An effort by the European Central Bank (ECB) and the region’s biggest public-sector borrowers to modernise bond issuance is getting mixed reviews from banks amid concern it may diminish their decades of control.
“Investors are in general positive, issuers working with us are interested and engaged, and banks are at the moment split,” Anev Janse said in an interview. Some banks “are very positive. Some are still uncertain what it means for them.”
The ECB consulted with supranationals and agencies that issue debt continuously to support local government projects, sovereign budgets and development programs. Those include the Council of Europe Development Bank, the European Investment Bank, the ESM, BNG Bank in the Netherlands and German development bank KfW, according to people familiar with the matter, who asked not to be identified because the talks were private.
Representatives for the Council of Europe Development Bank, the ECB and the EIB declined to comment.
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Some banks are concerned that EDDI may detract from existing efforts to make bond sales more efficient. Tech and data firm IHS Markit Ltd runs a platform that lets investors place orders electronically, mostly with European and Asian dealers. In the US, Wall Street’s biggest banks are working on a rival system dubbed Project Mars.
Others believe EDDI won’t disrupt their role or reduce their fees. Banks support borrowers by underwriting deals when a market window closes unpredictably, said Friedrich Luithlen, head of debt capital markets at DZ Bank in Frankfurt. Borrowers also rely on banks to make secondary markets in their bonds, which ensures smoother trading and future access.
“We’re not here to disrupt the banks,” Luithlen said. “They play an important role in the syndicated process by advising on pricing, underwriting securities and ensuring regulatory compliance. All of that will happen the same way it’s done today.”
It allows issuers to communicate their intention to sell notes and lets banks build a book of orders they can see, according to Anev Janse. It can be used to decide and relay allocations through to the process of transferring investor funds to borrowers.
“The transaction should start with the issuer and they should be the first one in the system to create the bond and start the process,” said Nijsse. “The issuer is left out of the existing systems.”