Leading market participants have published final guidelines that clarify expected behaviour during the new issue process for fixed income bonds in Europe.
A series of measures are detailed in the new standard from the FICC Markets Standards Board (“FMSB”) to enhance the fairness and effectiveness of the new issue process for all participants.
An initial Transparency Draft was published in November last year and the final version of the New Issue Process Standard for the Fixed Income Markets is published today after comment from interested parties. The standard covers a range of topics from the granting of a mandate to the publication of deal statistics.
Mark Yallop, Chair of the FMSB, said: “The new standard is the result of extensive discussions between banks, corporate issuers and investors, both among our membership and from a large number of other important market participants during the Transparency Draft process. It is a significant step in clarifying practices in the market and ensuring it is both fair and effective.”
The main proposals in the standard are that:
• Lead banks should make their allocation policies, or a summary, available to issuers and all market participants.
• The issuer’s preferences should be taken in account when deciding the allocation policy for a specific/individual deal.
• When a mandate is granted, the lead banks and issuer should discuss, understand and agree the issuer’s objectives for the transaction and how the banks will achieve them, including such considerations as allocation preferences and marketing strategy for the deal.
• Lead banks should disclose publicly to all market participants their general policy, or a summary, for how they select investors for market soundings and roadshows. The policy for a specific deal should take account of any issuer preferences.
• 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 to make no significant changes to indicative issue terms, or to publicise the order book size, during the last 15 minutes of the bookbuild.
• Investors should only submit clear orders which are a true reflection of their demand.
Jonathan Brown, Head of Investment Grade Syndicate, EMEAPAC, Barclays said: “This standard builds on continuous work from FMSB member firms and other industry bodies to ensure that as the fixed income new issue market evolves it remains fit for purpose. The paper goes beyond recent and upcoming regulation and will lead to a more open and transparent process thanks to input from issuers, investors and lead manager banks.”
FMSB members include leading corporate issuers such as BHP Billiton, BP, Vodafone, Rio Tinto, Royal Mail Group and Royal Dutch Shell, major investors such as M&G and Blackrock, and many of the senior global fixed income dealers.
The new standard is intended to apply in respect of all best efforts syndicated offerings of fixed income bonds in the European wholesale markets, including investment grade, high yield, securitised and emerging market debt. The expectation is that in time the standard will be adopted by primary markets participants in other jurisdictions.
The standard is the third to be completed by the FMSB, following earlier standards on Reference Price Transactions and Binary Options in the commodities markets.
Future standards will focus on the secondary market aspects of new bond issuance such as hedging activity, the appropriate process covering the dissemination of information and market colour in commodities and other wholesale markets, and conduct issues that relate to the use of trading technology in financial markets.