3 minute read
SHORT-TERM MARKETS
by Andy Hill, Arthur
Carabia and Katie Kelly
ICMA Commercial Paper Committee
On 2 March 2021, ICMA held the inaugural meeting of its Commercial Paper Committee (CPC). The new Committee is a renaming and reconstitution of its longstanding Euro Commercial Paper (ECP) Committee. Whereas the ECP had historically been dealer-based and focused purely on the international (“Euro”) element of the market, the CPC is intended to focus more broadly on the commercial paper (and certificates of deposit) market across Europe (both international and domestic), and is designed to encompass the broader ecosystem, including issuers (financial and corporate), investors, dealers, and relevant infrastructures.
“The CPC is intended to focus more broadly on the commercial paper (and certificates of deposit) market across Europe, and is designed to encompass the broader ecosystem”.
Background
The formation of the CPC follows an ICMA workshop, The European Commercial Paper Market Reimagined, held on 4 November 2020. Involving representatives of the entire CP ecosystem, the objectives of the workshop were: (i) to look back on how the European commercial paper market performed during the peak of the COVID-19 crisis; and (ii) to identify possible initiatives, whether market-based or regulatory, that could help to develop the market. At a follow-up meeting of workshop participants and other interested members, held on 9 December 2020, it was widely agreed that there was value in expanding the existing ECP Committee to encompass a broader range of stakeholders, including issuers, investors, and infrastructures, and that this newly constituted committee should play a pivotal role in supporting market development.
Scope, structure, and governance of the CPC
The ICMA CPC seeks to be the representative voice of the European and international Commercial Paper and Certificates of Deposit (CP/CD) market, bringing together all relevant stakeholders with the goal of supporting market development. It aims to do this by: • providing a platform for dialogue and the sharing of ideas between market stakeholders; • developing and supporting market standards and best practices; • facilitating the dissemination of relevant information amongst members related to market developments and, where possible, data and research; • promoting the best interests of the market with regulators, policy makers, and other key stakeholders.
At the 2 March 2021 meeting, members agreed to the proposed scope of the CPC. It was felt that, given that financial CP and CDs were considered to be largely interchangeable, the Committee’s scope should also include CDs. It was further agreed that the focus should not necessarily be limited to Europe, particularly in light of the global investor and issuer reach of the ECP segment of the market. In terms of structure, members felt that it should be kept largely informal, although member firms agreed to nominate one Principal Representative with the option of multiple
Alternative Representatives. It was also agreed that the Committee would have three co-chairs representing the three key constituencies. ICMA asked for members to volunteer for the position of co-chair. The three inaugural co-chairs of the CPC are: Jonathan Paxton, NatWest Markets (Dealers); Gregor Harwell, BlackRock (Investors); and Scott Creed, Lloyds (Issuer).
Deliverables
It was broadly agreed that the first deliverable of the CPC should be a white paper that builds on the conclusions of the Workshop and that: (i) maps the market landscape and structure pre-2020, highlighting any potential vulnerabilities; (ii) describes what happened during and following the March-April 2020 market turmoil (with reference to various central bank interventions); and (iii) makes recommendations for market development based on the lessons learned. Members considered this initiative to be particularly important in light of the ongoing work being undertaken by the FSB and IOSCO related to how money market funds (MMFs) performed during the March-April 2020 market turmoil. A deadline for mid-May 2021 for finalising the paper was suggested. ICMA’s Asset Management and Investors Council (AMIC) also intends to establish a complementary Working Group focused on MMF regulation, which will be run in parallel to this initiative. The intention is that the two groups will interact closely. The paper should further provide a platform for future CPC initiatives, particularly those aimed at addressing many of the identified challenges to the development of an efficient, well-functioning pan-European CP/CD market; and which can largely be attributed to acute market fragmentation, a need for improved transparency, and the absence of a liquid secondary market. Members with an interest in the development of the Commercial Paper or Certificates of Deposit Markets are encouraged to join the new Commercial Paper Committee.
