A proposed new standard on corporate and other debt issues from the FICC Markets Standards Board (“FMSB”) suggests that banks should be more transparent about their allocation policies and investors should make sure their orders are a true representation of their demand.
The New Issue Process Standard for the Fixed Income Markets sets out a range of improvements to the new issue process in the European market, from the granting of a mandate to publication of statistics.
The standard, which is being published as a transparency draft for comment, builds on the ICMA code for investment grade debt but would apply to all widely syndicated offerings of credit products in the wholesale markets, including investment grade, high yield, securitization and emerging market debt.
The standard is the third to be published by the FMSB, following earlier standards on Reference Price Transactions and Binary Options in the commodities markets.
Mark Yallop, Chair of the FMSB, said: “This standard is the result of a unique joint effort by corporate users of the market, institutional investors and underwriting banks to bring greater clarity to the process for issuing debt and to ensure it works fairly and effectively for all concerned. We believe it is a significant step in raising standards.”
This is what good practice looks like whatever part of the world you are in.
Robert Rooney, Chief Executive of Morgan Stanley International and chair of the FMSB’s Fixed Income, Spread Products sub-committee, said: “These proposals are aimed at the wholesale fixed income markets in Europe but over time we think market pressures will lead to this standard being adopted more broadly internationally. This is what good practice looks like whatever part of the world you are in.”
Russell O’Brien, Group Treasurer, Royal Dutch Shell and FMSB Board Member, said: “Corporates issuing debt in the fixed income markets will welcome having greater clarity and transparency in the process. We would like to see all our syndicate banks and investors adopting this standard.”
The new standard is applicable to all the main participants in the wholesale fixed income markets in the Europe, including issuers, investors and underwriting banks. Although initially the standard will be adopted by FMSB members in respect of issues in the European markets, the expectation is that primary markets participants in other jurisdictions will adopt the standard over time.
The main proposals in the standard are that:
· Banks’ allocations policies should be made available to market participants.
· Issuer preferences in the allocation process should take priority.
· When a mandate is granted, the lead banks and issuer should agree a document setting out the issuer’s aims for the transaction and how the banks will achieve that, including allocation preferences and marketing strategy.
· Banks should disclose to the market their policy on how they select investors for market soundings and investor roadshows.
· Lead banks should agree a strategy on book disclosure frequency with the issuer. Book updates should be disclosed publicly and should not be misleading.
· Investors need time to collate their demand for a transaction. It is best practice not to make significant changes to indicative issue terms or publicise the order book size during the last 15 minutes of the bookbuild.
· Investors should put in orders which are a true reflection of their demand and should not be misleading.
The FMSB is seeking comment from interested parties on the New Issue Process Standard for the Fixed Income Markets over the next two months. Submissions should be sent to email@example.com by midday (12:00pm BST), 17th January, 2017. A final version of the standard will be published by the FMSB after evaluating public comments.
Final versions of the FMSB standards on Reference Price Transactions and Binary Options in the commodities markets have now been posted on the FMSB website at www.fmsb.com following the period for comment.
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