The move towards a border-free European bond issuance market


The Eurobond market has often been described as conservative. Participants rely on
established, proven ways of doing business, and change often comes slowly and out of
necessity rather than the desire for innovation or reinvention. Thus, when Autostrade made
history by issuing the very first euro bond on 17 July 1963, it wasn’t about challenging the
status quo. Autostrade needed to procure financing outside of its local market, and so the
company worked with a UK-based law firm and issued its bond on the Luxembourg stock
exchange. The move was without precedent, so it needed to create a new market practice. In
time, that new practice became the industry standard.

In the decades that followed, issuance basically followed one of two approaches: local or
global. If an issuer wanted to address the local market and investors, they issued in the
local currency, under local law and through the local CSD. On the other hand, if that issuer
wanted to address an international market, they used the global note scheme. They issued
under UK law, listed the bond on the Luxembourg or Dublin stock exchange, and went
through the ICSDs with cash settlement in commercial bank money. Almost 60 years later,
the process is well established and, on the surface, there is no strong impetus for change.
However, developments over the past 20 years indicate that a shift in market practice could
be imminent.

The desire to create a capital markets union in Europe is not new. The Treaty of Rome, signed in
1957, included as one of its objectives the desire for free capital movement. When the euro was
introduced in 1999, focus on EU-wide financial activity increased. Then in 2001, the Giovannini
Group published a report identifying 15 barriers to the efficient functioning and development of
cross-border clearing and settlement. The conclusion was that there were significant technical,
tax and legal barriers to creating a capital markets union. The desire, however, remains, and many
European financial policy makers believe the formation of this union is a necessity to compete
in the global marketplace. And thus, over the past 20 years, authorities have passed several
regulations in the effort to create a level playing field, and ensure cross-border competition and

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