive needs to be read as awhole, ideally in conjunction with theoriginal 1985 Directive and subsequentamendments. But the key passages forthe ECP market in the new Directive areArticle 5 (which includes provisionsabout information on the issue orissuance programme) and Article 7 (onasset backed commercial paper). In itsbackground note, the Commission says
that “Article 7 aims to reflect the marketpractices existing in the field of assetbacked commercial paper”.
Under Article 13 of the Directive, MemberStates have up to 12 months totranspose the Directive into their nationallaw, plus a further 4 months before itcomes into effect. Some Member Statesare expected to transpose the Directivewell within 12 months.
On the same date that the Directive waspublished in the Official Journal, CESRpublished guidance on how nationalregulators should apply the new Directive(at Level 3).
Contact: Paul [email protected]
ECP and the UCITSImplementing Measures
6 ICMA Regulatory Policy Newsletter © International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
The ECP Market
The Euro Commercial Paper (ECP) marketis a well-functioning, competitive, highquality, professional cross-border short-term debt market which offers excellentopportunities for issuers to raise workingcapital and other short-term funding aswell as for institutional investors to makevaried and reliable short-terminvestments. Since 1994, there havebeen no defaults in the ECP market and, inthe 22 year history of the market, there hasnot been any scandal nor accusations ofimproper dealing.
The ECP market has grown strongly sincethe introduction of the euro with €573billion equivalent of short-term notes nowoutstanding. The compound annualgrowth rate since the beginning of 1999 isover 20%. The market now provides adeep and realistic alternative to the US CPmarket for all types of commercialenterprise seeking to access liquid andwell-priced funding. It also provides awealth of investment opportunities for thewide range of investors who havecontributed to the great success of themarket in recent years.
In 1999, the ECP market was just 1/9th thesize of the US CP market. As a result ofits growth since 1999, the ECP market is
now over 1/3rd the size of the US CPmarket. (CDs are not included in the USor European figures.) In other words, ithas been growing towards a size whichwould be more representative of therelative sizes of the EU and USeconomies.
The dealers and issuing and paying agentsin the market are a mixture of Europeanand US investment banks, all of which areregulated by national regulators in the EU.All take their responsibilities towardsinvestors and issuers very seriously.
Within the ECP market, asset-backed ECP(ABECP) is the fastest growing sector.ABECP has grown from virtually nil to a34% market share over the past 5 years.ABECP is well-structured and activelyreviewed by both rating agencies anddealers, and monthly investor reports areproduced to keep participants abreast ofdevelopments.
ECP and ABECP borrowers are highlyrated institutions. Almost 90% of ECP israted “short term A-1/P-1-or-better”,which generally equates to A1/A+ longterm. All 100% of ABECP is rated A-1/P-1 (or equivalent) or better and is often A-1+/P-1, which equates to at least Aa3/AA-
long term. Corporate and ABECPprogrammes must have backstop liquidityfacilities (or equivalent mechanisms) fromhighly-rated banks to pay off maturing CPshould it not be possible to roll over theCP with investors. Bank issuers arehighly regulated and have access to theinterbank market and central banks forliquidity.
ABECP conduits (or special purposevehicles (SPV)) are established usually byhighly-rated banks for a limited purpose (iefunding a set of broadly defined assets),so that investors can readily evaluate theirinvestment by reviewing informationmemoranda, rating agency reports andother available information. Conduitsissue regular monthly “pool reports”,which broadly describe current assets andverify compliance with programmerequirements for the benefit of investors.
ICMA Regulatory Policy Newsletter 7© International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
TARGET2 Securities (T2S): Followingcalls for a cautious and step-by-stepapproach from the industry and FinanceMinisters (see page 13 of ECOFINconclusions), the Governing Council ofthe ECB has decided to go ahead withthe next phase of the project, namely thedefinition of user requirements on thebasis of market contributions. The scopeof the project will be determined bytaking into account the results of a publicconsultation. The Governing Council willonly then decide on the subsequentdevelopment phase. This decision isexpected by early 2008 (see ECB PressRelease).
The blueprint and feasibility study werepublished by the ECB (see link) andpresented to industry in a tri-partymeeting in Frankfurt on March 12. Thedetailed design of the governancestructure for the project is still underdiscussion and may not be finalised
before end-April. In a joint letter withother pan-European securities sectorassociations, ICMA has underlined theimportance of full involvement of theinternational securities sectorassociations in the future governancestructure, notably in the project steeringcommittee.
In a separate letter, ICMA’s EuropeanRepo Committee (ERC) has stronglysuggested direct representation of theERC in the T2S steering committee.
Code of Conduct: The first phase of theCode of Conduct for clearing andsettlement, requiring transparency inpricing and invoicing came into force onJanuary 1, 2007. While infrastructureproviders have widely complied byputting price lists on their websites,industry and the Code Monitoring Grouphave requested the providers to continuetheir work in this field towards increased
comparability of these lists and betterstructuring and reconcilability of theirinvoices.
ICMA agrees with ESF (a member of theEuropean Financial Markets Federation)and other securities sector associationsthat the next phase of the Code, namelyestablishing access and interoperabilityconditions by June 30, 2007, is a muchgreater challenge for the infrastructureindustry. ICMA has expressed itsexpectations to representatives of threeinfrastructure associations (FESE,ECSDA and EACH).
Contacts: Gregor [email protected]
Clearing and Settlement
Regulation of Audit Firms: Non-EEA Auditors and Auditors`Liability
The regulation andsupervision of non-EEA auditorsauditing non-EEAissuers admitted totrading in the EEAand the limitation ofauditors’ liability forstatutory audits arethe two key issuesarising from the newStatutory AuditDirective.
We continue to engage with theCommission on the regulation andsupervision of non-EEA auditorsauditing non-EEA issuers admitted totrading in the EEA and the possiblelimitation of auditors` liability for statutoryaudits, the two key issues arising fromthe new Statutory Audit Directive. InMarch, we submitted our responses onboth issues.
In relation to non-EEA auditors, wesupport the proposals to assess theequivalence of audit frameworks of allnon-EEA countries whose issuers areadmitted to trading in the EEA andintroduce a transitional period beyondJune 2008, the implementation date ofthe Directive (during which non-EEAauditors could continue to operate undertheir domestic standards), to allowsufficient time for the assessment. Ourmain goal is to avoid market disruptionand maintain the attractiveness of theEEA markets to non-EEA issuers.
In relation to auditors` liability, wesuggested that the analysis takes intoaccount a number of previously
neglected aspects, in particular theimpact of any limitation of auditors`liability on investors and otherprofessional advisers of issuers. Webelieve that if the case is eventuallymade for the limitation, theharmonisation should take the form of ahigh-level recommendation with itsscope limited to liability of auditors forstatutory audits as normally used. Of theoptions proposed, we find proportionateliability (rather than any fixed liabilitycaps) the least problematic solution,provided that the same treatment isextended to other professional advisersof the issuers involved in the preparationof the audited financial statements.
Both discussions are of tremendousimportance to the EEA capital marketsand should be of interest to all marketparticipants. We welcome any commentson our position or other suggestions.
Contact: Ondrej [email protected]
The use of Sukuk,or Islamic bonds,has developed intoa key mechanismfor raising finance inthe internationalcapital marketsthrough acceptablestructures. ICMA iswell placed toassist, following thesigning of amemorandum ofunderstanding withthe InternationalIslamic FinancialMarket.
The use of Sukuk, or Islamic bonds, hasdeveloped into a key mechanism forraising finance in the international capitalmarkets through acceptable structures.Borrowers in the market range fromsovereign states, supranational bodies,corporates and financial institutions topower and infrastructure projects. Froma modest US$336 million in 2000, Sukukissuance has grown to over US$24 billionin 2006 (a cumulative total of over US$50billion, including US$19 billion of globalSukuk issuance).
On the issuing side, key drivers are theneed for economies in both the Gulf andAsia to meet their expandingpopulations’ need for new transport,power and infrastructure projects; ademand likely to exceed the lendingcapabilities of local banks. On theinvestor side, the investor base isincreasingly concerned to invest itssavings in Shari’a compliant instruments.This dynamic has been assisted by theapplication of international banks’financing expertise and relateddevelopment of Islamic financial law.
ICMA is well placed to assist in thiscontinuing process, in terms of:
• liaising with the various stakeholders(including Islamic and other nationalregulators, supranational Islamicinstitutions and other marketparticipants) to foster certainty andflexibility through appropriateguidance and regulation;
• developing and promotingtransparency and other bestpractices (eg through workinggroups, recommendations andstandard documentation); and
• helping deliver technical (egmatching, reporting and data) andeducational services.
In this vein, a memorandum ofunderstanding (MoU) was signed onJanuary 30, 2007, with the InternationalIslamic Financial Market (IIFM). The IIFMis a Bahrain-based institution created in2002 (by the Islamic Development Bankand the central banks and monetaryagencies of Bahrain, Brunei, Indonesia,Malaysia and Sudan) with the aim ofdeveloping the Islamic capital markets.
Currently, IIFM’s 32 members alsoinclude several MEA finance houses.
The MoU contemplates an ICMA-IIFMworking group (open to all ICMA andIIFM members) to develop marketpractice, documentation and technicalservices for Islamic financial products(notably for repos and Sukuks).
A first and wide-ranging post-MoUconference call was held on February 22with IIFM and a few interested marketplayers. It was agreed to form initiallythree joint working groups (primarymarkets; secondary markets/repo;systems). Three initial specific objectiveswere identified – adaptation of: (i) theIPMA Handbook specifically to addressSukuk issuance; (ii) ICMA’s GlobalMaster Repurchase Agreement (GMRA)to enable Shari’a compliant repo trading;and (iii) ICMA’s TRAX2 system to enablesecondary market transaction matchingand reporting. Each working group willitself identify further projects toundertake.
With a view to launching the joint workinggroups, the following events are planned:
• April 26, 2007, Bahrain: secondarymarket (GMRA and TRAX2)presentations and floor/paneldiscussions on possible Islamicadaptations;
• May 18, 2007, London: Islamicprimary markets and IPMA Handbookadaptation presentations andfloor/panel discussions on possibleIslamic adaptations;
• June 18/19, 2007, Bahrain (at the 2ndInternational Islamic FinancialMarkets Conference which issponsored by the IIFM): primary andsecondary market presentations andfloor/panel discussions on possibleIslamic adaptations.
Contacts: Ruari [email protected]
ICMA’s Islamic Finance Initiative
8 ICMA Regulatory Policy Newsletter © International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
ICMA Regulatory Policy Newsletter 9
Other Regulatory Policy News
ICMA Suggested StabilisationAnnouncements
We published suggested forms of pre-stabilisation and post-stabilisationannouncements, required by RegulationNo. 2273/2003 implementing the MarketAbuse Directive, in relation to debtinstruments admitted to trading in the UK.They are accompanied by suggestedlanguage for a notice, to be included inthe base prospectus of a debt issuanceprogramme, that stabilisation may beundertaken.
CESR Guidance on MarketAbuse Directive
We commented on the draft CESRguidance on the inside informationregime under the Market Abuse Directive.The guidance is expected to cover: theconcept of inside information; delay in itsdisclosure; treatment of pending ordersand mutual recognition of insider lists. Inaddition, we raised the topics of theappropriate mode of disclosure of theinside information and the specialconsiderations which arise in case of SPVissuers. The debate will continue and wewelcome any comments on our positionor other suggestions.
Prospectus RegulationAmended
The regulation implementing theProspectus Directive was amended toallow the competent authorities torequest additional historical financialinformation in prospectuses in the case ofissuers with “complex financial histories”.These are issuers who have made (or areabout to make) significant acquisitions ordisposals. ICMA has been extensivelyinvolved in the discussions leading up tothe amendment and is in principlesupportive of the outcome.
Disclosure of Contracts forDifference (CFD)
As indicated in its Feedback Statement(PS06/11) on the implementation of theTransparency Directive, the FSA iscurrently exploring whether the currentnon-disclosure of CFD positions (otherthan in takeover situations) presents amarket failure as well as the cost/benefitsand practicalities of differing CFDdisclosure regimes. The FSA expects topublish the results of this analysis insummer 2007 in either a ConsultationPaper with proposed rule changes (if theevidence points clearly to the need forCFD disclosure) or a Discussion Paper (ifthe findings are less clear suggesting theneed for more market guidance).Mandatory CFD disclosure wouldsignificantly affect brokers and holders ofCFDs as well as the issuers of andinvestors in the underlying securities towhich the CFDs relate. We intend tomonitor developments, inform membersof the evolving FSA position and respondto any Consultation or Discussion Paperson this issue.
GMRA: New Legal Opinions
The legal opinions which support the useof the Global Master RepurchaseAgreement, the standard documentationfor the repo market, have recently beencompletely revised and updated and arenow available for 55 jurisdictions aroundthe world. The opinions all cover both theenforceability of the netting provisions ofthe GMRA as well as the validity of theGMRA as a whole. They also address theissue of recharacterisation risk (in respectof both the transfer of securities and thetransfer of margin). Legal opinions for all55 countries are available from the ICMAmembers’ area of the website.
European Repo Market
The European Repo Committee haspublished two clarifications of bestpractice for the determination of rates forEONIA-based repos and for floating-raterepos based on EONIA, respectively.
The results of ICMA’s 12th semi-annualsurvey of the European repo marketestimated market size, based on thevolume of repo trades outstanding onDecember 13, 2006, to be over €6,430billion, an annual increase of 14%. Thesurvey also indicated a renewed boom inelectronic trading of repo which nowaccounts for 23.3% of trading.
Hedge Funds
Discussion on hedge funds is currentlytaking place in multiple venues: the G-7Finance Ministers meeting in Essenissued a request for the Financial StabilityForum to update its 2000 report on HighlyLeveraged Institutions. The topic will beon the G-8 agenda in June 2007. The USPresident’s Working Group on FinancialMarkets issued Principles and Guidelinesregarding Private Pools of Capital inFebruary 2007. IOSCO issued aConsultation Report dated March 2007on “Principles for the Valuation of HedgeFund Portfolios” which is open forconsultation until June 21. ICMA co-chairs the work of the InternationalCouncil of Securities Associations (ICSA)on Hedge Funds.
IOSCO
ICMA participated in a meeting withmembers of IOSCO’s TechnicalCommittee in Madrid in March 26. Thisinformal meeting was intended to beginthe process of establishing a structureddialogue between IOSCO and theindustry. ICMA also participated in theIOSCO meeting in Mumbai in April.
© International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
New members for EFMF
The European Financial MarketsFederation (EFMF) has welcomed twonew member associations since thebeginning of the year, bringing thenumber of member organisations to six.The Futures and Options Association(FOA) brings expertise in therepresentation of the derivatives market,while the addition of NSMA, the Russianself-regulatory organisation for securitiesmarket participants, will help to forgecloser links between the capital marketparticipants of Russia and Europe.
Lamfalussy to speak at Berlinconference
Leading industry figures includingAlexandre Lamfalussy will feature at theICMA AGM and Conference being heldat the Intercontinental Hotel in Berlin onMay 31 and June 1. The programmeincludes a number of market briefingsessions on key regulatorydevelopments, notably: MiFIDimplementation; post implementationprogress with the Prospectus Directive;the debate over bond markettransparency; and the growth of the ECPmarket.
The conference is open to all marketparticipants, whether or not they aremembers of ICMA. For full details of theprogramme and registration please seethe ICMA website: www.icmagroup.org
Other ICMA News
Forthcoming ICMA events
International Fixed Income andDerivatives (IFID) CertificateApril 22-28, 2007Barcelona
ICMA Primary Market CertificateMay 21-25, 2007London
Professional Repo MarketCourseMay 23-24, 2007Moscow
39th ICMA Annual GeneralMeeting and ConferenceMay 30-June 1, 2007Berlin
10 ICMA Regulatory Policy Newsletter © International Capital Market Association (ICMA), Zurich, 2007. All rights reserved. No part of thispublication may be reproduced or transmitted in any form or by any means without permission from ICMA.
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