Opportunities to improve debt issuance and distribution in Europe

20 December 2021

The Debt Issuance Market Contact Group (DIMCG) has produced an advisory report outlining ways to improve the efficiency of the debt issuance and initial distribution process in the European Union. The report focuses on the further harmonisation of certain aspects of the pre-trade and trade debt issuance process which could make today’s largely manual processes more efficient and improve risk mitigation.

The report is structured around three pillars.

Pillar 1 investigates the potential risks, costs and inefficiencies of the debt issuance process. Based on the issuance of a standard (“plain vanilla”) debt instrument, the DIMCG members identified potential operational risks, such as documentation errors, manual interventions, ambiguity in investor identification during the book-building phase, inefficiencies in the allocation process, as well the multiplicity of tools and the absence of straight-through processing. These risks stem from the lack of harmonisation in the pre-trade and trade stages of the debt issuance process.

To tackle these issues, Pillar 2 sets out the possible ways of harmonising the pre-issuance and initial distribution stages. The DIMCG members recommend that the stakeholders involved in debt issuance establish common requirements, standards, data and templates in order to digitalise procedures. For such efforts to become effective, the DIMCG members agreed that further market-driven work would be necessary to implement the recommendations in the report.

Pillar 3 focuses on the ongoing initiatives to improve the overall efficiency of issuance in Europe. The creation of a European issuance framework with common rules and procedures would be a way to incentivise existing and future initiatives and to support harmonisation across the issuance transaction chain. On the idea of a European infrastructure to potentially support the DIMCG findings, the group did not achieve consensus since some members were of the view that it could foster European financial market integration, while others thought that it could lead to increased fragmentation.

The DIMCG encourages the industry to take up the report’s recommendations, given their strong connection to ongoing European harmonisation initiatives in the field of capital markets. The Eurosystem will closely monitor the market reactions to the DIMCG report and the progress made by the industry on taking up the recommendations in the report. The Eurosystem is planning to meet with the stakeholders represented in the DIMCG in one year to take stock of the related developments.