Label, CBIC transparency on new ECB group agenda
The ECBC’s Covered Bond Label and the ICMA Covered Bond Investor Council’s transparency initiative are among varied topics – also including asset encumbrance and increased peripheral issuance – on the agenda of a new group operating under the auspices of the ECB.
The Bond Market Contact Group (BMCG) is intended to serve as a forum for discussing ideas related to the euro area bond market, and is chaired by Ulrich Bindseil, director general of the European Central Bank directorate general for market operations. The deputy director general of the same directorate, Roberto Schiavi, acts as the ECB member of the group, which counts 20 further members representing financial institutions, investors, and relevant market associations (see below for a full list). Beatriz Sotomayor, senior portfolio management expert at the ECB, is the secretary of the group. The group met for the first time on 22 January.
The group will meet four times in 2013 in total, and has a wealth of topics on its agenda, such as implications of the sovereign crisis on European bank and corporate funding models, bond market liquidity, and regulatory initiatives on pre- and post-trade transparency (MiFIDII).
The group will also turn its attention to covered bonds. According to its work programme for 2013, which was released on the ECB’s website this week, the group’s planned discussion of the implications of the sovereign crisis for funding models, for example, could take in aspects such as increasing concern about asset encumbrance, the increasing use of covered bonds in peripheral jurisdictions, and reduced usage of ABS.
The group is also due to analyse the progress of the European Covered Bond Council (ECBC) Covered Bond Label and the International Capital Market Association (ICMA) Covered Bond Investor Council (CBIC) transparency template.
“Participants will be invited to express views about the impact of these initiatives in promoting liquidity, investors’ confidence in these products and possibly their views on whether they will lead to market differentiation among issuers,” states the work programme.
ICMA chief executive Martin Scheck spoke on the CBIC initiative at the inaugural meeting.
According to a summary of the meeting, members feel that the covered bond transparency initiatives – with the Prime Collateralised Securities (PCS) Label also having been discussed – contribute towards greater transparency and standardisation to meet investors’ increasing demand for more detailed and public disclosure.
The group intends to follow the progress of the labels, which are in their initial stages.
Increasing own use of collateral for repo with the ECB was also discussed at the group’s first meeting, with distinctions drawn between ABS and covered bonds.
“Members noted that the sovereign crisis and the increase in the outstanding volume of ECB’s open market operations, especially due to the two three year LTROs, had led to an increasing own use of collateral, for instance in the ABS market since late 2007,” according to the meeting summary. “While the same phenomenon has recently evolved in euro area covered bonds, members generally regarded it as a positive feature from the ECB’s collateral framework.”
This was because the possibility of using retained covered bonds provided flexibility to financial institutions when it was difficult to access public markets, according to the summary.
“In their view, this feature did not require intervention but was self-correcting, as issuers could recall retained issuance or place the covered bonds with investors (particularly via private placements) when they regained market access.”
In addition to the ECB officials named above, members of the BMCG in 2013 and the organisations they represent are:
- Andreas Gruber, Allianz
- Sander Schol, Association for Financial Markets in Europe
- Thijs Aaten, APG Asset Management
- Laurent Clamagirand, AXA
- Yunho Song, Bank of America Merrill Lynch
- Jon Ridgway, Barclays
- Antonio Ordás, BBVA
- Michael Krautzberger, Blackrock
- Adrian Averre, BNP Paribas
- Zoeb Sachee, Citigroup
- Christoph Rieger, Commerzbank
- Garry Naughton, Deutsche Bank
- José Antonio Alvarez, European Banking Federation
- Ingo Mainert, European Fund & Asset Management Association
- Martin Scheck, International Capital Market Association
- Carl Norrey, JP Morgan
- Glenn Hadden, Morgan Stanley
- Simon Wilson, RBS
- Paolo Croce, UBS
- Karl-Heinz Riehm, Unicredit