Welcome to the ICMA Quarterly Report for the Fourth Quarter of 2018. In this edition we lead with our work on Brexit. At a time when the political discussions are becoming increasingly intense, we are focused on the potential impact of Brexit on international capital markets. In particular a priority for our Board and members is the damage to international capital markets and to financial stability which arises if pending cliff-edge risks are not addressed and avoided. We raised this at the most senior political level in both the EU 27 and the UK through an open letter on 22 June which gave examples of the specific cliff-edge risks and suggested ways of avoiding them, arguing that they needed to be resolved between the EU27 and UK as soon as possible. The responses from the EU27 and UK are on our website, along with other relevant information from official and other sources. Brexit is of course an important issue for all our committees and we are currently working on FAQs for publication and engaged in a review of the impacts of Brexit on the secondary bond markets which we expect to publish shortly.
On the topic of secondary markets, I would like to draw your attention to the report published in September on the state and evolution of the Asian cross-border corporate bond secondary markets. Based on interviews with a broad range of market participants, this continues the series of studies in the European markets and extends it to Asia. The focus is mainly on bonds denominated in the G3 currencies but there is also information on the increasing internationalisation of the Chinese Interbank Bond Market. It is well worth reading and I recommend you take a look.
Since the last Quarterly Report, the draft regulatory technical standard dealing with mandatory buy-ins within the CSDR has been passed into law, meaning that mandatory buy-ins will commence in September 2020. You will be well aware that we have opposed this part of the Regulation vehemently, ever since it was first mooted, on the basis that the design is flawed and its imposition will severely damage European bond market efficiency, liquidity and stability, in particular for less liquid and
lower credit quality bond markets. Whilst we were instrumental in engineering a two-year delay to its implementation, the legislation is now enacted “warts and all”. For us this is not the end of the story and we will continue to work with regulators and politicians to raise awareness of the problems this creates, and see whether a market-led solution, perhaps involving the existing ICMA discretionary buy-in provisions, can go some way to mitigating the most severe problems. Although this is
an EU Regulation, it has severe extraterritorial implications for members outside the EU. There is a segment on our website devoted to this topic under CSDR Settlement Discipline, and we have recently published three papers expanding on MBIs, the latest being CSDR Mandatory Buy-Ins and Securities Financing Transactions.
The European covered bond market is an important and highly reliable source of funding for financial institutions both within and beyond Europe. With the release of the rapporteur’s first report on the EU’s proposed Covered Bond Directive, work has stepped up in our Covered Bond Investor Council (CBIC). We have been analysing the report, and in particular the proposal for a two-tier “premium” and “ordinary” covered bond market in Europe. The CBIC is seeking further input to form a response in advance of additional amendments being tabled in the European Parliament and Council.
ICMA’s work on the transition from IBORs to near risk-free rates is escalating and likely to do so for the foreseeable future. ICMA is heavily engaged particularly in the UK, the euro area and Switzerland. We cooperate not only with many other relevant trade associations but also closely with the various authorities involved. There are still many unanswered questions and one cannot overstate the scale and complexity of the transition. Hence the topic is on the agenda of all our various committees and councils for all groups of participants in the cross-border debt securities markets in.
Finally, it is a sign of the times that the Foreword from our Board member Armin Peter is focused on the impact of FinTech on capital markets and ICMA’s extensive work in this respect. This cuts across all our major workstreams and is changing the way the markets operate. Recent ICMA papers have included Regulatory Approaches to Fintech and Innovation in Capital Markets and Electronification in Primary Bond Markets
. Our two mapping directories are still unique in the market and both have been updated – The Electronic Trading Platform Mapping Directory and the ICMA ERCC Ops FinTech Mapping Directory. Please take a look at the segment, FinTech and Market Electronification, on our website for more detail.

Martin Scheck

martin.scheck@icmagroup.org