The European Central Bank released a legal text today (Friday) adopting decisions relating to the implementation of CBPP3, paving the way for covered bond purchases to start, with bankers expecting it to operate similarly to the ECB’s previous programmes.

The document is understood to have been agreed at a mid-week meeting of the ECB’s governing council, and mainly repeats information about the third covered bond purchase programme (CBPP3) that was released when it was first announced on 4 September and when further details were provided on 2 October.

The document notes that purchases should implemented in “a uniform and decentralised manner”, and as previously announced – and under CBPP1 and CBPP2 – purchases are anticipated in the primary and secondary markets.

The document, which an ECB spokesperson said was a formality, states that the decisions included therein come into force on the day after it is published (today), with Monday therefore the first effective start date for the programme given that it is the first working day thereafter.

With the ECB also having said CBPP3 would begin in the second half of October (or “mid-month”, according to ECB president Mario Draghi), market participants are now keenly awaiting the first sign that it and the national central banks of the Eurosystem are active.

There are as yet no officially announced mandates from Eurozone issuers for deals next week, but syndicate officials have said that they expect some to emerge.

“The question is who will be first to test if the ECB has started firing,” said one. “Next week there could be the one or the other Eurozone issuer.”

According to the syndicate official, the national central banks have indicated that they will be present in a similar manner to under the two previous purchase programmes.

“My understanding is that they are all aligned and technically able to react,” he said. “They will have a morning call, see what’s in the market, and then decide how to proceed.”

Syndicate bankers said they expect Eurosystem interest to be channelled through the national central bank of the country of the respective issuer, with the central banks having either been alerted to new issuance activity by that issuer or by simply following market developments.

Given that Eurosystem interest is only likely to be indicated once books are open, the central banks will be price takers, noted another syndicate official.

“They used to come in line with guidance,” he added.

Should the ECB’s aim to be to tighten funding levels by pushing spreads tighter, this will therefore have to be done in the secondary market, he added.

Another banker said that the Eurosystem’s secondary market strategy in the previous programmes was not transparent.

“They checked offer sheets and then selectively bought clips, maybe two out of five they were shown – although it seemed that they did this randomly,” he said. “Perhaps there was an idea behind it.”

In line with much feedback from market participants since the programme was announced, he questioned how much impact the ECB could have.

“The interesting question is, how will they generate size in a primary market with limited activity and a secondary market with limited liquidity?” he said.

The ECB has not disclosed any target figure for CBPP3, which it said will run for at least two years, merely saying that the outstanding stock of covered bonds eligible for the programme is Eu600bn.

The ECB has updated its website with an area for providing information on CBPP3 as well as its ABS purchase programme:

https://www.ecb.europa.eu/mopo/implement/omo/html/index.en.html

Under its first two purchase programmes, the ECB published a running total of outstandings, adding amounts the day after the respective covered bond purchases settled.