AFME, the German Investment Funds Association (BVI), Bundesverband der Wertpapierfirmen (bwf), EFAMA and ICMA have encouraged the EU to calibrate corporate bond transparency regimes in line with credit ratings in order to remain competitive globally.
Investment grade (IG) corporate bonds are more susceptible to price volatility than high yield (HY) products, and therefore need different levels of protection. Credit ratings reflect these differences, and allow for more tailored transparency levels to be applied in line with price volatility.
Such a system allows issuers to effectively finance investment needs and could improve market liquidity, the groups state. The strategy is already used by TRACE in the US, and has recently been adopted as part of the FCA’s proposed transparency models in the UK. The EU must do the same in order to remain competitive globally, the groups argue.
Using credit ratings in transparency frameworks is already supported by the European Commission expert stakeholder group’s report on bonds and ESMA’s securities and markets stakeholder group. The ECB already uses credit ratings in the Eurosystem credit assessment framework, and a credit assessment framework already applies under certain EU regulations including EMIR and capital requirements regulation (CRR).
“ESMA already operates a potential source of the relevant data in the form of the European Rating Platform (ERP) which incorporates ratings data from all authorised credit rating agencies,” the report continued, stating that the authority could host a golden source of information for the industry. Alternatively, implementation could be industry-led, with determination defined by investment firms, APAs and trading venues, it added.
©Markets Media Europe 2024
