Securities Issuance Consortium
Pursuing innovation in the international bond markets
The Securities Issuance Consortium is a market-wide initiative that has been created to resolve operational and legal inefficiencies within the international bond markets. Launched in 2021, the consortium has grown to now include more than 100 individuals from over 30 industry firms, ranging from: asset managers, bond issuers, (I)CSDs, law firms, investment banks to data vendors and numbering agencies. As of 2022 the Consortium also brings new topics for discussion such as the future role of primary market technologies in the issuance process.
The consortium is designed and hosted by Adrian Dacruz from Clearstream and now has the continual support of the ICSDs and major investment banks who also promote the need for market change. The founding principles of the group are to provide a collaborative and innovative space for the securities issuance markets to grow into their future state.
Building more efficient bond markets
The key objectives of the consortium include working with all members to reduce operational risks and delays when issuing bonds under Regulation S and Rule 144A formats. The consortium also challenges the existing belief that Regulation S and Rule 144A bonds must be set up as two separate securities – instead, promoting the use of the Unitary ISIN. Medium term group benefits will increase bond market liquidity, as well as reducing industry transaction costs and reputational risk for all participants.
Consortium results to date
Among our findings, the consortium notes that only 15% of European Issuer 144As are currently set up within the "XS" Eurobond ISIN (ICSD) structure, despite the benefits of:
- "XS" 144As are shown to convert at least 50% faster than their U.S. security counterparts.
- "XS" 144As offer collateral eligibility with the ECB and lower cost.
- All Issuer legal documentation can be easily changed to support 144A tranches settling within the ICSDs.
- All major investors have ICSD accounts (either directly or indirectly).
Additionally, we have discovered that:
- U.S. Agent Banks are open to the idea of removing their Medallion Stamp requests which speeds U.S. security conversions (an area for continued group action).
- The Unitary ISIN structure is becoming a recognised alternative that removes the need for conversions all together (an area for continued discussion into 2022).
- Third party legal firms and data vendors also have an interest in more efficient conversions and security representation.
Redesigning Paying Agent processes
The consortium promotes change within the Paying Agent community and the operational processes that are undertaken, which we believe can strengthen market efficiency:
- Goal: The consortium seeks to either remove exhibits completely or standardise them.
- Unnecessary exhibits are delaying conversions and are provided in a non-standard format. Our members suggest developing a standardised exhibit template. We want to work with Agents and supervisory bodies to standardise exhibit wording across industry.
- Goal: The consortium wants to work with the industry to promote the proper application of chill periods.
- Some Paying Agents can incorrectly quote a "coupon chill" during which conversions are halted. Fails can subsequently occur. We encourage Agents to act with discretion and review wording and processes in detail.
- Goal: The consortium seeks the removal of the stamp for European transactions. A few Agent Banks have led the way and removed it already.
- The consortium seeks industry wide removal as the extra work involved in obtaining the signed stamp has added to the timeframe on transfers.
About the Unitary ISIN structure
The Unitary ISIN structure offers issuers high flexibility and reduced complexity when issuing securities under Regulation S and Rule 144A formats. Rather than having to allocate two distinct ISIN codes, the Unitary ISIN represents one single global security in registered form which is deposited at an ICSD Common Depository. The advantages include less administration and no conversion processing.
About Regulation S & Rule 144A securities
Regulation S and Rule 144A securities are both exempt from Securities and Exchange Commission (SEC) registration under the U.S. Securities Act of 1933. Bonds can be issued under one or other exemption, and often a bond issue will be issued under both Reg S and Rule 144A. Under Rule 144A, only Qualified Institutional Buyers (QIBs) can own the debt security without SEC registration. Purchasers may be inside or outside of the U.S. Under the Reg S, only non-U.S. investors can own the debt security without SEC registration, until the end of the Distribution Compliance Period.
When RegS and 144A issues are combined in a single security with two ISINs, cumbersome conversions are required between counterparties. This is one aspect of the market that the consortium intends to solve.
Join the consortium
Any participant within any area of the international bond markets is welcome to join the consortium. Please contact us: firstname.lastname@example.org