International Capital Market Features
The European Commercial Paper market: a new ICMA white paper By Andy Hill
NEU CP Amount Outstanding (EUR bn) 350.00 300.00 250.00 200.00 150.00 100.00 50.00
n19 Ju l-1 9 Au g19 Se p19 Oc t19 No v19 De c19 Ja n20 Fe b20 M ar -2 0 Ap r20 M ay -2 0 Ju n20 Ju l-2 0 Au g20 Se p20 Oc t20 No v20 De c20 Ja n21 Fe b21 M ar -2 1 Ap r21
0.0 Ju
On 29 September 2021, ICMA published a new white paper on the European Commercial Paper (CP) and Certificates of Deposit (CD) market. The paper, an initiative of ICMA’s recently reconstituted Commercial Paper and Certificates of Deposit Committee (CPC) attempts to: (i) map the landscape of the European CP and CD market; (ii) describe how the market performed during the COVID-related turmoil of MarchApril 2020 and after; and (iii) propose initiatives that could support the development of market structure and enhance resilience, particularly in the event of future shocks.
Market structure
Banks
When viewing the European CP market, it is important to appreciate that there is no single pan-European market as such, and that the market consists of a number of different markets, each with their own legal frameworks, post-trade structures, participants, and dynamics. This makes the European market highly distinct from the US CP market. The paper describes the landscape along a number of structural dimensions, and looks at the various constituents, including issuers, investors, dealers, and financial market infrastructures (MFIs). The two main European markets are the Euro Commercial Paper (ECP) market and the Negotiable European Commercial Paper (NEU CP) market, followed by a number of smaller domestic markets.
European vs American Outstanding CP/CDs 1,000
USD (Bn)
800 600 400 200 Q1
Q2
Q3
Q4
2020 FIG
SSA
Corporates
Non Financial
Public
Source: Banque de France
The March-April 2020 market turmoil The paper describes and examines the “dash for cash” experienced in March and April 2020, from the perspectives of various stakeholders, including issuers, investors, and dealers. In doing so it also looks at the perceived impacts of the different central bank interventions, in particular that of the Eurosystem. What becomes clear is that there is no single consistent viewpoint, although stakeholders point to a breakdown in secondary market liquidity that made it difficult for holders of short-term paper to sell positions to raise liquidity. This was particularly the case for financial paper, noting that the ECB purchase programmes, consistent with the bond purchase criteria, did not include financial issuers, and which is the predominant segment of the overall market.
Recommendations to develop the European CP/CD market
(As of 31/03/2021) Less then 1 year
0
Other Financial
Q1 2021
ABS — USCP
Source: 2021 © CMDportal.com
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Market participants indicate that they would like to see greater standardisation and harmonisation in terms of legal and regulatory frameworks, documentation, issuer eligibility, maturity and denomination profiles, and settlement cycles. Lower barriers to entry to the market, particularly for corporate issuers, would also be welcomed, which perhaps requires further analysis.
