“It’s time for a change in issuance.” With these words, Bjørn Crepaz, Head of Issuer Products at VP Securities, captured the attention of attendees at the recent PostTrade 360 conference in Stockholm. He explained how we are entering the era of ‘glocal’ issuance, where issuers can have a single approach for global and local issuances by issuing global bonds locally.
The issuance journey begins
17 July 1963 was a landmark day for the European financial markets. Autostrade, an Italian company, needed financing outside of their local market, and they issued the very first euro bond. Since they were first movers in this field, they needed to create a new market practice. They worked with a UK-based law firm and issued on the Luxembourg stock exchange. In time, this new market practice became established.
Two issuance paths emerge
In the decades that followed, issuance basically followed one of two approaches: local or global. If an issuer wants to address the local market and investors, they issue in the local currency, under local law and through the local CSD. In the Nordics, with our history of dematerialisation, this means issuing in a dematerialised book entry form and using central bank money.
On the other hand, if that issuer wants to address an international market, they use the global note scheme. They issue under UK law, list the bond on the Luxembourg or Dublin stock exchange, and go through the ICSDs with cash settlement in commercial bank money.
Thus, it has essentially been an either-or proposition; you either issue globally or locally. However, market developments show that there is a change on the horizon.
The road turns towards harmonisation
Over the past 20 years, as we have moved towards a Capital Market Union, authorities have passed several regulations in the effort to create a level playing field, and ensure competition and harmonisation. We now have frameworks in place to facilitate cross-border activities. And the European Central Bank has become an infrastructure provider, building the target platform for payments and securities and paving the way for process unification. These developments have led to a blurring of lines between global and local. Once again, the market has changed, and now it is time for a corresponding change in behaviour.
The future is "glocal"
The move towards harmonisation has created a more international mindset amongst investors. For example, 47%* of the debt instruments issued in Denmark are owned by international investors; the same is true for 64%* of Danish-issued equity instruments. Recent issuances have also demonstrated that the traditional objections to obtaining global financing through local CSDs are no longer valid. Thanks to an efficient network of connected CSDs, issuers can reach the same number of investors as they could with the global approach. Investors are not deterred by the local set-up and the liquidity levels are the same. And what about dematerialisation? Indications are that global note and certificate-based issuance is soon to be a relic of the past. According to the new SRD regulations, all new issuances should be dematerialised from 2023.
Yes, all signs indicate that we’re entering the era of ‘glocal’ issuance, where issuers can have one approach for global and local issuances by issuing global bonds locally. In upcoming articles, we will talk more about why traditional objections to the ‘glocal’ approach are no longer valid. In the meantime, read more about how financial institutions and companies have benefitted from issuing global bonds through their local CSD in our latest cases.
* Source - VP Securities Data analytics
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Bjørn Stendorph Crepaz
Head of Issuance & Issuer Services at Euronext Securities
Senior Relationship Manager