Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study Transactions Costs and Timing for Issuance, Listing and Trading of Locally Issued Debt Securities
Final Report February 2020
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
This project is supported by the .
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
In order to provide a fair and comprehensive comparison, the data shown in this report references calendar year 2018.
This report may be updated to reflect changing market conditions in due course.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Table of Contents
1. Executive Summary ...... 8 2. Introduction...... 11 2.1. Purpose of this Report ...... 11 2.2. Benchmarking & Comparison Framework ...... 11 2.3. Model Portfolio ...... 12 2.4. Model Issuer ...... 13 2.5. Getting the Most from this Report ...... 13 3. Market Dynamics ...... 15 3.1. Bond Yields ...... 15 3.2. Listing Requirements ...... 17 3.3. Size of Bond Market ...... 18 3.4. Bond Market Trading ...... 19 4. Primary Market ...... 22 4.1. Government Bond Auction Type and Frequency ...... 22 4.2. Government Bond Auction Costs ...... 24 4.3. Corporate Bond Issuance Structure ...... 25 4.4. Corporate Bond Issuance Fees ...... 26 5. Secondary Market ...... 30 5.1. Trading Systems ...... 30 5.2. Indirect Costs - Spreads ...... 31 5.3. Trading Transaction Fees ...... 34 6. Settlement and Safekeeping ...... 36 6.1. Settlement ...... 36 6.2. Safekeeping...... 37 7. Taxation ...... 39 7.1. Transaction Taxes ...... 39 7.2. Withholding Taxes ...... 39 7.3. Taxes on Disposal / Sale ...... 40 8. Ranking and Fee Analysis ...... 41 8.1. Ranking ...... 41 8.2. Portfolio Cost Analysis ...... 43 9. Federation of Bosnia and Herzegovina Factsheet ...... 45 9.1. Overview ...... 45
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
9.2. Market Dynamics ...... 46 9.3. Government Bond Auction Process ...... 47 9.4. Corporate Bond Issuance ...... 48 9.5. Trading ...... 50 9.6. Settlement & Safekeeping ...... 51 9.7. Taxation ...... 52 9.8. Fee Analysis ...... 52 10. Republika Srpska Factsheet ...... 54 10.1. Overview ...... 54 10.2. Market Dynamics ...... 55 10.3. Government Bond Auction Process ...... 57 10.4. Corporate Bond Issuance ...... 58 10.5. Trading ...... 59 10.6. Settlement & Safekeeping ...... 60 10.7. Taxation ...... 61 10.8. Fee Analysis ...... 61 11. Bulgaria Factsheet ...... 63 11.1. Overview ...... 63 11.2. Market Dynamics ...... 64 11.3. Government Bond Auction Process ...... 66 11.4. Corporate Bond Issuance ...... 67 11.5. Trading ...... 69 11.6. Settlement & Safekeeping ...... 70 11.7. Taxation ...... 70 11.8. Fee Analysis ...... 70 12. Croatia Factsheet ...... 72 12.1. Overview ...... 72 12.2. Market Dynamics ...... 73 12.3. Government Bond Auction Process ...... 75 12.4. Corporate Bond Issuance ...... 76 12.5. Trading ...... 78 12.6. Settlement & Safekeeping ...... 78 12.7. Taxation ...... 79 12.8. Fee Analysis ...... 79 13. Montenegro Factsheet ...... 81
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
13.1. Overview ...... 81 13.2. Market Dynamics ...... 82 13.3. Government Bond Auction Process ...... 83 13.4. Corporate Bond Issuance ...... 84 13.5. Trading ...... 86 13.6. Settlement & Safekeeping ...... 87 13.7. Taxation ...... 88 13.8. Fee Analysis ...... 88 14. North Macedonia Factsheet ...... 90 14.1. Overview ...... 90 14.2. Market Dynamics ...... 91 14.3. Government Bond Auction Process ...... 92 14.4. Corporate Bond Issuance ...... 93 14.5. Trading ...... 95 14.6. Settlement & Safekeeping ...... 96 14.7. Taxation ...... 97 14.8. Fee Analysis ...... 97 15. Romania Factsheet ...... 99 15.1. Overview ...... 99 15.2. Market Dynamics ...... 100 15.3. Government Bond Auction Process ...... 101 15.4. Corporate Bond Issuance ...... 102 15.5. Trading ...... 104 15.6. Settlement & Safekeeping ...... 105 15.7. Taxation ...... 106 15.8. Fee Analysis ...... 106 16. Serbia Factsheet ...... 108 16.1. Overview ...... 108 16.2. Market Dynamics ...... 109 16.3. Government Bond Auction Process ...... 110 16.4. Corporate Bond Issuance ...... 111 16.5. Trading ...... 114 16.6. Settlement & Safekeeping ...... 115 16.7. Taxation ...... 115 16.8. Fee Analysis ...... 115
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
17. Slovak Republic Factsheet ...... 117 17.1. Overview ...... 117 17.2. Market Dynamics ...... 118 17.3. Government Bond Auction Process ...... 120 17.4. Corporate Bond Issuance ...... 121 17.5. Trading ...... 123 17.6. Settlement & Safekeeping ...... 124 17.7. Taxation ...... 125 17.8. Fee Analysis ...... 125 Appendix 1 – Data Table ...... 127 Appendix 2 – Bond Market Analysis Scoring Framework ...... 142 Appendix 3 – Bond Market Analysis Scores ...... 145 Raw Scores ...... 145 Weighted Scores ...... 148 Appendix 3 – Table of Figures ...... 149
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
1. Executive Summary
This report outlines the results of a study conducted into the comparative cost effectiveness and issuance efficiency of eight countries in South-eastern and Central Europe (with a particular focus on the Balkan region) (the “Study”). Bosnia and Herzegovina1, Bulgaria, Croatia, Montenegro, North Macedonia, Romania, Serbia and the Slovak Republic were compared across over 300 different factors to ascertain two things: 1) the cost effectiveness and efficiency of issuance of debt securities (both by the government and by corporates); 2) the costs associated with trading and holding a portfolio of debt securities.
In order to ensure a fair comparison and allow developments in markets to be tracked over time, a set of standardised assumptions have been used throughout the Study. The cost effectiveness and issuance efficiency of each market have then been scored on the basis of each of the metrics included in the bond analysis framework (Appendix 2). Rankings are then obtained by sorting the markets based on their scores.
Below are some of the key findings from the Study.
Cost Effectiveness
Government bond auction costs are primarily Cost Effectiveness Ranking derived from access to the electronic trading system that manages the bid process and Rank settlement of these instruments. A number of 1 Romania markets including North Macedonia, Romania and 2 Bulgaria Serbia, offer access to these systems for free making them very cost effective. Other markets 3 Serbia that have developed their own systems, charge 4 North Macedonia auction participants between €1,800 and €3,700 Bosnia and Herzegovina 5 per annum. The use of Bloomberg as the (Federation of Bosnia and Herzegovina) Bosnia and Herzegovina auctioning system by both Croatia and the Slovak 6 (Republika Srpska) Republic, where a single terminal costs over €20,000 per annum, makes access to these 7 Croatia auctions expensive. Actual costs for bid 8 Slovak Republic submission are free across most markets, with the 9 Montenegro exception of Bulgaria, Montenegro and Romania.
There is a huge disparity in the issuance of a corporate bond between the markets assessed. Issuance of a €50 million bond can cost between €9,900 in Bulgaria to €162,000 in Montenegro. The largest cost for corporate bond issuance is shown to be the initial fees paid to regulators for the approval of prospectuses, which tend to scale with the size of the issue. In addition, those markets without fee caps have the propensity to be more expensive than markets that do.
1 Bosnia and Herzegovina (B&H) consists of two Entities, the Federation of Bosnia and Herzegovina and the Republika Srpska. Both entities have organised and regulated capital markets and as a result, they have been assessed in the present report separately.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
In general, bid offer spreads for both government and corporate bonds are high (relative to developed markets), in many cases up to 250 bps or more. Spreads for government bonds tend to be lower when trading OTC than trading on exchange, especially for government bonds. Conversely, as the corporate bond market is still very small and illiquid (relative to the government bond market), spreads between trading on exchange and OTC are very similar.
Trading transaction fees also showed great disparity across the markets surveyed. Stock exchange transaction fees tend to be based on the transaction value rather than a flat fee. Both the Federation of Bosnia and Herzegovina (B&H) and Montenegro charge fees that are more than 20 times the cost of trading in the most cost effective market, Serbia. Only Serbia and the Slovak Republic cap fees which limit costs. Brokerage costs also vary widely, ranging from 3 to 75bps.
Settlement costs also show a huge disparity between markets. CSD settlement costs are as little as €0.31 in Bulgaria to €1,000 in North Macedonia. One of the key contributors to this dispersion is the differences of fixed fees versus scaling fees and also the lack of caps for those markets that use a scaling fee model. In most markets, custodian settlement fees tend to be low, and based on a fixed fee scale, with the exception of the Republika Srpska (B&H) and Montenegro where fees tend to be scaled.
Safekeeping fees ranged between €7,600 (Romania) and €81,000 (Federation of Bosnia and Herzegovina, B&H) per annum. With the exception of the Federation of Bosnia and Herzegovina (B&H) and Croatia, CSD safekeeping fees were under €700 per annum. Custody fees were as low as 3bps (€7,500) in Croatia and Romania, but as high as 28bps (€68,750) in the Federation of Bosnia and Herzegovina (B&H).
Taxation plays a huge role in the overall cost to the trading and holding of a portfolio of bonds. Taxation across the region is relatively harmonised. Withholding taxes generally ranged between 9% and 12%. Certain markets, such as Bulgaria offer withholding tax exemptions for both government and corporate bonds, making it attractive to own debt securities. A number of other markets including North Macedonia, Serbia and the Slovak Republic offer exemptions for government bonds, making these securities more attractive than corporate bonds. Taxes on disposal / sale tend to be uniform across the markets surveyed, ranging from 7% in North Macedonia to 21% the Slovak Republic. There are four markets (Croatia, North Macedonia, Romania and the Slovak Republic), that provide lower disposition / sale tax levies on retail Issuance Efficiency Ranking investors, making it more attractive for this type of investor. Rank
Issuance Efficiency 1 Bulgaria
Government bond auctions tend to be performed 2 Montenegro Bosnia and Herzegovina by competitive tender, awarded at either the bid 3 price or a uniform minimum price (with the (Republika Srpska) exception of North Macedonia who operate 4 Slovak Republic Bosnia and Herzegovina auctions on a non-competitive basis). The majority 5 (Federation of Bosnia and Herzegovina) of markets collect auction bids on the same day and award securities on either the same day or the 5 Croatia following day. The main differentiating factor 7 North Macedonia between markets is the length of notice that is 8 Romania given to market participants. This ranges from only three days or less notice from markets such as 9 Serbia
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Croatia and Serbia, to over 14 days for the Slovak Republic. Short notice tends to make it more difficult for market participants to build their books and formulate their strategies. This is particularly unfavourable for retail investors.
Corporate bond issuance timelines vary greatly across all markets. However, consistently the lengthiest stage in the process tends to be the approval of a prospectus by the local regulator. Average approval times were between 10 and 60 days. Bulgaria was a particular stand out as this market does not require a prospectus to be approved, or listed, which dramatically reduces the administrative burden and time to issue. Only five markets provide the ability to register a shelf prospectus, a process which enables issuers to more easily issue bonds on a regular basis.
Conclusions
The results of the analysis highlight a number of factors that every country should consider if they wish for their bond markets to be more cost effective and issuance efficient.
- Either limit the use of expensive trading systems, or provide alternatives that are more cost effective.
- Central securities depositories, stock exchanges and regulatory authorities should consider introducing caps on scalable fees to encourage more cost effective issuance of corporate bonds (especially for larger issues) and processing or settlement of bond trades.
- Taxation has a significant impact on overall portfolio costs. Providing tax incentives for investing in debt securities, especially corporate bonds may be beneficial for investors and in turn may provide additional stimulus for the issuance of corporate bonds across all markets.
- Government debt management offices / central banks should consider providing greater consistency and notice to the market to facilitate greater participation from retail investors.
- Regulators should consider providing template prospectus’ which can be used as benchmark. If these templates are adopted, it would enable the quicker approval of bond issues. Similarly, having the ability to register a shelf prospectus can significantly reduce the approval time for regular issuers.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
2. Introduction
2.1. Purpose of this Report
This report outlines the results of the comparative study of transactions costs and timing for issuance, listing and trading of locally issued debt securities in selected countries in South-eastern and Central Europe, with a particular focus on a number of Balkan countries. These included Bosnia and Herzegovina, Montenegro, North Macedonia and Serbia1. Bulgaria, Croatia, Romania and the Slovak Republic have also been analysed as reference or control markets in neighbouring jurisdictions employing the same methodology. The objectives of the study are to:
a) Develop a comprehensive framework to assess the cost of issuing and transacting in local currency securities, with particular focus on corporate bonds. b) Develop a framework for assessing the length of time taken to issue both government and corporate bonds. c) Utilise the assessment framework which allows each country to benchmark themselves against other emerging economies from the region which can also enable each country’s progress to be tracked over time. d) Present the results of the study in a clear and easily comparable format. e) Act as a follow-up and provide an update to the study conducted by the EBRD in 2015 with the support of the EBRD Special Shareholder Fund2.
It is envisaged that this report will be rolled out across the EBRD regions and it will constitute an effective tool in issues surrounding local capital market development.
2.2. Benchmarking & Comparison Framework
Until now it has not been possible to objectively compare each market and the cost of bond issuance and trading nor the temporal factors around issuance on a relative basis. To address these issues and provide further transparency on each market, this paper outlines a quantitative approach to objectively assess each country’s cost effectiveness and issuance efficiency. In order to perform this assessment, there are two key things required: 1) a set of standardised models (model portfolio and issuer) to ensure that each market is being compared on equal terms; 2) a framework that captures key metrics and provides an objective comparison.
1 It should be noted that Albania and Kosovo were not included due to the nascent nature of both their capital markets. Albania has no Central Securities Depository (CSD) and a limited Stock Exchange. Equally, Kosovo has no CSD nor a Stock Exchange and its regulatory structure for the issuance of corporate bonds. Both of these capital market structures provide an unfavourable / inequitable grounds for comparison and thus both countries have been excluded from the study. 2 The study, performed in 2015, covered 11 markets across Central and Eastern Europe and Central Asia, including Georgia, Hungary, Jordan, Kazakhstan, Morocco, Poland, Romania, Russian Federation, Serbia, Slovak Republic and Turkey.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Standardised Models
The standardised models provide a simulation of the characteristics of both a model issuer and model portfolio which will serve as the basis of comparison. Details of the models are outlined in sections 2.3 and 2.4 below.
It is important to note that all figures shown in this report are based on the details outlined in the models.
The Framework
The framework constructed for this study, enables the analysis of each country relative to each other and both quantify the costs of issuance and trading in each country.
In order to assess each country, we will analyse a number of key factors including:
— government bond auction fees; — corporate bond issuance fees; — direct and indirect trading costs; — settlement and safekeeping costs; — taxation of transactions, income and capital gains; — timelines for issuance of both government and corporate bonds.
Utilising the quantitative framework it is possible to rank countries against each other using this objective scoring methodology. Although understanding the framework score will be a critical factor in benchmarking one country against another, it does not by itself tell the entire story. It is also important to show the actual costs and timelines in each country.
A full description of this framework and the factors that it includes are outlined in Appendix 2. The construction of this framework is derived from analysis of a number of developed and emerging countries and the analysis that was conducted in the previous assessment.
2.3. Model Portfolio
Total Value (AUM) Portfolio Allocation
€25,000,000 50% 50%
Government Bonds
Corporate Bonds
Other Statistics
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Number of Securities 10 Average Security Size €2.5mn Average trade size €1mn Average number of transactions (per annum) 50 Running Yield 4% Coupon Income (per annum) €1mn Profit on trades (per annum) €1mn Bonds Maturing (per annum) 2
This is an actively managed portfolio and it also assumes that the investment manager requires two staff to have access to trade and manage the portfolio.
2.4. Model Issuer
Company XYZ
Is a listed company and has an existing credit rating but has no outstanding bonds in issue. The company will be issuing either:
Small Issue Large Issue
€5,000,000 €50,000,000
It is assumed this will be the first time the company’s bonds are issued and listed on the local stock exchange (in the primary market). It is also assumed that there will be 100 bondholders subscribed to the issue.
2.5. Getting the Most from this Report
As there are over 300 pieces of data examined for each country, there is a great deal of information to compare and contrast. In order to make it easier for you the reader to digest, we have structured this report in the following way to assist you in your understanding of the study’s results.
- Comparative Analysis – Sections 3 to 8 provide you with a summary of some of the key elements of the Study’s results, along with some high level analysis on the differences between the markets. It should be noted that there are many nuances and details which, for the sake of brevity (and to avoid repetition), have been excluded from these sections. However, more detailed information on each market can be found in the individual country factsheets. - Country Factsheets – Sections 9 to 17 present all of the information gathered in a standardised format and provide the most comprehensive overview of each market. There is a great deal more detail in these sections than in the comparative analysis sections. - Raw Data – For those who would like to see all the data in its raw form, section 0 is a large data table which shows all the data collected from our research and analysis.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
- Analysis Framework and Scores – As outlined above in section 2.2, the data gathered has been used to score each of the markets in terms of cost effectiveness and issuance efficiency. Appendices 2 and 3 show both the underlying framework that was used to calculate these scores, and also the scores themselves in their raw format.
Other things to Note
There are a few other things to note that will further help your understanding of the data in this report:
- Keep the models in mind at all times – As has been outlined above, the models provide the basis that has been used to aid comparison. All of the cost and timeline numbers outlined in this report are quoted in reference to the characteristics of the model issuer or portfolio (as outlined in sections 2.3 and 2.4 above). - Blanks are intentional – As a standardised format for each market has been used, there are number of occasions where either there is no data, or the particular category / criterion is not present in that market. In these circumstances the field in this report may be left blank (in some cases with a grey fill). - Footnotes provide additional clarity / nuance - Whilst all information is presented in a standardised format, each section will contain a number of footnotes which will provide further explanation not only on the source of the data, but on some of the important nuances of each market. For example, where we have shown a fee for a bond issuance in Euro terms, the actual fee structure which underlays this may have been calculated using a mixture of a flat fee and percentage of the size of issuance. These nuances will be explained in the footnotes. - All monetary values are displayed in Euro – For the ease of comparison, all monetary values throughout this report have been converted to Euro at a single rate. Where necessary, details of the values in local currency may be provided in footnotes.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
3. Market Dynamics
3.1. Bond Yields
Figure 1: Government Bond Yield Curves
Federation of Bosnia and Republika Srpska (B&H) Bulgaria Herzegovina (B&H)3
Yield 1.0% 2.5% 0.4%
0.3% 2.0% 0.2% 0.5% 1.5% 0.1%
1.0% 0.0% 0.0% -0.1% 0.5% -0.2%
0.0% -0.3% -0.5% -0.4% -0.5% -0.5% -1.0% -1.0% -0.6% 2 5 7 10 30 2 5 7 10 30 2 5 7 10 30 Maturity
Croatia Montenegro North Macedonia4
0.8% 3.0% 1.0%
0.6% 2.5% 0.4% 0.5%
0.2% 2.0%
0.0% 1.5% 0.0% -0.2%
-0.4% 1.0%
-0.5% -0.6% 0.5% -0.8%
-1.0% 0.0% -1.0% 2 5 7 10 30 2 5 7 10 30 2 5 7 10 30
Romania Serbia Slovak Republic
5.0% 3.5% 1.0%
4.5% 0.8% 3.0% 4.0% 0.6% 3.5% 2.5% 0.4% 3.0% 2.0% 0.2% 2.5% 1.5% 0.0% 2.0% -0.2% 1.5% 1.0% -0.4% 1.0% 0.5% 0.5% -0.6%
0.0% 0.0% -0.8% 2 5 7 10 30 2 5 7 10 30 1 5 7 10 30
As highlighted in Figure 1, there is a large variation in the government bond yield curves between all of the markets studies. Although the majority of the markets have regular issues of debt at the short end of the curve (i.e. 1 – 5 years), the long end of the curve in many markets remains sparse. This is
3 As most government bonds are traded OTC we have not been able to collect reliable data on yields. 4 As most government bonds are traded OTC we have not been able to collect reliable data on yields.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study especially significant in local currency debt (as opposed to Eurozone markets5), where this has a particular impact on both pensions and insurance investors who may find it difficult to match long- term liabilities with the current stock of bonds available. It should also be noted that in both the Federation of Bosnia and Herzegovina (B&H) and North Macedonia, there are government bonds in issue, however, the majority of these bonds are traded Over the Counter (OTC) and therefore there is little public price discovery, which has made it difficult to construct a representative yield curve.
Figure 2: Corporate Bond Yield Curves
Federation of Bosnia and Republika Srpska (B&H) Bulgaria Herzegovina6 (B&H)
Yield 1.0% 7.0% 4.5%
4.0% 6.0%
3.5% 0.5% 5.0% 3.0%
4.0% 2.5% 0.0%
3.0% 2.0%
1.5% -0.5% 2.0% 1.0%
1.0% 0.5%
-1.0% 0.0% 0.0% 2 5 7 10 30 2 5 7 10 30 2 5 7 10 30 Maturity
Croatia Montenegro North Macedonia7
13.0% 6.0% 1.0%
11.0% 5.0%
0.5% 9.0% 4.0%
7.0% 3.0% 0.0% 5.0% 2.0%
3.0% 1.0% -0.5%
1.0% 0.0%
-1.0% -1.0% -1.0% 2 5 7 10 30 2 5 7 10 30 2 5 7 10 30
Romania Serbia Slovak Republic
6.0% 1.0% 2.5%
5.0% 2.0%
0.5% 4.0% 1.5%
3.0% 1.0% 0.0% 2.0% 0.5%
1.0% 0.0% -0.5%
0.0% -0.5%
-1.0% -1.0% -1.0% 2 5 7 10 30 2 5 7 10 30 2 5 7 10 30
5 Investors who have their liabilities in Euros and not a local currency are able to use longer dated Euro denominated bonds from other markets, which makes the issue described above less acute. 6 As most corporate bonds are traded OTC we have not been able to collect reliable data on yields. 7 As most corporate bonds are traded OTC we have not been able to collect reliable data on yields.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
With the exception of the Slovak Republic, corporate bond markets across all the markets covered remain relatively underdeveloped (especially for those that are listed). Figure 2 shows that, similarly to the government bond market, the yield curves are skewed heavily towards the short end of the curve, with very few bonds issued with more than a seven year maturity.
In most of the markets there is still a heavy reliance on bank loans to finance growth and there has been a reluctance to use capital markets for debt issuance. Whilst it is difficult to pin-point the exact cause of this, the main reasons cited have been: 1) the cost of issuance; 2) the administrative / operational burden of issuance; 3) the requirements for transparency / disclosure; 4) the lack of engagement by the public with capital markets; 5) the ease and abundance of bank financing.
Although the Study focuses primarily on points 1 and 2 (and to a lesser extend 3), if an increase in both the volume and frequency of corporate bond issuance is desired then a more holistic review of the other factors outlined above would also be desirable.
3.2. Listing Requirements
Figure 3: Stock Exchange Listing Requirements
)
(B&H)
H
&
B
(
Srpska
eration of Bosnia and Bosnia of eration
Fed Herzegovina Republika Bulgaria Croatia Montenegro Macedonia North Romania Serbia Republic Slovak
Government Bonds
Corporate Bonds
With the exception of the Federation of Bosnia and Herzegovina (B&H) and Montenegro, none of the other markets have any requirements for bonds to be listed on the local stock exchange (Figure 3). It should be noted that in some markets, such as Serbia, there are now agreements between the local stock exchange and the Ministry of Finance / Debt Management Office to list a certain number of bonds for public sale. These are efforts to provide a boost to the liquidity of the markets and provide greater price transparency.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
3.3. Size of Bond Market
There is a large disparity in size, between the different bond markets. As can be seen inFigure 4 and Figure 5 below the Slovak Republic, Serbia, Romania and Croatia (in order of size) have the significantly larger amount of bonds outstanding than the other markets in this study. For all of these markets, the vast majority of debt market issuance is by the government. In the corporate space, the largest issuers (especially in Romania) tend to be government owned, but partly privatised, utilities such as oil and gas companies, power generation and distribution, telecoms, seaports and airports.
Figure 4: Listed Bonds Outstanding (€mn)
40,000
35,000 30,000
25,000 Millions 20,000 15,000
10,000 5,000
0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
Total Listed Government Bonds Outstanding Total Listed Corporate Bonds Outstanding
Figure 5 and Figure 6 show, the majority of bond issuance tends to be in local currency (the Slovak Republic having Euro as their local currency). There are, however, an increasing number of bonds issued in Euro, a trend which has gained momentum particularly in the Romanian corporate bond sector, where there has been an increasing desire for issuers to appeal to broader investor bases.
Figure 5: Listed Government Bonds Outstanding by Issuance Currency (€mn)
H)
&
and Bosnia of Federation (B Herzegovina (B&H) Srpska Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Local Currency 593 557 2,103 8,929 1,056 10,995 8,110 EUR 669 5,535 309 49 4,150 34,339 Other Total 593 557 2,772 14,464 309 1,105 10,995 12,260 34,339
It should be noted that there are no government bonds issued in any other currency than Euro, and we found no evidence of any US Dollar denominated debt. With the exception of a small issuance in the Slovak Republic, all debt was denominated in either local currency or Euro (Figure 6), with the
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Bulgarian market showing a significant preference for the issuance of corporate debt in Euro over Lev (BGN).
Figure 6: Listed Corporate Bonds Outstanding by Issuance Currency (€mn)
H)
&
and Bosnia of Federation (B Herzegovina (B&H) Srpska Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Local Currency 61 4 130 476 2,493 EUR 841 69 14 5 2,038 2,338 Other 33 Total 61 4 971 546 14 5 4,531 2,371
3.4. Bond Market Trading
There is a strong trend across all markets for the majority of both government and corporate bonds to be traded Over-the-Counter (OTC), primarily between institutional counterparties. This has resulted in low trading volumes for bonds over the exchange. Romania is the exception to the trend, having the largest amount of trading, primarily in corporate bonds (see Figure 7).
Figure 7: Bonds Traded on the Stock Exchange in 2018 (€mn)
2,500
2,000
Millions 1,500
1,000
500
0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
Total Traded Government Bonds on Stock Exchange Total Traded Corporate Bonds on Stock Exchange
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Figure 8: Government Bonds Traded on the Stock Exchange in 2018 by Issuance Currency (€mn)
H)
&
and Bosnia of Federation (B Herzegovina (B&H) Srpska Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Local Currency (LCY) 13 155 13 74 130 335 EUR 12 21 3 9 0 130 Other Total 13 155 25 95 3 9 130 465
There are a number of markets (Montenegro, North Macedonia and the Slovak Republic) where government bonds are not traded via the stock exchange and are only traded OTC. For other markets the trading of government bonds on exchange remains very thin. As
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Figure 8 shows, Serbia has the highest value of government bonds traded in 2018, which was partly a result of an agreement between the Bratislava Stock Exchange and the Serbian Ministry of Finance to list government bonds on the exchange.
Figure 9: Corporate Bonds Traded on the Stock Exchange in 2018 by Issuance Currency (€mn)
H)
&
and Bosnia of Federation (B Herzegovina (B&H) Srpska Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Local Currency (LCY) 2 9 3 2,024 EUR 17 1 1 5 464 Other Total 2 26 4 1 2,029 464
Only three markets have been identified to have explicit currency restrictions. Montenegro and Romania have regulations which prohibit the issuance of bonds in anything other than the local currency or Euro. Serbia also has restrictions, as they require the issue of a bond in any foreign currency to be approved by the National Bank of Serbia. Whilst this is not an explicit prohibition, it does provide an extra administrative hurdle for an issuer that wishes to issue a bond in a currency other than the Serbian Dinar (RSD).
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
4. Primary Market
4.1. Government Bond Auction Type and Frequency
Government bond auctions have a clear tendency to be competitive tenders (Figure 10), however there is an equal split between those that are provided at a Bid Price (Dutch-Style) or at a Uniform Minimum Price.
Figure 10: Auction Type Matrix
H)
&
n of Bosnia and Bosnia of n
Federatio (B Herzegovina (B&H) Srpska Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Competitive Tender Award at Bid Price (Dutch-Style Auction) Competitive Tender Award at Uniform Minimum Price Ad Hoc (Non-Competitive Tender)
Auctions tend to be regularly scheduled (Figure 11), but there is a great deal of variation between the different countries regarding the length of time between each auction ranging from every week (Bulgaria) to once every three months (Federation of Bosnia and Herzegovina (B&H)).
Figure 11: Auction Scheduling Type Matrix
H)
(B&H)
&
and Bosnia of Federation (B Herzegovina Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Timetabled (regular)
Ad hoc (irregular)
Figure 12 below shows the total number of days that are taken to conduct an auction. It includes the number of days before which the market is notified of the particulars of the issue to be auctioned (i.e. the size of the issue, coupon, maturity, type / structure), the time given to submit bids, and the time it takes to award (i.e. settle) the securities with the bidders.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Figure 12: Total Number Days to Conduct and Auction (Chart and Data Table)
Slovak Republic
Federation of Bosnia and Herzegovina (B&H)
Montenegro
Republika Srpska (B&H)
Bulgaria
Romania
North Macedonia
Serbia
Croatia
- 2 4 6 8 10 12 14 16 18
Days
H)
&
and Bosnia of Federation (B Herzegovina (B&H) Srpska Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Average Number of Days to 14 12 11 4 13 8 10 6 16 Conduct an Auction
The auction timelines are relatively similar across all countries. In general, bids are collected on a single day and awarded either the same or following day. There are however, a number of differences in terms of the notice provided prior to an auction. In general, is best practice to provide sufficient notice prior to each auction, to enable market participants to aggregate orders (especially for banks acting on behalf of institutional or retail clients) and formulate their bidding strategy8. One clear theme that was highlighted in the study is that there is often very little notice given for market participants to prepare for an auction. Croatia and Serbia on average gave 3 days or less notice to market participants, whereas the Slovak Republic gave the longest notification time which was on average 14 days to the market.
8 It should be noted that the analysis framework provides a higher score to those markets that provide a longer notice period prior to a bond auction.
23
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
4.2. Government Bond Auction Costs
In order to calculate government bond auction costs, this study has assessed the cost of two primary factors; 1) systems access cost; 2) bid submission fees. Settlement, and safekeeping fees have been analysed separately in section 6 below.
As shown in Figure 13, North Macedonia, Romania and Serbia are by far the most cost effective markets in terms of the purchase of government bonds at auction. There are no costs to access either the trading systems, or for bid submission.
Figure 13: Auction Processing System Cost Chart9
€50,000 €45,000 €40,000 €35,000 €30,000 €25,000 €20,000 €15,000 €10,000 €5,000 €0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
Figure 14: Auction Processing System Matrix
(B&H)
B&H)
and Bosnia of Federation ( Herzegovina Srpska Republika Bulgaria Croatia Montenegro Macedonia North Romania Serbia Republic Slovak
Is there an Electronic Auction
Processing System Electronic Auction Processing 2,761 1,841 3,681 43,132 3,000 0 0 0 43,132 System Cost to user (€)
Fees paid for bid Submission (€) 0 0 503 0 500 0 2.22 0 0
Bond auction costs tend to be minimal, with the majority of costs coming from access to the bond auctioning system rather than a cost for bid submission (Figure 14). It should be noted that both Croatia and the Slovak Republic require bids to be submitted via the Bloomberg platform. Bloomberg terminals are expensive, relative to the other bid submission platforms assessed in this study, with an annual fee of over $24,000 per terminal. As part of the models, we have looked at the
9 Assumes an organisation has two users
24
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study cost for two users having access (to take account of instances where there are tiered fees), which makes the cost for both Croatia and the Slovak Republic high.
It should however be noted, that the Bloomberg system has much greater utility than just bid submission. This does also create a bias towards using Bloomberg for those other purposes and makes other comparable systems (such as Thompsons Reuters, FactSet, Capital IQ etc.) less competitive in those markets.
4.3. Corporate Bond Issuance Structure
The requirements for corporate bond issuance tend to be fairly uniform across markets. The majority of markets, with the exception of Bulgaria and Serbia, require a prospectus to be approved by the regulator (Figure 15). No countries have a requirement for a bond to be rated (whether it is listed or not) and as a consequence, there are very few bonds (with the exception of the Slovak Republic) that have a credit rating. Although administratively this makes the process quicker, there are potential negative impacts as many cross boarder investors require / desire a credit rating in order to invest.
Figure 15: Corporate Bond Issuance Requirements Matrix
(B&H)
and Bosnia of Federation (B&H) Herzegovina Srpska Republika Bulgaria Croatia Montenegro Macedonia North Romania Serbia Republic Slovak
S L S L S L S L S L S L S L S L S L Prospectus
Approval
Credit Rating
Listing
Other
Requirements *Please note that in the above table “S” indicates a small bond issue, and “L” indicates large bond issue.
A number of other processes were identified as requirements in order to issue corporate bonds in North Macedonia, Romania, Serbia and the Slovak Republic. Whilst there are a number of procedural differences (which are outlined below in the various factsheets), in general there was an additional requirement to have the bond issue and its prospectus approved at a company general meeting.
No procedural differences were identified between a small and large bond issue. Therefore, there are no procedural dispensations for smaller issues, which would for example require less regulatory scrutiny for a smaller issue size.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Figure 16: Average Number of Days to Issue a Corporate Bond (Chart and Matrix)
North Macedonia Serbia Romania Croatia Slovak Republic Federation of Bosnia and Herzegovina (B&H) Republika Srpska (B&H) Montenegro Bulgaria
- 10 20 30 40 50 60 70 80 90 Days
(B&H)
and Bosnia of Federation (B&H) Herzegovina Srpska Republika Bulgaria Croatia Montenegro Macedonia North Romania Serbia Republic Slovak
Total Number of Days 30 23 5 65 22 82 70 76 40
Issuance timelines vary greatly between each market. The longest amount of time in the process is the prospectus approval by the regulator, which can vary on average anywhere between 10 and 60 days. It should be noted that there were often discrepancies between the intended turnaround time stated by the regulator and the experience of the market participant respondents.
Listing processes tend to be shorter than prospectus approval, and range between five and thirty days.
Bulgaria has a significantly streamlined process, as there are no requirements for corporate bond prospectuses to be approved, nor are there any listing requirements. However, even in the case where a company does choose to list, market participants have indicated that the approval process takes on average 5 days. This makes Bulgaria by far the most efficient market for the issuance of corporate bonds.
Five of the nine markets assessed, Republika Srpska (B&H), Croatia, Montenegro, Romania and the Slovak Republic provide the facility to register a shelf prospectus, which in turn can significantly speed up the process for those issuers that wish to issue bonds on a regular basis.
4.4. Corporate Bond Issuance Fees
Corporate bond issuance fees are calculated based on the model issuer criteria. These numbers include all fees from each markets’ regulator, CSD and Stock Exchange for the issuance of bonds. It should be noted that these included both initial fees and one year of maintenance fees (if there are any).
26
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Figure 17: Total Corporate Bond issuance Fees - Chart and Table (€)
€180,000 €160,000 €140,000 €120,000 €100,000 €80,000 €60,000 €40,000 €20,000 €0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
Small Issue Large Issue
(B&H)
B&H)
and Bosnia of Federation ( Herzegovina Srpska Republika Bulgaria Croatia Montenegro Macedonia North Romania Serbia Republic Slovak
Small Issue (€) 7,992 10,550 1,585 5,911 24,715 9,470 3,776 11,752 16,157
Large Issue (€) 11,395 81,100 1,585 9,961 162,265 78,316 26,276 108,752 44,593
As can be seen from Figure 17, Bulgaria has the lowest cost for the issuance of corporate bonds across all of the markets assessed in this study. This is partly due to the fact that the Financial Supervision Commission in Bulgaria is supporting capital markets by providing an amnesty on any approval fees (until the end of 2020), and that both the Bulgarian Stock Exchange and the Central Depository AD both have caps for the fees associated with the issuance of corporate bonds. This combination of factors provides a more attractive environment for potential issuers in that market.
Prospectus approval, for the majority of countries, has an element of fee that scales with the size of the issue. There are a number of markets that have maximum fee caps, to ensure that fees are not commercially excessive. Montenegro, has no fee caps for any of the entities involved which in turn means that bond issuance fees can be quite large at each stage of the process. The Republika Srpska (B&H), Croatia, Montenegro, North Macedonia and Serbia have no caps on prospectus approval fees and often have fees which scale with the size of the issue, which in many instances can lead to large fees.
Depository fees also varied in format. There are a number of markets that have fees, which scale with the size of the issue. There are also a number of markets that scale their fees based on the number of bondholders that have subscribed to the issue, which is in large part due to the legacy of mass privatisation. This has created a large amount of account owners which are difficult to maintain and charge and therefore has required depositories to create commercial models which focus on charging the issuer rather than the account holder.
27
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Figure 18 and Figure 19 below provide further details on the breakdown of the issuance costs between initial fees paid to the regulator, stock exchange, and CSD and those which are paid on an ongoing basis. Ongoing fees show the cost of issuance to the issuer for one year of issue.
Figure 18: Small Corporate Bond Issuance Cost Breakdown – Chart and Table (€)
€30,000
€25,000
€20,000
€15,000
€10,000
€5,000
€0 Bulgaria Romania Croatia Federation of North Republika Serbia Slovak Montenegro Bosnia and Macedonia Srpska (B&H) Republic Herzegovina (B&H)
Initial Issuance fees (Small Issue) Ongoing Fees (Small Issue)
(B&H)
ia ia
and Bosnia of Federation (B&H) Herzegovina Srpska Republika Bulgaria Croat Montenegro Macedonia North Romania Serbia Republic Slovak
Initial Issuance fees (€) 6,242 8,425 1,074 3,781 16,715 8,820 3,227 11,252 6,157
Ongoing Fees (€) 1,750 2,125 511 2,130 8,000 650 549 500 10,000
Total Cost (€) 7,992 10,550 1,585 5,911 24,715 9,470 3,776 11,752 16,157
Figure 19: Large Corporate Bond Issuance Cost (€)
€180,000 €160,000 €140,000 €120,000 €100,000 €80,000 €60,000 €40,000 €20,000 €0 Bulgaria Croatia Federation of Romania Slovak North Republika Serbia Montenegro Bosnia and Republic Macedonia Srpska (B&H) Herzegovina (B&H) Initial Issuance fees (Large Issue) Ongoing Fees (Large Issue)
28
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
(B&H)
and Bosnia of Federation (B&H) Herzegovina Srpska Republika Bulgaria Croatia Montenegro Macedonia North Romania Serbia Republic Slovak
Initial Issuance fees (€) 8,895 76,100 1,074 7,831 151,765 77,666 25,727 105,352 34,593
Ongoing Fees (€) 2,500 5,000 511 2,130 10,500 650 549 3,400 10,000
Total Cost (€) 11,395 81,100 1,585 9,961 162,265 78,316 26,276 108,752 44,593
29
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
5. Secondary Market
5.1. Trading Systems
This section examines the cost of accessing the secondary market for both government and corporate bonds. It looks at the cost for access to the stock exchange trading systems and, if it exists, any Alternative Trading Systems (ATS) that may provide competition and potentially offer additional cost efficiency.
Figure 20: Trading Systems Availability Matrix
(B&H)
B&H)
and Bosnia of Federation ( Herzegovina Srpska Republika Bulgaria Croatia Montenegro Macedonia North Romania Serbia Republic Slovak G C G C G C G C G C G C G C G C G C Stock Exchange
Trading system Alternative Trading Systems *Please note that in the above table “G” indicates that government bonds can be traded, and “C” indicates corporate bonds can be traded.
All markets in the study offer electronic trading access to the local stock exchange, which can support the trading of both government and corporate bonds. There are however, few ATS trading systems available. Bulgaria offer an ATS for government bonds that is managed directly by the National Bank of Bulgaria. In Romania, there is an ATS also provided by the Bucharest Stock Exchange which can trade only corporate bonds. In both Serbia and the Slovak Republic, the ATS identified by market participants is Bloomberg’s eBond system. As stated above, this system can be quite expensive, but does provide other ancillary benefits.
Figure 21: Trading Systems Cost – Chart and Table (€)
€10,000 €9,000 €8,000 €7,000 €6,000 €5,000 €4,000 €3,000 €2,000 €1,000 €0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
Stock Exchange Alternative Trading System
30
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
(B&H)
and Bosnia of Federation (B&H) Herzegovina Srpska Republika Bulgaria Croatia Montenegro Macedonia North Romania Serbia Republic Slovak
Stock Exchange (€) 2,147 3,681 1,176 520 8,000 2,400 320 0 0
Alternative Trading System (€) 3,681 43,132 43,132
As Figure 21 shows, whilst these ATS’ may provide additional benefits, none are more cost effective than using the stock exchange’s trading system. It should also be noted that both Serbia and the Slovak Republic do not charge any fees for access to the stock exchange’s trading system.
5.2. Indirect Costs - Spreads
Whilst direct costs are a key component of any transaction, when looking at a portfolio that is actively traded, the indirect cost of the bid / offer spread can also be a significant indirect cost (especially in markets that are less liquid).
Figure 22: Publicly Traded Government Bond Spreads – Chart and Table (bps) bps 400 350 300 250 200 150 100 50 0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
(B&H)
Srpska
Federation of Bosnia and Herzegovina (B&H) Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Average Spreads High (bps) 40 16 183 100 100 14 12 16 250 Average Spread Low (bps) 18 8.8 143 17 51 6 2 2 101
31
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
There is a great deal of variation in average government bond spreads between the markets assessed (Figure 22). Those markets with greater liquidity and a larger number of active institutional investors, which includes Bulgaria, Croatia, and the Slovak Republic, tend to show larger spreads. Markets in which government bonds are predominantly buy-and-hold instruments and where much of the trading is done OTC, such as Republika Srpska (B&H), North Macedonia, Romania and Serbia, tend to have much tighter average spreads across the entire yield curve.
Figure 23: Publicly Traded Corporate Bond Spreads - Chart and Table (bps) bps 400 350 300 250 200 150 100 50 0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
(B&H)
Federation of Bosnia and Herzegovina (B&H) Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Average Spreads High (bps) 50 50 250 80 250 50 250 Average Spread Low (bps) 20 20 101 41 101 21 101
Given both the scarcity of corporate bonds across the markets covered and the fact that the majority of bonds are either unrated or have a low credit rating, it is unsurprising that spreads are wider for these instruments across all markets (Figure 23). This is also partially compounded by the fact that the majority of these bonds are traded on exchange and would therefore have greater price transparency.
Neither North Macedonia nor Serbia have any traded corporate bonds at the time of this analysis.
Figure 24: OTC Government Bond Spreads – Chart and Table (bps) bps 300 250 200 150 100 50 0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
32
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
(B&H)
11
Federation of Bosnia and Herzegovina 10 Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Average Spreads High (bps) 16 183 100 14 8 16 110 Average Spread Low (bps) 9 39 17 6 0 2 49
OTC spreads on government bonds have a tendency to be slightly lower than traded spreads across the markets assessed (Figure 24). Whilst the variation at the high end is negligible, there is a consistent theme which shows that investors often can find better prices off exchange.
Figure 25: OTC Corporate Bond Spreads (bps) bps 400 350 300 250 200 150 100 50 0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Republic Bosnia and Srpska (B&H) Macedonia Herzegovina (B&H)
(B&H)
Federation of Bosnia and Herzegovina (B&H) Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Average Spreads High (bps) 50 250 80 40 250 Average Spread Low (bps) 20 101 41 17 101
Conversely, on the corporate bond side of the market, there is little, if no difference between trading OTC and on exchange. Whilst it is unclear from market participants why this is so, it is surmised that it could be partially due to the price transparency and efficiency that is created when bonds are listed.
10 The Federation of Bosnia and Herzegovina (B&H) do not allow government bonds to be traded OTC 11 Montenegro do not allow government bonds to be traded OTC
33
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
5.3. Trading Transaction Fees
This section looks at the direct costs associated with the trading of both government and corporate bonds. Specifically, this part of the analysis reviews the costs associated with transactional fees from both the stock exchange and through use of brokers / banks.
Figure 26: Direct Trading Fee Cost Per Transaction – Chart and Table (€)
€9,000
€8,000
€7,000
€6,000
€5,000
€4,000
€3,000
€2,000
€1,000
€0 Serbia Bulgaria Slovak Croatia Republika Montenegro Romania Federation of North Republic Srpska (B&H) Bosnia and Macedonia Herzegovina Stock Exchange Fee per Transaction Brokerage Fees per Transaction (B&H)
(B&H)
Srpska
Federation of Bosnia and Herzegovina (B&H) Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Stock Exchange Fee per 1,000 200 100 300 900 250 70 43 332 Transaction (€) Brokerage Fees per 3,500 2,000 750 1,000 1,750 7,500 2,500 300 700 Transaction (€)
Total Fees per Transaction (€) 4,500 2,200 855 1,300 2,650 7,750 2,670 343 1,032
Stock exchange transaction fees tend to be based on the value of the transaction, rather than a fixed cost per trade. As Figure 26 shows, there is great disparity of stock exchange trading fees across the markets assessed. Both the Federation of Bosnia and Herzegovina (B&H) and Montenegro have the highest stock exchange trading fee costs, as they charge 10 and 9bps respectively for each transaction, which is more than 20 times the cost of trading in the most cost effective market, Serbia. Additionally, only Serbia and the Slovak Republic stock exchanges cap fees, which provides additional benefits to larger institutions who wish to trade.
Brokerage fees are not only the largest component of direct trading fees, but tend to vary greatly between the markets assessed. Figure 26 shows that Serbia is the most cost effective market based on this metric, with average brokerage fees of only 3bps of transaction value. Whereas, North Macedonia is the most expensive market, with brokerage fees up to 75bps for large transactions12.
12 Please refer to the section 14.5 for further information on the brokerage fees in North Macedonia
34
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
This dispersion of fees tends to be due to the number of participants in the market and therefore the competition (or lack thereof) for brokerage services. In addition, in those markets where liquidity is particularly thin, brokerage often also requires additional efforts in finding willing buyers / sellers in quite shallow institutional and retail markets. This additional operational cost, may also be a key contributor to the higher cost to trading clients in these circumstances.
35
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
6. Settlement and Safekeeping
6.1. Settlement
Settlement fees assessed in this section are broken down into two parts, CSD clearing and settlement and custodian settlement fees. Figure 27 below outlines the breakdown between these two components of settlement fees across the markets assessed.
Figure 27: Settlement Fees Per Transaction – Chart and Table (€)
€1,800 €1,600 €1,400 €1,200 €1,000 €800 €600 €400 €200 €0 Bulgaria Slovak Croatia Romania Serbia Federation of North Montenegro Republika Republic Bosnia and Macedonia Srpska (B&H) Herzegovina (B&H)
CSD Clearing and Settlement Transaction Fees Custodian Settlement Fees
(B&H)
Federation of Bosnia and Herzegovina (B&H) Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
CSD Clearing and Settlement 830 150 0.31 14.00 300 1,000 32.00 13.75 8.20 Transaction Fees (€)
Custodian Settlement Fees (€) 25.00 1,500 10.00 22.50 1,000 16.00 21.00 100 16.60
Total 855 1,650 10.31 36.50 1,300 1,016 53.00 113.75 24.80
There is a large disparity in cost between the different markets when assessing settlement fee metrics. Those markets with the lowest volume of trades, the Federation of Bosnia and Herzegovina (B&H), the Republika Srpska (B&H), Montenegro, and North Macedonia have the greatest total cost for settlement. Whereas, those markets with much higher frequency and trading volume, Bulgaria, Croatia, Romania and the Slovak Republic, have significantly lower settlement costs. Serbia, whilst it has low trading volumes, has engineered costs that are more in line with more advanced markets.
36
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
6.2. Safekeeping
In addition to assessing costs directly attributable to trading activity, this study has also assessed the cost of holding a portfolio of bonds in each of the markets. Figure 28 shows an overview of the ongoing safekeeping fees for holding the model portfolio over a single year period.
Figure 28: Safekeeping Fees Per Annum – Chart and Table (€)
€90,000 €80,000 €70,000 €60,000 €50,000 €40,000 €30,000 €20,000 €10,000 €0 Romania Croatia Bulgaria Montenegro Republika Serbia Slovak North Fed BiH Srpska Republic Macedonia (B&H)
CSD Safekeeping Fee Custodian Safekeeping Fees
(B&H)
Federation of Bosnia and Herzegovina (B&H) Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
CSD Safekeeping Fee (€) 12,500 153 47 2,500 0 50 178 642 450
Custodian Safekeeping 68,750 25,000 12,500 7,500 25,000 50,000 7,500 25,000 27,500 Fees (€)
Total (€) 81,250 25,153 12,547 10,000 25,000 50,050 7,678 25,642 27,950
It is important to note that for CSD safekeeping fees, there are a variety of commercial models that charge bondholders for the assets that they have on account over time. As outlined above, due to the structures that were put in place during the mass privatisation processes that took place in a number of countries largely between 1990 and 2010, there are a large number of accounts held with the CSD that they are unable (either practically or due to legal reasons) to charge in a traditional manner (i.e. a percentage of the value of the assets held). As a consequence, fee structures, such as taking percentages of coupons, or on payment of principal or charging issuers’ fees for the number of bondholders have been used to make their services commercially viable. Markets such as North Macedonia and Croatia employ these methods. However, further details are provided in each country factsheet.
37
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
In general, CSD safekeeping fees are all nominal, with the exception of the Federation of Bosnia and Herzegovina (B&H) who has the largest fees for safekeeping among the markets assessed.
Custodian safekeeping fees see much less disparity from the majority of the markets assessed. The most cost effective markets for custody are Croatia and Romania where fees are on average 3bps of portfolio value. The most expensive market was the Federation of Bosnia and Herzegovina (B&H) where safekeeping fees averaged around 28bps; significantly more than all other markets assessed.
38
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
7. Taxation
7.1. Transaction Taxes
Research was conducted on taxes on the purchase of bond securities. Examples of this would include sales tax, value added tax or stamp duty.
No transaction taxes were identified in any of the markets assessed.
7.2. Withholding Taxes
Withholding taxes include any tax that would be deducted at source (or paid) on any coupon accruing from the holding of a bond. It should be noted that the analysis was conducted based on the tax applicable to domestic investment institutions (legal persons) and retail investors (natural persons). Different rules may apply to cross-border investors, but these were not part of the scope of this assessment.
Figure 29: Withholding Tax Matrix (%)
(B&H)
Federation of Bosnia and Herzegovina (B&H) Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
G C G C G C G C G C G C G C G C G C
Natural Person 10% 10% 12% 12% 9% 9% 10% 10% 10% 15% 19%
Legal Person 10% 10% 10% 9% 9% 10% 16% 16% 15%
*Please note that in the above table “G” indicates the tax applied to government bonds, and “C” indicates the tax applied to corporate bonds.
Whilst there are slight variations across the markets, in general there is alignment on the withholding tax rates that are applied to both institutional and retail investors (Figure 29). A number of markets including Bulgaria, North Macedonia, Serbia and the Slovak Republic, have also provided additional tax incentives for both types of investors in government bonds.
Bulgaria is the only market not to levy any taxes on corporate bonds for either institutional or retail investors. Croatia and the Slovak Republic offer this dispensation only to institutional investors.
39
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
7.3. Taxes on Disposal / Sale
This section assesses any taxes which are levied on either the sale or transfer of bond. This will traditionally include capital gains taxes. It should be noted that the analysis was conducted based on the tax applicable to domestic investment institutions (legal persons) and retail investors (natural persons). Different rules may apply to cross-border investors, but these were not part of the scope of this assessment.
Figure 30: Taxes on Disposal / Sale Matrix (%)
(B&H)
Federation of Bosnia and Herzegovina (B&H) Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
G C G C G C G C G C G C G C G C G C
Natural Person 10% 10% 10% 10% 10% 10% 12% 12% 9% 9% 7% 7% 10% 10% 15%
Legal Person 10% 10% 10% 10% 10% 10% 18% 18% 9% 9% 10% 10% 16% 16% 15% 21% 21%
*Please note that in the above table “G” indicates the tax applied to government bonds, and “C” indicates the tax applied to corporate bonds.
Similarly to the section on withholding taxes above, most of the markets are aligned in terms of taxes levied on disposition / sale at around 10% of the capital gain (Figure 30). Notably, the Slovak Republic does not levy any taxes on disposition / sale from retail investors in either government or corporate bonds. Nor does Serbia for government bonds only.
40
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
8. Ranking and Fee Analysis
8.1. Ranking
The rankings outlined below are based upon the metrics which are outlined in the Bond Market Analysis framework shown in Appendix 2. Each metric is scored and then the aggregated scores are weighted and indexed to 100 in order to provide both the cost effectiveness and issuance efficiency ratings (see Appendix 3 for further details).
As the scores are indexed, it is possible to track the progress of each market over time. The highest score achievable is 100. The higher the score, the more cost effective or efficient a market is.
Cost Effectiveness
This metric assesses the five key areas in terms of issuance and trading of both government and corporate bond securities:
- Government Bond Auction Fees - Corporate Bond Issuance Fees - Trading Costs (Both Direct and Indirect) - Settlement and Safekeeping - Tax
Full details of the scores and weightings can be found in Appendix 3.
Figure 31: Cost Effectiveness Rank
Rank Score
1 Romania 83
2 Bulgaria 81
3 Serbia 74
4 North Macedonia 73
5 Federation of Bosnia and Herzegovina (B&H) 73
6 Republika Srpska (B&H) 70
7 Croatia 64
8 Slovak Republic 55
9 Montenegro 52
41
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
As Figure 31 shows, Romania as the most cost effective market had strong scores in each of the five categories. Bulgaria had the highest score in terms of corporate bond issuance fees, making it a close second. At the other end of the spectrum, Montenegro had low scores in all but the Tax category, where they have an advantage.
It should be noted that the Slovak Republic, whilst a reference market, scored the second lowest. This is due to a number of factors. Firstly, the reliance on the Bloomberg system for both bond auctions and as an ATS makes the market somewhat expensive from a trading perspective. Also similarly to Montenegro, without caps on certain issuance fees, the cost of issuance in both of these markets is relatively expensive.
Issuance Efficiency
This metric assesses the two key areas in terms of the timings associated with the issuance of government and corporate bond securities:
- Government Auction Timeline - Corporate Bond Issuance Timeline
Full details of the scores and weightings can be found in Appendix 3.
Figure 32: Issuance Efficiency Rank
Rank Score
1 Bulgaria 82
2 Montenegro 75
3 Republika Srpska (B&H) 72
4 Slovak Republic 70
5 Federation of Bosnia and Herzegovina (B&H) 68
6 Croatia 68
7 North Macedonia 63
8 Romania 61
9 Serbia 54
As Figure 32 above shows, Bulgaria is the most efficient market for issuance of all those assessed. This is largely due to the minimal requirements for the approval of prospectuses or listing for corporate bond issuance, along with the speed of turnaround from the Bulgarian Stock Exchange if a bond is to be listed. Equally, the regularity and advanced notice of government bond auctions provides good notice and information to market participants.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Montenegro and the Republika Srpska (B&H), both have short timelines for the issuance of corporate bonds. However, this may also be due to the low volume of bonds that are (and have been) issued.
Romania and Serbia both showed the worst score for issuance efficiency, ranking 8th and 9th respectively. This is largely due to the length of time taken by the regulator to approve prospectuses and higher than average times for listing.
8.2. Portfolio Cost Analysis
Below is the analysis of the total transactional and holding costs for a portfolio over the course of one year. The costs outlined below are based on the various characteristics of the model portfolio and include the following:
- Trading Costs (both direct and indirect)13 - Settlement and Clearing14 - Safekeeping - Taxation15
The results have been broken down to show the costs for both an institutional investor (legal person) and a retail investor (natural person). In addition, given the differences in tax levies for government and corporate bonds, this cost difference has also been outlined.
Figure 33: Portfolio Cost to Natural Person – Chart and Table (€)
€700,000
€600,000
€500,000
€400,000
€300,000
€200,000
€100,000
€0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
Investing in Government Bonds Investing in Corporate Bonds
13 This includes trading system access for two users for a year, all trading fees (stock exchange and brokerage). It assumes 50 trades per year. 14 This includes both CSD and custody fees. It assumes the clearing and settlement of 50 trades per year as outlined in the model portfolio. 15 This includes transaction taxes, withholding tax and disposition / sales taxes. Please refer to the model portfolio in section 2.3 for further details on the coupon amount, profit on capital gains etc.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
(B&H)
Federation of Bosnia and Herzegovina (B&H) Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Investing in Government Bonds (€) 399,000 407,653 154,494 301,825 357,500 545,850 340,800 46,329 107,322
Investing in Corporate Bonds (€) 400,750 408,653 154,869 302,325 358,375 649,600 342,000 346,479 297,672
In terms of retail investors investing in government bonds, Serbia is by far the most cost effective market, with the total portfolio cost amounting to only €46,329. However, the cost for investing in corporate bonds is much higher at €346,479, due to the difference in taxation between the two instrument types. Overall, Bulgaria is the least expensive market in total terms, but this is largely due to the zero tax levy.
Figure 34: Portfolio Cost to Legal Person (€)
€800,000 €700,000 €600,000 €500,000 €400,000 €300,000 €200,000 €100,000 €0 Federation of Republika Bulgaria Croatia Montenegro North Romania Serbia Slovak Bosnia and Srpska (B&H) Macedonia Republic Herzegovina (B&H)
Investing in Government Bonds Investing in Corporate Bonds
(B&H)
Bosnia and
Federation of Herzegovina (B&H) Republika Srpska Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic
Investing in Government Bonds (€) 499,000 307,653 154,494 241,825 357,500 575,850 460,800 46,329 317,322
Investing in Corporate Bonds (€) 500,750 408,653 154,869 242,325 358,375 679,600 462,000 346,479 317,672
It is important to note that tax has a significant impact on the overall cost to a portfolio (which is borne out above).
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
9. Federation of Bosnia and Herzegovina (B&H) Factsheet
9.1. Overview
Cost Effectiveness
This section outlines the cost effectiveness of the market, based on the bond cost effectiveness framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Auction Fees 13 out of 15 Rank Score Corporate Bond Issuance Fees 30 out of 40
73 Trading Fees 9 out of 15 Out of 100 Settlement & Safekeeping Fees 6 out of 15 5
Taxation 15 out of 15
Issuance Efficiency
This section outlines the efficiency of the market in terms of speed and awareness of primary issuance, based on the bond efficiency framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Rank Auction Timeline out of 30 Score 23 68 Out of 100 Corporate Bond Issuance 45 out of 70 Timeline 5
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
9.2. Market Dynamics
Breadth of Instruments16
Instrument Types 2yr 5yr 7yr 10yr 30yr Treasury Fixed Rate Treasury Floating Rate Treasury Inflation Linked Corporate Bonds (Fixed Rate) Corporate Bonds (Floating Rate) Repos with Central Banks Repos with Market Participants
Government Bond Yield Curve17 Corporate Bond Yield Curve18
1.0% 1.0%
0.5% 0.5%
0.0% 0.0%
Yield Yield
-0.5% -0.5%
-1.0% -1.0% 2 5 7 10 30 2 5 7 10 30 Maturity Maturity
Distribution Requirements19
This outlines whether bond is required to be listed on the stock exchange or if it can be done through private placement.
Instrument Types Stock Exchange20 Private Placement
Government Bonds Corporate Bonds
Liquidity
Value of Outstanding Bonds Listed by Issuance Currency (€mn)21
LCY EUR Other Government 593 Corporate 61
16 Source: Market Participant Questionnaire, November 2019. 17 No data was able to be gathered in order to construct a yield curve. 18 No data was able to be gathered in order to construct a yield curve. 19 Source: Securities Commission of the Federation of Bosnia and Herzegovina, July 2019 20 It should be noted that responses from the Sarajevo Stock Exchange conflicted with those provided by the Securities Commission. It was indicated that there was a requirement for bonds to be listed. 21 Source: Sarajevo Stock Exchange, July 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Number of Bonds Listed in 201822
Instrument Types Number Government 4 Corporate 1
Value of Bonds Listed in 2018 by Issuance Currency (€mn)23
LCY EUR Other Government 372 Corporate 9
Liquidity Indicators of Listed Bonds in 2018 (€mn) 24
Trading Volume (€) LCY EUR Other Government 13 Corporate 0.2 Turnover Ratio (%) Government 2.12% Corporate 0.33%
Market Participants
Number of Entities Authorised to Carry Out the Following Activities25
Banking Brokerage Market-Making 16 6 0
9.3. Government Bond Auction Process
This section outlines the structure process and cost in relation to the primary issuance of government bonds through the auction process.
Structure26 Auction Schedule Timetabled (regular) Auction Frequency 9027 Competitive Tender Award at Bid Price (Dutch- Auction Type Style Auction)
22 Source: Sarajevo Stock Exchange, July 2019 23 Source: Sarajevo Stock Exchange, July 2019 24 Source: Sarajevo Stock Exchange, July 2019 25 Source: Securities Commission of the Federation of Bosnia and Herzegovina. November 2019 26 Source: Market Participant Questionnaire, November 2019 27 There is a yearly calendar that on average provides auctions every quarter.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Accessibility28 Are there Primary Dealers / Market Makers No Do Primary Dealers / Market Makers have preferential access? No Are Auctions Accessible by regulated intermediaries Yes Are Auctions Accessible by retail investors Yes Are there auction bid channels for retail investors? Yes - Competitive bid channels
Average Number of Days to of Auction29
Notification
Bidding
Award
0 2 4 6 8 10 12 14 16
Notification Bidding Award Total Average Number of Days 12 1 1 14
Bid Submission Process
Cost (€) Electronic Auction Processing System (€ per annum)30 2,761 (Sarajevo Stock Exchange Trading System (BTS)) Fees paid for bid Submission31 0
9.4. Corporate Bond Issuance
This section outlines the structure process and cost in relation to the primary issuance of corporate bonds.
Requirements to issue a corporate bond32
Prospectus Listing on the local Credit Rating Other Approval Stock Exchange Required
28 Source: Market Participant Questionnaire, November 2019 29 Source: Market Participant Questionnaire, November 2019 30 Source: Market Participant Questionnaire, November 2019. After investigation of the conflicting numbers given to us by the market participants, we have conducted our own research and discovered the fees for access to the electronic auctioning system as being 5400BAM on average between integrated and non-integrated access. 31 Source: Market Participant Questionnaire / Sarajevo Stock Exchange, November 2019 32 Source: Securities Commission of the Federation of Bosnia and Herzegovina, July 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Other Issuance Factors33 Shelf Registration Allowed Yes Summary Prospectus of Small Issues Yes Currency Issuance Restrictions No
Average Number of Days to Issue34
Prospectus Approval
Credit Rating
Listing
0 2 4 6 8 10 12
Days
Prospectus35 Credit Rating Listing36 Total Average Number of Days 21 9 30
Corporate Bond Issuance Fees
Minimum Fee Type Average Fee37 Cap (€) Fee (€) Small Issue Large Issue Prospectus Approval38 500 5,000 7,500 7,500 Stock Exchange Listing Fees39 500 500 500 500 Stock Exchange Maintenance Fee (p/a)40 1,750 1,750 2,500 2,500 CSD Issuance Fee41 155 742 895 895 Total 2,905 7,992 11,395 11,395
33 Source: Market Participant Questionnaire, November 2019 34 Source: Market Participant Questionnaire, November 2019 35 The Securities Commission has stated that the maximum time meant to provide approval is 30 days. However, in the Market Participant Questionnaire, one answer stated that on average approval takes 60 days. The number stated includes this outlier in the calculation of the average. 36 Respondents stated that for government bonds listing takes up to seven days. Corporate Bonds, with all deadlines and possible corrections to the application, takes up to 30 days. However, normally it takes 8-15 days. 37 Based on the model issuer parameters outlined in Section 2.4. Small Issue would be charged at 0.1% of total issuance value. Large Issue would be charged at 1.1% of total issuance value. Minimum €500 for securities issued in a public offering. €300 for securities issuance via private placement. A cap of €7,500 for securities issued in a public offering; €5,000 for securities issued via private placement. 38 Source: Securities Commission of the Federation of Bosnia and Herzegovina, July 2019 39 Source: Sarajevo Stock Exchange, July 2019 40 Source: Sarajevo Stock Exchange, July 2019 41 Source: Registry of Securities of the Federation of Bosnia and Herzegovina, July 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Common Bond Legal Features
Typical Covenants42
Covenant Rare Sometimes Common
Debt / EBITDA Debt / (EBITDA – Capital Expenditures) 43 Interest Coverage 44 Fixed Charge Coverage Debt / Equity Debt / Assets Total Assets Tangible Net Worth Dividend Pay-out Ratio Limitation on Mergers and Acquisitions Restrictions on Change of control
Callability45
No callable features are common in the market.
Disclosure requirements46
Annual and financial report, audit report, other sensitive information like increase yearly sales more than 10 %, change of key person.
9.5. Trading
Trading Systems
Government Corporate Cost per annum (€) Stock Exchange Trading System47 2,147 (Berzanski Sistem Trgovine (BTS)) 48 Alternative Trading System (ATS) N/A
42 Source: Market Participant Questionnaire, November 2019 43 EBITDA or EBIT / Interest 44 EBITDA / (Total Debt Service + Capital Expenditures + Taxes 45 Source: Market Participant Questionnaire, November 2019 46 Source: Market Participant Questionnaire, November 2019 47 Source: Sarajevo Stock Exchange, July 2019 48 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Average Bid Offer Spreads for On-The-Run Bonds49
Publically Traded 2yr 5yr 7yr 10yr 30yr Average Government Bonds 21-50 21-50 21-50 51-101 19-40 Corporate Bonds 101-250 101-250 OTC Government Bonds Corporate Bonds
It should be noted that bonds cannot be traded OTC.
Fees
Fee Type (per transaction)
Fee per Minimum Flat Fee (€) % (bps) Cap (€) transaction (bps) (€) Stock Exchange Trading Fees 50 - 10 1,000 ATS Trading Fees 51 Brokerage fees52 10 35 3,500 Total 10 - 45 - 4,500
9.6. Settlement & Safekeeping
Settlement fees
Fee Type (per transaction) Minimum (€) Avg. Fee (€) Cap (€) CSD clearing & settlement transaction fees53 830 Custodian Settlement Fees54 10 25 Total Settlement Fees 855
Safekeeping Fees
Fee Type (per annum) Fee (€) % (bps) Cap (€) CSD Safekeeping fees55 12,500 5 20,452 Custodian Safekeeping Fees56 68,750 28 Total Safekeeping Fees 81,250
49 Source: Market Participant Questionnaire, November 2019 50 Source: Sarajevo Stock Exchange, July 2019 51 Source: Market Participant Questionnaire, November 2019 52 Source: Market Participant Questionnaire, November 2019 53 Source: Registry of Securities of the Federation of Bosnia and Herzegovina, July 2019. Fees are tiered based on type of institution. Brokers 4.5bps; Custodian Banks 7.5bps; Intra-day transactions, 11.5bps. Average of 8.3bps used in the calculation. 54 Source: Market Participant Questionnaire, November 2019 55 Source: Registry of Securities of the Federation of Bosnia and Herzegovina, July 2019. 56 Source: Market Participant Questionnaire, November 2019. Responses ranged between 15 bps and 50 bps. An average of 28bps was used in the calculation.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
9.7. Taxation
Tax Matrix57
Government (%) Corporate (%) Fee Type Individual Corporate Individual Corporate Transaction taxes on purchase (e.g. stamp duty) Withholding taxes on coupons / interest whilst 0% 10% 0% 10% holding bonds Taxes on the disposition / sale (e.g. capital gains) 10% 10% 10% 10%
9.8. Fee Analysis
This section provides an overview of the fees in relation to both issuance of corporate bonds and trading of bonds in in the secondary market.
Corporate Bond Issuer Cost
This outlines all the fees required in order to issue a corporate bond. It includes initial issuance costs as well as any ongoing fees. Ongoing fees are calculated as fees for a single year.
Small Issue58 Large Issue59 Initial Issuance Fees60 6,242 8,895 Ongoing Fees61 1,750 2,500 Total Cost62 7,992 11,395
Portfolio Costs
This outlines all the fees (direct and indirect) and taxes involved in the trading of a portfolio of bonds. All fees calculated for a single year based on the composition and trading details outlined in the model portfolio.
Natural Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs63 227,147 227,147 Indirect Trading Costs64 1,250 - Settlement & Clearing 42,750 42,750 Safekeeping 81,250 81,250
57 Source: Market Participant Questionnaire, November 2019 58 Source: Various sources outlined previously in this section. Based on an issuance amount of €5mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 59 Source: Various sources outlined previously in this section. Based on an issuance amount of €50mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 60 Includes prospectus approval fees, stock exchange listing fees and CSD issuance fees. 61 Includes stock exchange maintenance fees and any other mandatory annual fees. 62 Assuming first time issuance and listing for 1 year. This is therefore the total annual cost. 63 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 64 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Tax65 100,000 100,000 Total Trading Cost 452,397 451,147
Portfolio Costs – Legal Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs66 227,147 227,147 Indirect Trading Costs67 1,250 - Settlement & Clearing 42,750 42,750 Safekeeping 81,250 81,250 Tax68 200,000 200,000 Total Trading Cost 552,397 551,147
65 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn. 66 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 67 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 68 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
10. Republika Srpska (B&H) Factsheet
10.1. Overview
Cost Effectiveness
This section outlines the cost effectiveness of the market, based on the bond cost effectiveness framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Auction Fees 15 out of 15 Rank Score Corporate Bond Issuance Fees 23 out of 40
70 Trading Fees 9 out of 15 Out of 100 Settlement & Safekeeping Fees 8 out of 15 6
Taxation 15 out of 15
Issuance Efficiency
This section outlines the efficiency of the market in terms of speed and awareness of primary issuance, based on the bond efficiency framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Rank Auction Timeline out of 30 Score 23 72 Out of 100 Corporate Bond Issuance 49 out of 70 Timeline 3
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
10.2. Market Dynamics
Breadth of Instruments69
Instrument Types 2yr 5yr 7yr 10yr 30yr Treasury Fixed Rate Treasury Floating Rate Treasury Inflation Linked Corporate Bonds (Fixed Rate) Corporate Bonds (Floating Rate) Repos with Central Banks Repos with Market Participants
Government Bond Yield Curve70 Corporate Bond Yield Curve71
2.5% 7.0% 6.0% 2.0% 5.0%
1.5% 4.0% Yield Yield 1.0% 3.0% 2.0% 0.5% 1.0% 0.0% 0.0% 1 5 7 10 30 2 5 7 10 30 Maturity Maturity
Distribution Requirements72
This outlines whether bond is required to be listed on the stock exchange or if it can be done through private placement.
Instrument Types Stock Exchange Private Placement73
Government Bonds Corporate Bonds
69 Source: Market Participant Questionnaire, November 2019. 70 Source: Banja Luka Stock Exchange, November 2019 71 Source: Banja Luka Stock Exchange, November 2019. Constructed using Yield To Maturity from a range of unrated bonds listed on the Banja Luka Stock Exchange 72 Source: Banja Luka Stock Exchange, November 2019 73 It should be noted that there was a difference in response between the responses from Market Participants and the Banja Luka Stock Exchange, who stated that government bonds could be issued via private placement.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Liquidity
Value of Outstanding Bonds Listed by Issuance Currency (€mn)74
LCY EUR Other Government 557 Corporate 4
Number of Bonds Listed in 201875
Instrument Types Number Government 7 Corporate 6
Value of Bonds Listed in 2018 by Issuance Currency (€mn)76
LCY EUR Other Government 90 Corporate 0.7
Liquidity Indicators of Listed Bonds in 2018 (€mn) 77
Trading Volume (€) LCY EUR Other Government 155 Corporate 1.8 Turnover Ratio (%) Government 27.8% Corporate 43.8%
Market Participants
Number of Entities Authorised to Carry Out the Following Activities78
Banking Brokerage Market-Making 8 5 0
74 Source: Banja Luka Stock Exchange, July 2019 75 Source: Banja Luka Stock Exchange, July 2019 76 Source: Banja Luka Stock Exchange, July 2019 77 Source: Banja Luka Stock Exchange, and authors own calculations, July 2019 78 Source: The Central Bank of Bosnia and Herzegovina and The Republic of Srpska Securities Commission
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
10.3. Government Bond Auction Process
This section outlines the structure process and cost in relation to the primary issuance of government bonds through the auction process.
Structure Auction Schedule79 Timetabled (regular) Auction Frequency 60 Competitive Tender Award at Uniform Minimum Auction Type80 Price Accessibility Are there Primary Dealers / Market Makers81 No Do Primary Dealers / Market Makers have preferential access?82 No Are Auctions Accessible by regulated intermediaries83 Yes Are Auctions Accessible by retail investors84 Yes Are there auction bid channels for retail investors?85 Yes - Competitive Bid Channel (via banks only)
Average Number of Days to of Auction
Notification
Bidding
Award
0 2 4 6 8 10 12 Days
Notification Bidding Award Total Average Number of Days86 8 1 3 12
Bid Submission Process
Cost (€) Electronic Auction Processing System (€ per annum)87 1,840.65 (BSt-T Banjaluka Stock exchange system for trading) Fees paid for bid Submission88 0
79 Source: Market Participant Questionnaire, November 2019 80 Source: Market Participant Questionnaire, November 2019 81 Source: Market Participant Questionnaire, November 2019 82 Source: Market Participant Questionnaire, November 2019 83 Source: Market Participant Questionnaire, November 2019 84 Source: Market Participant Questionnaire, November 2019 85 Source: Market Participant Questionnaire, November 2019 86 Source: Market Participant Questionnaire, November 2019 87 Source: Banja Luka Stock Exchange and Market Participant Questionnaire. It should be noted that a Stock Exchange member with special authorities or a Money Market Direct Member do not pay any access fees. For others the cost is 3600 BAM. 88 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
10.4. Corporate Bond Issuance
This section outlines the structure process and cost in relation to the primary issuance of corporate bonds.
Requirements to issue a corporate bond89
Prospectus Listing on the local Credit Rating Other Approval Stock Exchange Required
Other Issuance Factors90 Shelf Registration Allowed Yes Summary Prospectus of Small Issues Yes Currency Issuance Restrictions No
Average Number of Days to Issue91
Prospectus Approval
Credit Rating
Listing
0 2 4 6 8 10 12 Days
Prospectus Credit Rating Listing Total Average Number of Days 16 7 23
Corporate Bond Issuance Fees
Minimum Fee Type Average Fee92 Cap (€) Fee (€) Small Issue Large Issue Prospectus Approval93 511 7,500 75,000 - Stock Exchange Listing Fees94 150 325 500 500 Stock Exchange Maintenance Fee (p/a)95 250 2,125 5,000 5,000 CSD Issuance Fee96 - 600 600 - Total 911 10,550 81,100 5,500
89 Source: The Republic of Srpska Securities Commission, July 2019 90 Source: Market Participant Questionnaire, November 2019 91 Source: Market Participant Questionnaire, November 2019 92 Based on the model issuer parameters outlined in Section 2.3 93 Source: The Republic of Srpska Securities Commission, July 2019. Small and large issue prospectus approval fee is 0.15 % of issuance volume 94 Source: Banja Luka Stock Exchange, July 2019 95 Source: Banja Luka Stock Exchange, July 2019 96 Source: Central Registry of Securities, JSC, Banja Luka, Republic of Srpska
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Common Bond Legal Features
Typical Covenants97
Covenant Rare Sometimes Common
Debt / EBITDA Debt / (EBITDA – Capital Expenditures) 98 Interest Coverage 99 Fixed Charge Coverage Debt / Equity Debt / Assets Total Assets Tangible Net Worth Dividend Pay-out Ratio Limitation on Mergers and Acquisitions Restrictions on Change of control
Callability100
There are generic provisions for the early redemption of bonds: The issuer may, at any time, redeem the bonds at any market price or otherwise, provided that, in the case of a public offering, such an offer is equally available to all bondholders and such an offer is consistent with legal provisions. No bond holder is required to accept the Issuer's offer or sell any number of bonds in its possession.
Disclosure requirements101
Annual audit and financial reports.
10.5. Trading
Trading Systems
Government Corporate Cost per annum [€] Stock Exchange Trading System 3,681 (Exchange Trading System (QuickTrade))102 Alternative Trading System (ATS)103
97 Source: Market Participant Questionnaire, November 2019 98 EBITDA or EBIT / Interest 99 EBITDA / (Total Debt Service + Capital Expenditures + Taxes 100 Source: Market Participant Questionnaire, November 2019 101 Source: Market Participant Questionnaire, November 2019 102 Source: Banja Luka Stock Exchange. The fee is 7,200 BAM per annum. 103 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Average Bid Offer Spreads for On-The-Run Bonds104
Publically Traded 2yr 5yr 7yr 10yr 30yr Average Government Bonds 11-20 11-20 11-20 11-20 11-20 16 Corporate Bonds 101-251 176 OTC Government Bonds 11-20 11-20 11-20 11-20 11-20 16 Corporate Bonds 101-251 176
Fees
Fee Type (per transaction)
Fee per Minimum Flat Fee (€) % (bps) Cap (€) transaction (€) Stock Exchange Trading Fees 105 - 2 - 200 ATS Trading Fees 106 - Brokerage fees107 4 20 - 2,000 Total 4 - 22 - 2,200
10.6. Settlement & Safekeeping
All numbers below are based on the model portfolio.
Settlement fees
Fee Type (per transaction) Minimum (€) Fee (€) Cap (€) CSD clearing & settlement transaction fees108 150 Custodian Settlement Fees109 1,500 Total Settlement Fees 1,650
Safekeeping Fees
Fee Type (per annum) Fee (€) % (bps) Cap (€) CSD Safekeeping fees110 153 0.1 Custodian Safekeeping Fees111 25,000 10 Total Safekeeping Fees 25,153
104 Source: Market Participant Questionnaire, November 2019 105 Source: Banja Luka Stock Exchange. Fees are 0.02% for bonds and 0.01% for short term T-bills. The fee for bonds has been used in the calculation. 106 Source: Market Participant Questionnaire, November 2019 107 Source: Market Participant Questionnaire, November 2019 108 Source: Central Registry of Securities, July 2019. The fee is 0.015% (1.5 bps) per transaction. 109 Source: Market Participant Questionnaire, November 2019. Using an average fee of 15 bps. 110 Source: Central Registry of Securities, July 2019. 111 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
10.7. Taxation
Tax Matrix112
Government (%) Corporate (%) Fee Type Individual Corporate Individual Corporate Transaction taxes on purchase (e.g. stamp duty) Withholding taxes on coupons / interest whilst 10% 0% 10% 10% holding bonds Taxes on the disposition / sale (e.g. capital gains) 10% 10% 10% 10%
10.8. Fee Analysis
This section provides an overview of the fees in relation to both issuance of corporate bonds and trading of bonds in in the secondary market.
Corporate Bond Issuer Cost
This outlines all the fees required in order to issue a corporate bond. It includes initial issuance costs as well as any ongoing fees. Ongoing fees are calculated as fees for a single year.
Small Issue113 Large Issue114 Initial Issuance Fees115 8,425 76,100 Ongoing Fees116 2,125 5,000 Total Cost117 10,550 81,100
112 Source: Market Participant Questionnaire, November 2019 113 Source: Various sources outlined previously in this section. Based on an issuance amount of €5mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 114 Source: Various sources outlined previously in this section. Based on an issuance amount of €50mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 115 Includes prospectus approval fees, stock exchange listing fees and CSD issuance fees. 116 Includes stock exchange maintenance fees and any other mandatory annual fees. 117 Assuming first time issuance and listing for 1 year. This is therefore the total annual cost.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Portfolio Costs
This outlines all the fees (direct and indirect) and taxes involved in the trading of a portfolio of bonds. All fees calculated for a single year based on the composition and trading details outlined in the model portfolio.
Natural Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs118 113,681 113,681 Indirect Trading Costs119 1,000 12,500 Settlement & Clearing 82,500 82,500 Safekeeping 25,153 25,153 Tax120 200,000 200,000 Total Trading Cost 422,335 433,835
Legal Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs121 113,681 113,681 Indirect Trading Costs122 1,000 12,500 Settlement & Clearing 82,500 82,500 Safekeeping 25,153 25,153 Tax123 100,000 200,000 Total Trading Cost 322,335 433,835
118 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 119 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 120 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn. 121 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 122 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 123 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
11. Bulgaria Factsheet
11.1. Overview
Cost Effectiveness
This section outlines the cost effectiveness of the market, based on the bond cost effectiveness framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Auction Fees 8 out of 15 Rank Score Corporate Bond Issuance Fees 34 out of 40
81 Trading Fees 10 out of 15 Out of 100 Settlement & Safekeeping Fees 13 out of 15 2
Taxation 15 out of 15
Issuance Efficiency
This section outlines the efficiency of the market in terms of speed and awareness of primary issuance, based on the bond efficiency framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Rank Auction Timeline out of 30 Score 26 82 Out of 100 Corporate Bond Issuance 56 out of 70 Timeline 1
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
11.2. Market Dynamics
Breadth of Instruments124
Instrument Types 2yr 5yr 7yr 10yr 30yr Treasury Fixed Rate Treasury Floating Rate Treasury Inflation Linked Corporate Bonds (Fixed Rate) Corporate Bonds (Floating Rate) Repos with Central Banks Repos with Market Participants
Government Bond Yield Curve125 Corporate Bond Yield Curve126
0.4% 5.0% 0.3% 0.2% 4.0% 0.1% 3.0% 0.0%
-0.1% 2.0% Yield Yield -0.2% -0.3% 1.0% -0.4% 0.0% -0.5% -0.6% -1.0% 2 5 7 10 30 2 5 7 10 30 Maturity Maturity
Distribution Requirements127
This outlines whether bond is required to be listed on the stock exchange or if it can be done through private placement.
Instrument Types Stock Exchange Private Placement
128 Government Bonds Corporate Bonds
124 Source: Market Participant Questionnaire, November 2019. 125 Source: http://www.worldgovernmentbonds.com/country/bulgaria, November 2019 126 Source: Cbonds, November 2019. To construct the curve the following bonds were used. 2yr, 5yr: Bulgarian Energy Holdings which is a BB (Fitch) rated company (Coupon approx. 3.5%), 10yr: Education and sports complex Lozenets, 3.85% Coupon. 127 Source: Financial Supervision Commission, July 2019 128 Government bonds have to be listed on the regulated market operated by the Bulgarian Exchange before they can be traded there. There is no obligation for listing before trading regarding the Multilateral Trading Facility (MTF) operated by the Exchange.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Liquidity
Value of Outstanding Bonds Listed by Issuance Currency (€mn)129
LCY EUR Other Government 2,103 669 Corporate 130 841
Number of Bonds Listed in 2018130
Instrument Types Number Government Corporate 16
Value of Bonds Listed in 2018 by Issuance Currency (€mn)131
LCY EUR Other Government 2,365 797 Corporate 131 843
Liquidity Indicators of Listed Bonds in 2018 (€mn) 132
Trading Volume (€) LCY EUR Other Government 13 12 Corporate 9 17 Turnover Ratio (%) Government 0.60% 1.81% Corporate 7.07% 2.05%
Market Participants
Number of Entities Authorised to Carry Out the Following Activities133
Banking Brokerage Market-Making 26 65
129 Source: Bulgarian Stock Exchange, July 2019 130 Source: Bulgarian Stock Exchange, July 2019 131 Source: Bulgarian Stock Exchange, July 2019 132 Source: Bulgarian Stock Exchange and Authors own calculations, July 2019 133 Source: Financial Supervision Commission and Bulgarian National Bank
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
11.3. Government Bond Auction Process
This section outlines the structure process and cost in relation to the primary issuance of government bonds through the auction process.
Structure134 Auction Schedule Ad hoc (irregular) Auction Frequency - Competitive Tender Award at Bid Price (Dutch- Auction Type Style Auction) Accessibility135 Are there Primary Dealers / Market Makers Yes Do Primary Dealers / Market Makers have preferential access? No Are Auctions Accessible by regulated intermediaries Yes Are Auctions Accessible by retail investors Yes Are there bid channels for retail investors? Yes - Competitive bid channel
Average Number of Days to of Auction
Notification
Bidding
Award
0 2 4 6 8 10 12
Days
Notification Bidding Award Total Average Number of Days136 9 1 1 11
Bid Submission Process
Cost (€) Electronic Auction Processing System (€ per annum)137 3,681.29 (Government Securities Auction System (GSAS)) Fees paid for bid Submission138 503
134 Source: Market Participant Questionnaire, November 2019 135 Source: Market Participant Questionnaire, November 2019 136 Source: Market Participant Questionnaire, November 2019 137 Source: Market Participant Questionnaire, Bulgarian National Bank. 7,200BGN for access to the GSAS access fee plus monthly maintenance fee 138 Source: Market Participant Questionnaire, November 2019. 2 to 3 EUR fixed fee plus 3 to 5 bps depending on transaction. A fee of 5bps was used for calculation (as the modal average).
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
11.4. Corporate Bond Issuance
This section outlines the structure process and cost in relation to the primary issuance of corporate bonds.
Requirements to issue a corporate bond139
Prospectus Listing on the local Credit Rating Other Approval Stock Exchange Required
It should be noted that bonds can only be issued by a Joint Stock Company.
Other Issuance Factors140 Shelf Registration Allowed No Summary Prospectus of Small Issues No Currency Issuance Restrictions No
Average Number of Days to Issue141
Prospectus Approval
Credit Rating
Listing
0 1 2 3 4 5 6
Days
Prospectus Credit Rating Listing Total Average Number of Days 5 5
139 Source: Financial Supervision Commission, July 2019 140 Source: Market Participant Questionnaire, November 2019 141 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Corporate Bond Issuance Fees
Minimum Fee Type Average Fee142 Cap (€) Fee (€) Small Issue Large Issue Prospectus Approval143 - - - - Stock Exchange Listing Fees144 - 256 256 - Stock Exchange Maintenance Fee (p/a)145 - 511 511 - CSD Issuance Fee146 767 818 818 2,556 Total 767 1,585 1,585 2,556
Common Bond Legal Features
Typical Covenants147
Covenant Rare Sometimes Common
Debt / EBITDA Debt / (EBITDA – Capital Expenditures) 148 Interest Coverage 149 Fixed Charge Coverage Debt / Equity Debt / Assets Total Assets Tangible Net Worth Dividend Pay-out Ratio Limitation on Mergers and Acquisitions Restrictions on Change of control
Callability150
Call option close to expiry; European style call options; Strike price at par or higher.
142 Based on the model issuer parameters outlined in Section 2.3 143 Source: Financial Supervision Commission, July 2019. Until 1 January 2021, as a measure to support the capital market in Bulgaria no fee is collected for an approval of a prospectus for public offering of securities. The standard fee for a prospectus approval is BGN 900 + 0.1% for the difference above BGN 200 000 (issue value) but not more than BGN 5 000. After 1 January 2021 the minimum fee for a prospectus approval will be BGN 900 + 0.1% for the difference above BGN 200 000 (issue value). After 1 January 2021 the fee cap for a prospectus approval will be BGN 5 000. 144 Source: Bulgarian Stock Exchange, July 2019 145 Source: Bulgarian Stock Exchange, July 2019. Maintenance fee for corporate bonds is EUR 511, for government bonds – EUR 61. Corporate bonds which interest calculation is based on EURIBOR, have an additional annual maintenance fee of EUR 511 146 Source: Central Depository AD. Minimum of BGN 1,500. Fee for small issue is BGN 1,600. Fee for large issue is BGN 1,600. There is a cap of 5,000. The cost is also based on the number of bondholders. Assumed that there are 100 bondholders. 147 Source: Market Participant Questionnaire, November 2019 148 EBITDA or EBIT / Interest 149 EBITDA / (Total Debt Service + Capital Expenditures + Taxes 150 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Disclosure requirements151
If the issue is traded on a stock exchange they disclose regular financial information using - interim (quarterly) and annual reports.
11.5. Trading
Trading Systems
Government Corporate Cost per annum (€) Stock Exchange Trading System152 1,175.97 (Xetra T7) Alternative Trading System (ATS)153 3,681.29 (ESROT)
Average Bid Offer Spreads for On-The-Run Bonds154
Publically Traded 2yr 5yr 7yr 10yr 30yr Average Government Bonds 11-50 101-250 101-250 101-250 101-250 143-183 Corporate Bonds 101-250 101-250 101-250 101-250 101-250 101-250 OTC Government Bonds 11-50 11-250 21-250 51-250 101-250 39-210 Corporate Bonds 101-250 101-250 101-250 101-250 101-250
Fees
Fee Type (per transaction)
Fee per Minimum Flat Fee (€) % (bps) Cap (€) transaction (€) (€) Stock Exchange Trading Fees 155 1 1 - 100 ATS Trading Fees 156 2.5 5 - 5 5 Brokerage fees157 5 8 - 750 Total 8.5 5 9 5 855
11.6.
151 Source: Market Participant Questionnaire, November 2019 152 Source: Bulgarian Stock Exchange. The fee is BGN 2,000 for membership, Plus BGN 300 per trader, Plus VAT @ 20% 153 Source: Market Participant Questionnaire, November 2019. ESROT is a government bond trading / settlement platform. The fee is 7,200BGN which includes both access and a monthly maintenance fee 154 Source: Market Participant Questionnaire, November 2019 155 Source: Bulgarian Stock Exchange, July 2019 156 Source: Market Participant Questionnaire, November 2019 157 Source: Market Participant Questionnaire, November 2019. Answers ranged between 5-100 EUR for Minimum brokerage fee. €5 was used for the calculation.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
11.7. Settlement & Safekeeping
Settlement fees
Fee Type (per transaction) Minimum (€) Fee (€) Cap (€) CSD clearing & settlement transaction fees158 0.31 10 Custodian Settlement Fees159 10 10 Total Settlement Fees 10.3
Safekeeping Fees
Fee Type (per annum) Flat fee (€) % (bps) Cap (€) CSD Safekeeping fees160 47 0.02 Custodian Safekeeping Fees161 12,500 5 Total Safekeeping Fees 12,547
11.8. Taxation
Tax Matrix162
Government (%) Corporate (%) Fee Type Individual Corporate Individual Corporate Transaction taxes on purchase (e.g. stamp duty) Withholding taxes on coupons / interest whilst 0% 0% 0%163 0% holding bonds Taxes on the disposition / sale (e.g. capital gains) 10% 10% 10% 10%
11.9. Fee Analysis
This section provides an overview of the fees in relation to both issuance of corporate bonds and trading of bonds in in the secondary market.
Corporate Bond Issuer Cost
This outlines all the fees required in order to issue a corporate bond. It includes initial issuance costs as well as any ongoing fees. Ongoing fees are calculated as fees for a single year.
158 Source: Central Depository AD, July 2019. The fee is 0.60 BGN. 159 Source: Market Participant Questionnaire, November 2019 160 Source: Central Depository AD, July 2019 161 Source: Market Participant Questionnaire, November 2019 162 Source: Market Participant Questionnaire, November 2019 163 It should be noted that the tax rate is only 0% when the bond is issued by a company listed on the local stock exchange.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Small Issue164 Large Issue165 Initial Issuance Fees166 1,074 1,074 Ongoing Fees167 511 511 Total Cost168 1,585 1,585
Portfolio Costs
This outlines all the fees (direct and indirect) and taxes involved in the trading of a portfolio of bonds. All fees calculated for a single year based on the composition and trading details outlined in the model portfolio.
Natural Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs169 43,676 43,676 41,431 Indirect Trading Costs170 12,500 12,500 - Settlement & Clearing 515 515 515 Safekeeping 12,547 12,547 12,547 Tax171 100,000 100,000 100,000 Total Trading Cost 169,238 169,238 154,494
Portfolio Costs – Legal Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs172 43,676 43,676 41,431 Indirect Trading Costs173 12,500 12,500 - Settlement & Clearing 515 515 515 Safekeeping 12,547 12,547 12,547 Tax174 100,000 100,000 100,000 Total Trading Cost 169,238 169,238 154,494
164 Source: Various sources outlined previously in this section. Based on an issuance amount of €5mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 165 Source: Various sources outlined previously in this section. Based on an issuance amount of €50mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 166 Includes prospectus approval fees, stock exchange listing fees and CSD issuance fees. 167 Includes stock exchange maintenance fees and any other mandatory annual fees. 168 Assuming first time issuance and listing for 1 year. This is therefore the total annual cost. 169 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 170 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 171 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn. 172 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 173 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 174 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
12. Croatia Factsheet
12.1. Overview
Cost Effectiveness
This section outlines the cost effectiveness of the market, based on the bond cost effectiveness framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Auction Fees 9 out of 15 Rank Score Corporate Bond Issuance Fees 23 out of 40
64 Trading Fees 8 out of 15 Out of 100 Settlement & Safekeeping Fees 11 out of 15 7
Taxation 13 out of 15
Issuance Efficiency
This section outlines the efficiency of the market in terms of speed and awareness of primary issuance, based on the bond efficiency framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Rank Auction Timeline out of 30 Score 23 68 Out of 100 Corporate Bond Issuance 45 out of 70 Timeline 5
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
12.2. Market Dynamics
Breadth of Instruments175
Instrument Types 2yr 5yr 7yr 10yr 30yr Treasury Fixed Rate Treasury Floating Rate Treasury Inflation Linked Corporate Bonds (Fixed Rate) Corporate Bonds (Floating Rate) Repos with Central Banks Repos with Market Participants
Government Bond Yield Curve176 Corporate Bond Yield Curve177
0.7% 12.0%
0.6% 10.0% 0.5% 8.0% 0.4%
6.0% Yield Yield 0.3% 4.0% 0.2% 0.1% 2.0% 0.0% 0.0% 2 5 7 10 30 2 5 7 10 30 Maturity Maturity
Distribution Requirements178
This outlines whether bond is required to be listed on the stock exchange or if it can be done through private placement.
Instrument Types Stock Exchange Private Placement179
Government Bonds Corporate Bonds
Liquidity
Value of Outstanding Bonds Listed by Issuance Currency (€mn)180
LCY EUR Other Government 8,929 5,535 Corporate 476 69
175 Source: Market Participant Questionnaire, November 2019. 176 Source: http://www.worldgovernmentbonds.com/country/croatia, November 2019 177 Source: Cbonds, November 2019 178 Source: Zagreb Stock Exchange, HANFA, July 2019 179 Only according to Prospectus Regulation: Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 requires the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC 180 Source: Zagreb Stock Exchange, July 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Number of Bonds Listed in 2018181
Instrument Types Number Government 1 Corporate 1
Value of Bonds Listed in 2018 by Issuance Currency (€mn)182
LCY EUR Other Government 8,028 5,086 Corporate 438 68
Liquidity Indicators of Listed Bonds in 2018 (€mn)
Trading Volume (€)183 LCY EUR Other Government 73 21 Corporate 3 0.63 Turnover Ratio (%)184 Government 0.82% 0.39% Corporate 0.71% 0.91%
Market Participants
Number of Entities Authorised to Carry Out the Following Activities185
Banking Brokerage186 Market-Making 20 27 2
181 Source: Zagreb Stock Exchange, July 2019 182 Source: Zagreb Stock Exchange, July 2019 183 Source: Zagreb Stock Exchange, July 2019 184 Source: Zagreb Stock Exchange, July 2019 185 Source: HANFA, July 2019 186 Including banks and companies managing open-ended investment funds with public offering which have received authorisation by HANFA to provide investment service of portfolio management and/or investment advice
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
12.3. Government Bond Auction Process
This section outlines the structure process and cost in relation to the primary issuance of government bonds through the auction process.
Structure Auction Schedule187 Ad hoc (irregular) Auction Frequency188 19 Competitive Tender Award at Uniform Minimum Auction Type189 Price Accessibility Are there Primary Dealers / Market Makers190 No Do Primary Dealers / Market Makers have preferential access?191 No Are Auctions Accessible by regulated intermediaries192 Yes Are Auctions Accessible by retail investors193 No Are there auction bid channels for retail investors?194 No
Average Number of Days to of Auction
Notification
Bidding
Award
0 1 2 3 4 5
Days
Notification Bidding Award Total Average Number of Days195 2 1 1 4
Bid Submission Process
Cost (€) Electronic Auction Processing System (€ per annum)196 43,132 (Bloomberg Auction System) Fees paid for bid Submission197 0
187 Source: Market Participant Questionnaire, November 2019. The Ministry of Finance announces the auction through the Bloomberg Auction System no later than two business days before the auction of treasury bills. 188 Source: Market Participant Questionnaire and Republic of Croatia Ministry of Finance, November 2019. The number reflects the average length of time between government bond auctions held in 2018. 189 Source: Market Participant Questionnaire, November 2019 190 Source: Market Participant Questionnaire, November 2019 191 Source: Market Participant Questionnaire, November 2019 192 Source: Market Participant Questionnaire, November 2019 193 Source: Market Participant Questionnaire, November 2019 194 Source: Market Participant Questionnaire, November 2019 195 Source: Market Participant Questionnaire, November 2019 196 Source: Market Participant Questionnaire, November 2019. Cost assumes the standard cost for a Bloomberg terminal of $24,000 per user x2 terminals. 197 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
12.4. Corporate Bond Issuance
This section outlines the structure process and cost in relation to the primary issuance of corporate bonds.
Requirements to issue a corporate bond198
Prospectus Listing on the local Credit Rating200 Other Approval199 Stock Exchange Required
Other Issuance Factors201 Shelf Registration Allowed202 Yes Summary Prospectus of Small Issues No Currency Issuance Restrictions No
Average Number of Days to Issue203
Prospectus Approval
Credit Rating
Listing
0 10 20 30 40 50 60 70
Days
Prospectus204 Credit Rating Listing Total Average Number of Days 60 5 65
198 Source: Market Participant Questionnaire, HANFA, November 2019 199 According to Article 1 Paragraph 4 of Regulation (EU) 2017/1129 of the European parliament and of the Council of 14 June 2017 on the prospectus to be publish when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC the obligation to publish a prospectus does not apply to certain types of offers securities to the public (e.g. an offer of securities addressed solely to qualified investors, fewer than 150 natural or legal persons per Member State etc.) 200 Although there is no requirement for a credit rating, if there is credit rating it should be specified and described. 201 Source: Market Participant Questionnaire, HANFA, November 2019 202 According to Article 9 of Regulation (EU) 2017/1129 of the European parliament and of the Council of 14 June 2017 on the prospectus to be publish when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC an issuer with securities admitted to an EU regulated market or an MTF will be able to draw up and file with competent authority of its home Member State a “universal registration document” (URD). The URD is intended to function as the registration document component of all the issuer's prospectuses, in a similar manner to shelf registration in the US. 203 Source: Market Participant Questionnaire, November 2019 204 It should be noted that HANFA stated that approval of a prospectus should take between 10/20 working days. However, this conflicts with the information provided by market participants.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Corporate Bond Issuance Fees
Minimum Fee Type Average Fee205 Cap (€) Fee (€) Small Issue Large Issue Prospectus Approval206 - 542 542 - Stock Exchange Listing Fees207 2,699 2,699 6,749 6,749 Stock Exchange Maintenance Fee (p/a)208 2,130 2,130 2,130 2,130 CSD Issuance Fee209 - 540 540 - Total 4,829 5,911 9,961 8,879
Common Bond Legal Features
Typical Covenants210
Covenant Rare Sometimes Common
Debt / EBITDA Debt / (EBITDA – Capital Expenditures) 211 Interest Coverage 212 Fixed Charge Coverage Debt / Equity Debt / Assets Total Assets Tangible Net Worth Dividend Pay-out Ratio Limitation on Mergers and Acquisitions Restrictions on Change of control
Callability213
No standard callable features were identified.
Disclosure requirements214
No standard disclosure requirements were identified.
205 Based on the model issuer parameters outlined in Section 2.4 206 Source: HANFA. Small and Large Issue are both charged at 4,000HRK for prospectus approval. 207 Source: Zagreb Stock Exchange 208 Source: Zagreb Stock Exchange 209 Source: Central Depository & Clearing Company 210 Source: Market Participant Questionnaire, November 2019 211 EBITDA or EBIT / Interest 212 EBITDA / (Total Debt Service + Capital Expenditures + Taxes 213 Source: Market Participant Questionnaire, November 2019 214 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
12.5. Trading
Trading Systems
Government Corporate Cost per annum (€) Stock Exchange Trading System215 520 (Xetra) Alternative Trading System (ATS)216
Average Bid Offer Spreads for On-The-Run Bonds217
Publically Traded 2yr 5yr 7yr 10yr 30yr Average Government Bonds 21-50 21-100 21-100 21-250 17-100 Corporate Bonds 51-100 51-100 51-100 51-100 51-100 OTC Government Bonds 21-50 21-100 21-100 21-250 17-100 Corporate Bonds 51-100 51-100 51-100 51-100 51-100
Fees
Fee Type (per transaction)
Fee per Minimum Flat Fee (€) % (bps) Cap (€) transaction (€) (€) Stock Exchange Trading Fees 218 2 3 300 ATS Trading Fees 219 Brokerage fees220 50 10 1,000 Total 1,300
12.6. Settlement & Safekeeping
All numbers below are based on the model portfolio.
Settlement fees
Fee Type (per transaction) Minimum (€) Flat fee (€) Cap (€) CSD clearing & settlement transaction fees221 14 14 Custodian Settlement Fees222 5 23 Total Settlement Fees 37
215 Source: Zagreb Stock Exchange, July 2019 216 Source: Market Participant Questionnaire, November 2019 217 Source: Market Participant Questionnaire, November 2019 218 Source: Zagreb Stock Exchange, July 2019 219 Source: Market Participant Questionnaire, November 2019 220 Source: Market Participant Questionnaire, November 2019 221 Source: Central Depository & Clearing Company, July 2019 222 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Safekeeping Fees
Fee Type (per annum) Fee (€) % (bps) Cap (€) CSD Safekeeping fees223 2,500 1 Custodian Safekeeping Fees224 7,500 3 Total Safekeeping Fees 10,000
12.7. Taxation
Tax Matrix225
Government (%) Corporate (%) Fee Type Individual Corporate Individual Corporate Transaction taxes on purchase (e.g. stamp duty) Withholding taxes on coupons / interest whilst 12% 0% 12% 0% holding bonds Taxes on the disposition / sale (e.g. capital gains) 12% 18% 12% 18%
12.8. Fee Analysis
This section provides an overview of the fees in relation to both issuance of corporate bonds and trading of bonds in in the secondary market.
Corporate Bond Issuer Cost
This outlines all the fees required in order to issue a corporate bond. It includes initial issuance costs as well as any ongoing fees. Ongoing fees are calculated as fees for a single year.
Small Issue226 Large Issue227 Initial Issuance Fees228 3,781 7,831 Ongoing Fees229 2,130 2,130 Total Cost230 5,911 9,961
223 Source: Central Depository & Clearing Company, July 2019. Up to 54mn EUR the fee is 1bps, from 54mn EUR up to 540mn EUR the fee is 2bps. Over 540mn EUR the fee is 0.1bps. Minimum monthly fee is 100 EUR and maximum is 2,700 EUR. 224 Source: Market Participant Questionnaire, November 2019. It should also be noted that market participant(s) stated that the custodian safekeeping fees were up to 30bps for retail providers. 225 Source: Market Participant Questionnaire, November 2019 226 Source: Various sources outlined previously in this section. Based on an issuance amount of €5mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 227 Source: Various sources outlined previously in this section. Based on an issuance amount of €50mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 228 Includes prospectus approval fees, stock exchange listing fees and CSD issuance fees. 229 Includes stock exchange maintenance fees and any other mandatory annual fees. 230 Assuming first time issuance and listing for 1 year. This is therefore the total annual cost.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Portfolio Costs
This outlines all the fees (direct and indirect) and taxes involved in the trading of a portfolio of bonds. All fees calculated for a single year based on the composition and trading details outlined in the model portfolio.
Natural Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs231 65,520 65,520 50,000 50,000 Indirect Trading Costs232 5,000 5,000 - 500.00 Settlement & Clearing 1,825 1,825 1,825.00 1,825.00 Safekeeping 10,000 10,000 10,000.00 10,000.00 Tax233 240,000 240,000 240,000 240,000 Total Portfolio Cost 322,345 322,345 301,825.00 302,325.00
Portfolio Costs (€ per annum) – Legal Person
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs234 65,520 65,520 50,000 50,000 Indirect Trading Costs235 5,000 5,000 - 500.00 Settlement & Clearing 1,825 1,825 1,825.00 1,825.00 Safekeeping 10,000 10,000 10,000.00 10,000.00 Tax236 180,000 180,000 180,000 180,000 Total Portfolio Cost 262,345 262,345 241,825.00 242,325.00
231 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 232 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 233 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn. 234 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 235 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 236 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
13. Montenegro Factsheet
13.1. Overview
Cost Effectiveness
This section outlines the cost effectiveness of the market, based on the bond cost effectiveness framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Auction Fees 8 out of 15 Rank Score Corporate Bond Issuance Fees 14 out of 40
52 Trading Fees 8 out of 15 Out of 100 Settlement & Safekeeping Fees 8 out of 15 9
Taxation 15 out of 15
Issuance Efficiency
This section outlines the efficiency of the market in terms of speed and awareness of primary issuance, based on the bond efficiency framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Rank Score Auction Timeline 26 out of 30 75 Out of 100 Corporate Bond Issuance 49 out of 70 2 Timeline
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
13.2. Market Dynamics
Breadth of Instruments237
Instrument Types 2yr 5yr 7yr 10yr 30yr Treasury Fixed Rate Treasury Floating Rate Treasury Inflation Linked Corporate Bonds (Fixed Rate) Corporate Bonds (Floating Rate) Repos with Central Banks Repos with Market Participants
Government Bond Yield Curve238 Corporate Bond Yield Curve239
3.0% 6.0%
2.5% 5.0%
2.0% 4.0%
1.5% 3.0%
Yield Yield 1.0% 2.0%
0.5% 1.0%
0.0% 0.0% 2 5 7 10 30 2 5 7 10 30 Maturity Maturity
Distribution Requirements240
This outlines whether bond is required to be listed on the stock exchange or if it can be done through private placement.
Instrument Types Stock Exchange Private Placement
Government Bonds Corporate Bonds
Liquidity
Value of Outstanding Bonds Listed by Issuance Currency (€mn)241
LCY EUR Other Government 309 Corporate 14
237 Source: Market Participant Questionnaire, November 2019. 238 Source: Cbonds, November 2019 239 Source: Cbonds, November 2019 240 Source: Komisija za tržište kapitala/Montenegro Stock Exchange, July 2019 241 Source: Montenegro Stock Exchange, July 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Number of Bonds Listed in 2018242
Instrument Types Number Government 1 Corporate
Value of Bonds Listed in 2018 by Issuance Currency (€mn)243
LCY EUR Other Government 145 Corporate 14
Liquidity Indicators of Listed Bonds in 2018 (€mn) 244
Trading Volume (€) LCY EUR Other Government 3 Corporate 0.55 Turnover Ratio (%) Government 0.87% Corporate 3.94%
Market Participants
Number of Entities Authorised to Carry Out the Following Activities245
Banking Brokerage Market-Making 13 2 0
13.3. Government Bond Auction Process
This section outlines the structure process and cost in relation to the primary issuance of government bonds through the auction process.
Structure Auction Schedule246 Ad hoc (irregular) Auction Frequency - Competitive Tender Award at Bid Price (Dutch- Auction Type247 Style Auction)
242 Source: Montenegro Stock Exchange, July 2019 243 Source: Montenegro Stock Exchange, July 2019 244 Source: Montenegro Stock Exchange and authors own calculations, , July 2019 245 Source: Central Bank of Montenegro and the Securities Commission, November 2019 246 Source: Market Participant Questionnaire, November 2019 247 Source: Market Participant Questionnaire, November 2019 and Ministry of Finance. Legislation allows both methods of uniform minimum price and bid price (Dutch style), in 2019 and 2018, the majority of auctions have been Dutch style.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Accessibility Are there Primary Dealers / Market Makers248 Yes Do Primary Dealers / Market Makers have preferential access?249 No Are Auctions Accessible by regulated intermediaries250 Yes Are Auctions Accessible by retail investors251 Yes Are there auction bid channels for retail investors?252 Both – Competitive and non-competitive
Average Number of Days to of Auction
Notification
Bidding
Award
0 2 4 6 8 10 12 14
Days
Notification Bidding Award Total Average Number of Days253 10 1 2 13
Bid Submission Process
Cost (€) Electronic Auction Processing System (€ per annum)254 3,000 (Montenegro Stock Exchange) Fees paid for bid Submission255 500
13.4. Corporate Bond Issuance
This section outlines the structure process and cost in relation to the primary issuance of corporate bonds.
Requirements to issue a corporate bond256
Prospectus Listing on the local Credit Rating Other Approval Stock Exchange Required
248 Source: Market Participant Questionnaire, November 2019 249 Source: Market Participant Questionnaire, November 2019 250 Source: Market Participant Questionnaire, November 2019 251 Source: Market Participant Questionnaire, November 2019 252 Source: Market Participant Questionnaire, November 2019 253 Source: Market Participant Questionnaire, November 2019 254 Source: Market Participant Questionnaire, November 2019 255 Source: Market Participant Questionnaire, November 2019. The fee is 5 bps of bid size. 256 Source: Komisija za tržište kapitala, July 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Other Issuance Factors257 Shelf Registration Allowed Yes Summary Prospectus of Small Issues Yes Yes. It is only possible to issue and trade bonds in local Currency Issuance Restrictions currency and EUR.
Average Number of Days to Issue258
Prospectus Approval
Credit Rating
Listing
0 5 10 15 20 25 Days
Prospectus259 Credit Rating Listing Total Average Number of Days 12 10 22
Corporate Bond Issuance Fees
Minimum Fee Type Average Fee260 Cap (€) Fee (€) Small Issue Large Issue Prospectus Approval261 300 15,000 150,000 Stock Exchange Listing Fees262 500 100 Stock Exchange Maintenance Fee (p/a)263 8,000 10,500 CSD Issuance Fee264 620 1,215 1,665 Total 920 24,715 162,265
257 Source: Market Participant Questionnaire, November 2019 258 Source: Market Participant Questionnaire, November 2019 259 Komisija za tržište kapitala stated the time to authorise a prospectus as 10 days, however, market participants indicated that approval could take up to 14 days. The regulator states that when an issuer who has not previously offered securities to the public issues securities or applies for admission to trading on a regulated market for the first time, the CMA shall decide on the application within 20 working days following the date of submission of the application 260 Based on the model issuer parameters outlined in Section 2.4 261 Source: Komisija za tržište kapitala, July 2019, The fee is 0.30% of the total issuance volume 262 Source: Montenegro Stock Exchange, July 2019 263 Source: Montenegro Stock Exchange, July 2019 264 Source: Central Securities Depository and Clearing Company of Montenegro, July 2019. Registry Setup is 0.02% total nominal value, but not less than 600. Initial account opening for shareholders is €1.65 per account at issue. On an annual basis t0.1 BPS for a part of the issue up to 10 million €, 0.05 BPS for a part of the issue from 10 to 200 million €, and 0.01 BPS for a part of the issue over 200 million € - charged to the Issuer, on a monthly basis, minimum 20 €. Should be noted that the CSD originally stated that the fee was 10bps
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Common Bond Legal Features
Typical Covenants265
Covenant Rare Sometimes Common
Debt / EBITDA Debt / (EBITDA – Capital Expenditures) 266 Interest Coverage 267 Fixed Charge Coverage Debt / Equity Debt / Assets Total Assets Tangible Net Worth Dividend Pay-out Ratio Limitation on Mergers and Acquisitions Restrictions on Change of control
Callability268
No standard callable features were identified.
Disclosure requirements269
No standard disclosure requirements were identified.
13.5. Trading
Trading Systems
Government Corporate Cost per annum [€] Stock Exchange Trading System270 8,000 (BTS trading system version 2.6) Alternative Trading System (ATS)271
265 Source: Market Participant Questionnaire, November 2019 266 EBITDA or EBIT / Interest 267 EBITDA / (Total Debt Service + Capital Expenditures + Taxes 268 Source: Market Participant Questionnaire, November 2019 269 Source: Market Participant Questionnaire, November 2019 270 Source: Montenegro Stock Exchange, July 2019 271 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Average Bid Offer Spreads for On-The-Run Bonds272
Publically Traded 2yr 5yr 7yr 10yr 30yr Average Government Bonds 51-100 51-100 51-100 51-100 51-100 51-100 Corporate Bonds 101-250 101-250 101-250 101-250 101-250 101-250 OTC Government Bonds Corporate Bonds
Bonds cannot be traded OTC.
Fees
Fee Type (per transaction)
Fee per Minimum Flat Fee (€) % (bps) Cap (€) transaction (€) Stock Exchange Trading Fees 273 - 9 - 900 ATS Trading Fees 274 - Brokerage fees275 10 18 - 1,750 Total 10 - 27 - 2,650
13.6. Settlement & Safekeeping
All numbers below are based on the model portfolio.
Settlement fees
Fee Type (per transaction) Minimum (€) Fee (€) Cap (€) CSD clearing & settlement transaction fees276 0.90 300 Custodian Settlement Fees277 10 1,000 Total Settlement Fees
Safekeeping Fees
Fee Type (per annum) Fee (€) % (bps) Cap (€) CSD Safekeeping fees278 Custodian Safekeeping Fees279 25,000 10 Total Safekeeping Fees 25,000
272 Source: Market Participant Questionnaire, November 2019 273 Source: Montenegro Stock Exchange, July 2019 274 Source: Market Participant Questionnaire, November 2019 275 Source: Market Participant Questionnaire, November 2019. Brokerage fees ranged between 10 and 25 bps 276 Source: Central Securities Depository and Clearing Company of Montenegro, July 2019. Fees are 3bps of transaction settlement value (market price plus accrued interest) - per each side (seller & buyer), with a minimum €0.90. 277 Source: Market Participant Questionnaire, November 2019 278 Source: Central Securities Depository and Clearing Company of Montenegro. 279 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
13.7. Taxation
Tax Matrix280
Government (%) Corporate (%) Fee Type Individual Corporate Individual Corporate Transaction taxes on purchase (e.g. stamp duty) Withholding taxes on coupons / interest whilst 9% 9% 9% 9% holding bonds Taxes on the disposition / sale (e.g. capital gains) 9% 9% 9% 9%
13.8. Fee Analysis
This section provides an overview of the fees in relation to both issuance of corporate bonds and trading of bonds in in the secondary market.
Corporate Bond Issuer Cost
This outlines all the fees required in order to issue a corporate bond. It includes initial issuance costs as well as any ongoing fees. Ongoing fees are calculated as fees for a single year.
Small Issue281 Large Issue282 Initial Issuance Fees283 16,715 151,765 Ongoing Fees284 8,000 10,500 Total Cost285 24,715 162,265
Portfolio Costs
This outlines all the fees (direct and indirect) and taxes involved in the trading of a portfolio of bonds. All fees calculated for a single year based on the composition and trading details outlined in the model portfolio.
280 Source: Market Participant Questionnaire, November 2019 281 Source: Various sources outlined previously in this section. Based on an issuance amount of €5mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 282 Source: Various sources outlined previously in this section. Based on an issuance amount of €50mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 283 Includes prospectus approval fees, stock exchange listing fees and CSD issuance fees. 284 Includes stock exchange maintenance fees and any other mandatory annual fees. 285 Assuming first time issuance and listing for 1 year. This is therefore the total annual cost.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Natural Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs286 140,500 140,500 Indirect Trading Costs287 2,500 6,250 Settlement & Clearing 65,000 65,000 Safekeeping 25,000 25,000 Tax288 180,000 180,000 Total Portfolio Cost 413,000 416,750
Legal Person - (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs289 140,500 140,500 Indirect Trading Costs290 2,500 6,250 Settlement & Clearing 65,000 65,000 Safekeeping 25,000 25,000 Tax291 180,000 180,000 Total Portfolio Cost 413,000 416,750
286 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 287 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 288 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn. 289 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 290 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 291 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
14. North Macedonia Factsheet
14.1. Overview
Cost Effectiveness
This section outlines the cost effectiveness of the market, based on the bond cost effectiveness framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Auction Fees 15 out of 15 Rank Score Corporate Bond Issuance Fees 26 out of 40
74 Trading Fees 9 out of 15 Out of 100 Settlement & Safekeeping Fees 9 out of 15 4
Taxation 15 out of 15
Issuance Efficiency
This section outlines the efficiency of the market in terms of speed and awareness of primary issuance, based on the bond efficiency framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Rank Score Auction Timeline 24 out of 30 63 Out of 100 Corporate Bond Issuance 39 out of 70 7 Timeline
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
14.2. Market Dynamics
Breadth of Instruments292
Instrument Types 2yr 5yr 7yr 10yr 30yr Treasury Fixed Rate Treasury Floating Rate Treasury Inflation Linked Corporate Bonds (Fixed Rate) Corporate Bonds (Floating Rate) Repos with Central Banks Repos with Market Participants
Government Bond Yield Curve293 Corporate Bond Yield Curve294
1.0% 1.0%
0.5% 0.5%
0.0% 0.0%
Yield Yield
-0.5% -0.5%
-1.0% -1.0% 2 5 7 10 30 2 5 7 10 30 Maturity Maturity
Distribution Requirements295
This outlines whether bond is required to be listed on the stock exchange or if it can be done through private placement.
Instrument Types Stock Exchange Private Placement
296 Government Bonds Corporate Bonds
Liquidity
Value of Outstanding Bonds Listed by Issuance Currency (€mn)297
LCY EUR Other Government 1,056 49 Corporate 5
292 Source: Market Participant Questionnaire, November 2019. 293 As most government bonds are traded OTC we have not been able to collect reliable data on yields. 294 As most corporate bonds are traded OTC we have not been able to collect reliable data on yields. 295 Source: Securities and Exchange Commission of the Republic of North Macedonia / Macedonian Stock Exchange, 296 According to the agreement between the Ministry of Finance and the Macedonian Stock Exchange, starting from 1 September 2019, all bonds issued by the Ministry of Finance will be listed on the Official Market. 297 Source: Macedonian Stock Exchange
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Number of Bonds Listed in 2018298
Instrument Types Number Government 2 Corporate
Value of Bonds Listed in 2018 by Issuance Currency (€mn)299
LCY EUR Other Government 55 Corporate
Liquidity Indicators of Listed Bonds in 2018 (€)300
Trading Volume (€) LCY EUR Other Government 8.5 Corporate 0.1 Turnover Ratio (%) Government 17.45% Corporate 2.00%
Market Participants
Number of Entities Authorised to Carry Out the Following Activities301
Banking Brokerage Market-Making 14 5 0
14.3. Government Bond Auction Process
This section outlines the structure process and cost in relation to the primary issuance of government bonds through the auction process.
Structure Auction Schedule302 Timetabled (regular) Auction Frequency 11 Auction Type303 Ad Hoc (Non-Competitive Tender)
298 Source: Macedonian Stock Exchange, July 2019 299 Source: Macedonian Stock Exchange, July 2019 300 Source: Macedonian Stock Exchange, July 2019 301 Source: Securities and Exchange Commission of the Republic of North Macedonia, July 2019 302 Source: Market Participant Questionnaire, November 2019 303 Source: Market Participant Questionnaire, and he National Bank of the Republic of North Macedonia, November 2019. Non-competitive tender and Dutch tender methods are allowed under current legislation, however, all auctions since 2009 have been volume tender, i.e. non-competitive
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Accessibility Are there Primary Dealers / Market Makers304 No Do Primary Dealers / Market Makers have preferential access?305 No Are Auctions Accessible by regulated intermediaries306 Yes Are Auctions Accessible by retail investors307 No Are there auction bid channels for retail investors?308 Yes - Non-competitive bid channels
Average Number of Days to Auction
Notification
Bidding
Award
0 1 2 3 4 5 6 7 8 9 Days
Notification Bidding Award Total Average Number of Days309 6 1 1 8
Bid Submission Process
Cost (€) Electronic Auction Processing System (€ per annum)310 (Electronic system for market operations of National bank 0 of North Macedonia) Fees paid for bid Submission311 0
14.4. Corporate Bond Issuance
This section outlines the structure process and cost in relation to the primary issuance of corporate bonds.
Requirements to issue a corporate bond312
Prospectus Listing on the local Credit Rating Other Approval Stock Exchange Required
304 Source: Market Participant Questionnaire, November 2019 305 Source: Market Participant Questionnaire, November 2019 306 Source: Market Participant Questionnaire, November 2019 and verified with the Rulebook on the Manner and Procedure for Issuance and Payment of Government Securities 307 Source: Market Participant Questionnaire, November 2019 308 Source: Market Participant Questionnaire, November 2019 and verified with the Rulebook on the Manner and Procedure for Issuance and Payment of Government Securities 309 Source: Market Participant Questionnaire, November 2019 310 Source: Market Participant Questionnaire, November 2019 311 Source: Market Participant Questionnaire, November 2019 312 Source: Securities and Exchange Commission of the Republic of North Macedonia, Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Other Issuance Factors313 Shelf Registration Allowed No Summary Prospectus of Small Issues No Currency Issuance Restrictions No
Bonds can be issued through either public offer or private placement. A Prospectus is required when bonds are issued through a public offer. According to the Law on Securities there is a value limit for issuance of bonds. Namely the nominal value of single issuance of bonds cannot exceed the total amount of the issuer’s basic capital. In a case where the issuance of bonds is guaranteed by a bank, the largest value of an issue shall not exceed the amount of basic capital and the amount of issued bank guarantee.
Average Number of Days to Issue314
Prospectus Approval
Credit Rating
Listing
0 10 20 30 40 50 60 70 80 90 Days
Prospectus Credit Rating Listing315 Total Average Number of Days 60 22 82
Corporate Bond Issuance Fees
Minimum Fee Type Average Fee316 Cap (€) Fee (€) Small Issue Large Issue Prospectus Approval317 488 7,500 75,000 - Stock Exchange Listing Fees318 163 500 1,626 1,626 Stock Exchange Maintenance Fee (p/a)319 - 650 650 - CSD Issuance Fee320 715 820 1,040 1,040 Total 1,366 9,470 78,316 2,666
313 Source: Market Participant Questionnaire, November 2019 314 Source: Market Participant Questionnaire, November 2019 315 The process of listing of government bonds is almost fully automated and usually takes up to a week, depending on a type of bond and the potential need for a MSE Board decision. For corporate bonds, it depends on the quality of the prospectus and additional documents that are required to be submitted, but usually between 14 and 30 days. Market participants suggested that the average was 22 days. 316 Based on the model issuer parameters outlined in Section 2.4 317 Source: Securities and Exchange Commission of the Republic of North Macedonia. The minimum fee is MKD 30,000. 318 Source: Macedonian Stock Exchange, July 2019 319 Source: Macedonian Stock Exchange, July 2019 320 Source: Central Securities Depository AD Skopje. The fee is 32,000 MKD for initial registration. Annual Fees: For securities that are not listed it is 0,006% of the nominal value of the issue, with a minimum fee of 12,000 MKD and a maximum fee of 32,000 MKD. For securities that are listed it is 0,008% of the market value of the issue, with a minimum fee of 16,000 MKD, and a maximum fee of 78,000 MKD.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Common Bond Legal Features
Typical Covenants321
Covenant Rare Sometimes Common
Debt / EBITDA Debt / (EBITDA – Capital Expenditures) 322 Interest Coverage 323 Fixed Charge Coverage Debt / Equity Debt / Assets Total Assets Tangible Net Worth Dividend Pay-out Ratio Limitation on Mergers and Acquisitions Restrictions on Change of control
Callability324
No standard callable features were identified.
Disclosure requirements325
Basic and historical data, organisational structure, employees, main shareholders, financial data, management are required.
14.5. Trading
Trading Systems
Government Corporate Cost per annum [€] Stock Exchange Trading System326 2,400 (BEST) Alternative Trading System (ATS)327
321 Source: Market Participant Questionnaire, November 2019 322 EBITDA or EBIT / Interest 323 EBITDA / (Total Debt Service + Capital Expenditures + Taxes 324 Source: Market Participant Questionnaire, November 2019 325 Source: Market Participant Questionnaire, November 2019 326 Source: Macedonian Stock Exchange. The fees are €5,000 for initial setup and €200 per month for members. There is no a cost for the trading system for issuers. 327 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Average Bid Offer Spreads for On-The-Run Bonds328
Publically Traded 2yr 5yr 7yr 10yr 30yr Average Government Bonds Corporate Bonds OTC Government Bonds 21-50 11-20 16-35 Corporate Bonds
Fees
Fee Type (per transaction)
Fee per Minimum Flat Fee (€) % (bps) Cap (€) transaction (bps) (€) Stock Exchange Trading Fees 329 - 2.5 - 250 ATS Trading Fees 330 - Brokerage fees331 3 75 - 7,500 Total - - 7,750
14.6. Settlement & Safekeeping
Settlement fees
Fee Type (per transaction) Minimum (€) Flat fee (€) Cap (€) CSD clearing & settlement transaction fees332 1,000 Custodian Settlement Fees333 16 16 Total Settlement Fees 1,016
Safekeeping Fees
Fee Type (per annum) Fee (€) % (bps) Cap (€) CSD Safekeeping fees334 50 Custodian Safekeeping Fees335 50,000 20 Total Safekeeping Fees 50,050
328 Source: Market Participant Questionnaire, November 2019 329 Source: Macedonian Stock Exchange, July 2019. Fees are 0,25% per side in transaction for government denationalization bonds, 0,025% per side in transaction for all other government and corporate bonds 330 Source: Market Participant Questionnaire, November 2019 331 Source: Market Participant Questionnaire, November 2019. Response ranged between 12 and 100bps. Respondent(s) stated that for larger trades (i.e. those over €1,500), fees would generally increase to between 50 and 100bps. Based on the responses, an average of 75bps was used based on the dynamics of the model portfolio. 332 Source: Macedonian Stock Exchange, July 2019. Settlement fees are 0.1% of the transaction value 333 Source: Market Participant Questionnaire, November 2019 334 Source: Central Securities Depository AD Skopje, July 2019. Safekeeping fees are not based on the value of holdings to the account holder, but rather are charged by the number of accounts which hold a bond and are charged to the issuer. For comparison we have shown the value that is charged on an annual basis to an issuer here, assuming there are 100 account holders. 335 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
14.7. Taxation
Tax Matrix336
Government (%) Corporate (%) Fee Type Individual Corporate Individual Corporate Transaction taxes on purchase (e.g. stamp duty) Withholding taxes on coupons / interest whilst 0% 0% 10% 10% holding bonds Taxes on the disposition / sale (e.g. capital gains) 7% 10% 7% 10%
14.8. Fee Analysis
This section provides an overview of the fees in relation to both issuance of corporate bonds and trading of bonds in in the secondary market.
Corporate Bond Issuer Cost
This outlines all the fees required in order to issue a corporate bond. It includes initial issuance costs as well as any ongoing fees. Ongoing fees are calculated as fees for a single year.
Small Issue337 Large Issue338 Initial Issuance Fees339 8,820 77,666 Ongoing Fees340 650 650 Total Cost341 9,470 78,316
336 Source: Market Participant Questionnaire, November 2019 337 Source: Various sources outlined previously in this section. Based on an issuance amount of €5mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 338 Source: Various sources outlined previously in this section. Based on an issuance amount of €50mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 339 Includes prospectus approval fees, stock exchange listing fees and CSD issuance fees. 340 Includes stock exchange maintenance fees and any other mandatory annual fees. 341 Assuming first time issuance and listing for 1 year. This is therefore the total annual cost.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Portfolio Costs
This outlines all the fees (direct and indirect) and taxes involved in the trading of a portfolio of bonds. All fees calculated for a single year based on the composition and trading details outlined in the model portfolio.
Natural Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs342 389,900 389,900 Indirect Trading Costs343 2,500 - Settlement & Clearing 50,800 50,800 Safekeeping 50,050 50,050 Tax344 70,000 170,000 Total Trading Cost 563,250 660,750
Legal Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs345 389,900 389,900 Indirect Trading Costs346 2,500 - Settlement & Clearing 50,800 50,800 Safekeeping 50,050 50,050 Tax347 100,000 200,000 Total Trading Cost 593,250 690,750
342 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 343 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 344 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn. 345 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 346 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 347 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
15. Romania Factsheet
15.1. Overview
Cost Effectiveness
This section outlines the cost effectiveness of the market, based on the bond cost effectiveness framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Auction Fees 15 out of 15 Rank Score Corporate Bond Issuance Fees 30 out of 40
83 Trading Fees 13 out of 15 Out of 100 Settlement & Safekeeping Fees 12 out of 15 1
Taxation 13 out of 15
Issuance Efficiency
This section outlines the efficiency of the market in terms of speed and awareness of primary issuance, based on the bond efficiency framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Rank Score Auction Timeline 26 out of 30 61 Out of 100 Corporate Bond Issuance 35 out of 70 8 Timeline
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
15.2. Market Dynamics
Breadth of Instruments348
Instrument Types 2yr 5yr 7yr 10yr 30yr Treasury Fixed Rate Treasury Floating Rate Treasury Inflation Linked Corporate Bonds (Fixed Rate) Corporate Bonds (Floating Rate) Repos with Central Banks Repos with Market Participants
Government Bond Yield Curve349 Corporate Bond Yield Curve350
5.0% 6.0% 4.5% 5.0% 4.0% 3.5% 4.0% 3.0% 3.0%
2.5% Yield Yield 2.0% 2.0% 1.5% 1.0% 1.0% 0.0% 0.5% 0.0% -1.0% 2 5 7 10 30 2 5 7 10 30 Maturity Maturity
Distribution Requirements351
This outlines whether bond is required to be listed on the stock exchange or if it can be done through private placement.
Instrument Types Stock Exchange Private Placement
Government Bonds Corporate Bonds
Liquidity
Value of Outstanding Bonds Listed by Issuance Currency (€mn)352
LCY EUR Other Government 10,995 Corporate 2,493 2,038
348 Source: Market Participant Questionnaire, November 2019. 349 Source: http://www.worldgovernmentbonds.com/country/romania/, November 2019 350 Source: Cbonds, November 2019 351 Source: Autoritatea de Supraveghere Financiară / Bucharest Stock Exchange, July 2019 352 Source: Bucharest Stock Exchange, July 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Number of Bonds Listed in 2018353
Instrument Types Number Government 4 Corporate 4
Value of Bonds Listed in 2018 by Issuance Currency (€mn)354
LCY EUR Other Government 2,569 Corporate 300 915
Liquidity Indicators of Listed Bonds in 2018 (€)355
Trading Volume (€) LCY EUR Other Government 130 Corporate 2,024 4.5 Turnover Ratio (%) Government 1.18% Corporate 81.19% 0.22%
Market Participants
Number of Entities Authorised to Carry Out the Following Activities356
Banking Brokerage Market-Making 24 20 1
15.3. Government Bond Auction Process
This section outlines the structure process and cost in relation to the primary issuance of government bonds through the auction process.
Structure Auction Schedule357 Timetabled (regular) Auction Frequency 7 Competitive Tender Award at Bid Price (Dutch- Auction Type358 Style Auction)
353 Source: Bucharest Stock Exchange, July 2019 354 Source: Bucharest Stock Exchange, July 2019 355 Source: Bucharest Stock Exchange, July 2019 356 Source: National Bank of Romania, November 2019 357 Source: Market Participant Questionnaire, November 2019 358 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Accessibility Are there Primary Dealers / Market Makers359 Yes Do Primary Dealers / Market Makers have preferential access?360 Yes Are Auctions Accessible by regulated intermediaries361 Yes Are Auctions Accessible by retail investors362 No (Not directly but through banks.) Are there auction bid channels for retail investors?363 Yes - Competitive bid auction
Average Number of Days to of Auction
Notification
Bidding
Award
0 2 4 6 8 10 12
Days
Notification Bidding Award Total Average Number of Days364 8 1 1 10
Bid Submission Process
Cost (€) Electronic Auction Processing System (€ per annum)365 0 (SaFIR) Fees paid for bid Submission366 2.22
15.4. Corporate Bond Issuance
This section outlines the structure process and cost in relation to the primary issuance of corporate bonds.
Requirements to issue a corporate bond367
Prospectus Listing on the local Credit Rating Other Approval Stock Exchange Required
359 Source: Market Participant Questionnaire, November 2019 360 Source: Market Participant Questionnaire, November 2019 361 Source: Market Participant Questionnaire, November 2019 362 Source: Market Participant Questionnaire, November 2019 363 Source: Market Participant Questionnaire, November 2019 364 Source: Market Participant Questionnaire, November 2019 365 Source: Market Participant Questionnaire, November 2019 366 Source: National Bank of Romania, November 2019. The fee is 10.50 RON. 367 Source: Autoritatea de Supraveghere Financiară, Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Other Issuance Factors368 Shelf Registration Allowed Yes Summary Prospectus of Small Issues369 Yes Currency Issuance Restrictions370 Yes
Average Number of Days to Issue371
Prospectus Approval
Listing
Other
0 10 20 30 40 50 60 70 80 Days
Prospectus372 Listing373 Other Total Average Number of Days 25 30 15 70
Corporate Bond Issuance Fees
Minimum Fee Type Average Fee374 Cap (€) Fee (€) Small Issue Large Issue Prospectus Approval375 - 2,500 25,000 105,848 Stock Exchange Listing Fees376 320 549 549 - Stock Exchange Maintenance Fee (p/a)377 300 549 549 - CSD Issuance Fee378 178 178 178 30,444 Total 798 3,776 26,276 136,292
368 Source: Market Participant Questionnaire, November 2019 369 Source: Autoritatea de Supraveghere Financiară, July 2019. Starting with 21 July 2019, Regulation (UE) 2017/1129 will be applicable. According to Article 15 of this UE Regulation, an EU Growth prospectus is allowed in certain cases. There are no rules allowing summary prospectuses merely for small issues, as stated in the model portfolio. 370 Bonds can only be issued in RON and EUR. 371 Source: Market Participant Questionnaire, November 2019 372 It should be noted that the Autoritatea de Supraveghere Financiară stated that prospectuses should be approved within 10 days, but this conflicted with responses from market participants. 373 Source: Bucharest Stock Exchange, July 2019. The number of the days is calculated from the moment of receiving the request for the agreement in principle to be traded on BSE’s bonds market. The listing has 2 stages: agreement in principle and admission. The domestic authority is issuing the registration certificate and after this moment BSE will admit the bond to trading. 374 Based on the model issuer parameters outlined in Section 2.4 375 Source: Autoritatea de Supraveghere Financiară. For listed securities, the fee is 0.05% of the issue value, but no more than 500,000 RON. Plus 5,000 RON for the prospectus approval. 376 Source: Bucharest Stock Exchange, July 2019 377 Source: Bucharest Stock Exchange, July 2019 378 Source: Depozitarul Central, July 2019. The cost levied by CSD to a company for issuing a corporate bond is not related to the issuance size but to the number of holders and/or the denomination currency. These are annual and include safekeeping. If the denomination currency is EUR, then the cost is EUR 700/year irrespective of the number of holders. The minimum Fee is 840 RON for if the issue is for up to 500 bondholders and if denomination currency is RON. If the denomination currency is EUR then there is a flat fee of €700. Likewise, max is 144,000 RON or €700. For this calculation a total of 100 bondholders has been assumed.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Common Bond Legal Features
Typical Covenants379
Covenant Rare Sometimes Common
Debt / EBITDA Debt / (EBITDA – Capital Expenditures) 380 Interest Coverage 381 Fixed Charge Coverage Debt / Equity Debt / Assets Total Assets Tangible Net Worth Dividend Pay-out Ratio Limitation on Mergers and Acquisitions Restrictions on Change of control
Callability382
No standard callable features were identified.
Disclosure requirements383
It is common for conflict of interest provisions to be required for disclosure to bondholders.
15.5. Trading
Trading Systems
Government Corporate Cost per annum (€) Stock Exchange Trading System384 320 (Arena Automated Exchange Platform) Alternative Trading System (ATS)385 386 (BSE ALTERNATIVE TRADING SYSTEM 423 (AeRO))
Average Bid Offer Spreads for On-The-Run Bonds387
Publically Traded 2yr 5yr 7yr 10yr 30yr Average Government Bonds 0-10 0-10 0-10 0-10 11-20 2-12 Corporate Bonds 21-50 21-50 21-50 21-50 21-50
379 Source: Market Participant Questionnaire, November 2019 380 EBITDA or EBIT / Interest 381 EBITDA / (Total Debt Service + Capital Expenditures + Taxes 382 Source: Market Participant Questionnaire, November 2019 383 Source: Market Participant Questionnaire, November 2019 384 Source: Bucharest Stock Exchange, July 2019 385 Source: Market Participant Questionnaire, November 2019 386 The fee is 2,000 RON/year 387 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
OTC Government Bonds 0-10 0-10 0-10 0-10 2-12 Corporate Bonds 21-50 21-50 21-50 21-50 21-50
Fees
Fee Type (per transaction)
Fee per Minimum Flat Fee (€) % (bps) Cap (€) transaction (€) Stock Exchange Trading Fees 388 - 0.7 - 70 ATS Trading Fees 389 - 1.0 - 100 Brokerage fees390 - 25.0 - 2,500 Total - - 26.70 - 2,670
15.6. Settlement & Safekeeping
Settlement fees
Fee Type (per transaction) Minimum (€) Fee (€) Cap (€) CSD clearing & settlement transaction fees391 32 32 Custodian Settlement Fees392 21 Total Settlement Fees 53
Safekeeping Fees
Fee Type (per annum) Fee (€) % (bps) Cap (€) CSD Safekeeping fees393 178 0.07 30,444 Custodian Safekeeping Fees394 7,500 3 Total Safekeeping Fees 7,500
388 Source: Bucharest Stock Exchange, July 2019. The fee is 0.01% for corporate bonds, 0.004% for government bonds. A simple average of the two fees was used in this calculation. 389 Source: Market Participant Questionnaire, November 2019 390 Source: Market Participant Questionnaire, November 2019 391 Source: Depozitarul Central, July 2019. Depends on various circumstances. Used for calculation: Trades concluded in RON on trading venues - settlement on a net basis of 0.2bps with a maximum of 150 RON. Trades concluded in RON on trading venues - settlement on a gross basis are 2.5bps, with a maximum of 125 RON. Trades concluded in RON outside the trading venues - 9.5bps. Trades concluded in EUR on trading venues and settled on Target-2-Securities (T2S) Platform - €1 per trade. Trades concluded in EUR outside the trading venues and settled on T2S platform - €15 per trade. Trades concluded in EUR outside the trading venues and settled on T2S platform – turnaround trades – €10 per trade. Fees used in this calculation are for Trades concluded in RON on a net basis. 392 Source: Market Participant Questionnaire, November 2019 393 Source: Depozitarul Central, July 2019. Maintenance fees calculated on a per account basis. 100 bondholders were assumed and for a bond issued in RON, which is an annual fee of RON 840. If the bond is issued in EUR there is a flat fee of €700. The cap of fees is 144,000 RON for issues with more than 500,001 bondholders. 394 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
15.7. Taxation
Tax Matrix395
Government (%) Corporate (%) Fee Type Individual Corporate Individual Corporate Transaction taxes on purchase (e.g. stamp duty) Withholding taxes on coupons / interest whilst 10% 16% 10% 16% holding bonds Taxes on the disposition / sale (e.g. capital gains) 10% 16% 10% 16%
15.8. Fee Analysis
This section provides an overview of the fees in relation to both issuance of corporate bonds and trading of bonds in in the secondary market.
Corporate Bond Issuer Cost
This outlines all the fees required in order to issue a corporate bond. It includes initial issuance costs as well as any ongoing fees. Ongoing fees are calculated as fees for a single year.
Small Issue396 Large Issue397
Initial Issuance Fees398 4,284 26,784
Ongoing Fees399 549 549
Total Cost400 4,833 27,333
395 Source: Market Participant Questionnaire, November 2019 396 Source: Various sources outlined previously in this section. Based on an issuance amount of €5mn. For further information please refer to the details in the model portfolio outlined in Section 2.4. 397 Source: Various sources outlined previously in this section. Based on an issuance amount of €50mn. For further information please refer to the details in the model portfolio outlined in Section 2.4. 398 Includes prospectus approval fees, stock exchange listing fees and CSD issuance fees. 399 Includes stock exchange maintenance fees and any other mandatory annual fees. 400 Assuming first time issuance and listing for 1 year. This is therefore the total annual cost.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Portfolio Costs
This outlines all the fees (direct and indirect) and taxes involved in the trading of a portfolio of bonds. All fees calculated for a single year based on the composition and trading details outlined in the model portfolio.
Natural Person - (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs401 128,820 128,820 130,423 Indirect Trading Costs402 500 2,500 1,250 Settlement & Clearing 2,650 2,650 2,650 Safekeeping 7,678 7,678 7,678 Tax403 200,000 200,000 200,000 Total Portfolio Cost 339,648 341,648 342,000
Legal Person - (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs404 128,820 128,820 130,423 Indirect Trading Costs405 500 2,500 1,250 Settlement & Clearing 2,650 2,650 2,650 Safekeeping 7,678 7,678 7,678 Tax406 320,000 320,000 320,000 Total Portfolio Cost 459,648 461,648 462,000
401 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 402 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 403 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn. 404 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 405 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 406 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn.
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
16. Serbia Factsheet
16.1. Overview
Cost Effectiveness
This section outlines the cost effectiveness of the market, based on the bond cost effectiveness framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Auction Fees 15 out of 15 Rank Score Corporate Bond Issuance Fees 23 out of 40
74 Trading Fees 12 out of 15 Out of 100 Settlement & Safekeeping Fees 10 out of 15 3
Taxation 14 out of 15
Issuance Efficiency
This section outlines the efficiency of the market in terms of speed and awareness of primary issuance, based on the bond efficiency framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Rank Score Auction Timeline 23 out of 30 54 Out of 100 Corporate Bond Issuance 32 out of 70 9 Timeline
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16.2. Market Dynamics
Breadth of Instruments407
Instrument Types 2yr 5yr 7yr 10yr 30yr Treasury Fixed Rate Treasury Floating Rate Treasury Inflation Linked Corporate Bonds (Fixed Rate) Corporate Bonds (Floating Rate) Repos with Central Banks Repos with Market Participants
Government Bond Yield Curve408 Corporate Bond Yield Curve409
3.5% 1.0% 3.0% 2.5% 0.5% 2.0%
0.0% Yield Yield 1.5%
1.0% -0.5% 0.5% 0.0% -1.0% 2 5 7 10 30 2 5 7 10 30 Maturity Maturity
Distribution Requirements410
This outlines whether bond is required to be listed on the stock exchange or if it can be done through private placement.
Instrument Types Stock Exchange Private Placement
Government Bonds Corporate Bonds
Liquidity
Value of Outstanding Bonds Listed by Issuance Currency (€mn)411
LCY EUR Other Government 8,110 4,150 Corporate
407 Source: Market Participant Questionnaire, November 2019. 408 Source: http://www.worldgovernmentbonds.com/country/serbia/, November 2019 409 No corporate bonds are listed on the Belgrade Stock Exchange in order to construct a yield curve. 410 Source: Securities Commission of the Republic of Serbia / Belgrade Stock Exchange, July 2019. The Serbian Law on the Capital Market (Capital Market Law) in Article 12 contains private placement rules as it prescribes exemptions from the obligation to publish a prospectus for both equity and debt securities. Article 12 of the Capital Market Law is applicable to both government and corporate bonds. 411 Source: Belgrade Stock Exchange, July 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Number of Bonds Listed in 2018412
Instrument Types Number Government 11 Corporate 0
Value of Bonds Listed in 2018 by Issuance Currency (€mn)413
LCY EUR Other Government 8,885 4,284 Corporate
Liquidity Indicators of Listed Bonds in 2018 (€mn) 414
Trading Volume (€) LCY EUR Other Government 335 129 Corporate Turnover Ratio (%) Government 4.13% 3.13% Corporate
Market Participants
Number of Entities Authorised to Carry Out the Following Activities415
Banking Brokerage Market-Making 26 2 2
16.3. Government Bond Auction Process
This section outlines the structure process and cost in relation to the primary issuance of government bonds through the auction process.
Structure Auction Schedule416 Timetabled (regular) Auction Frequency 22 Auction Type417 Competitive Tender Award at Uniform Minimum Price
412 Source: Belgrade Stock Exchange, July 2019 413 Source: Belgrade Stock Exchange, July 2019 414 Source: Belgrade Stock Exchange and author’s calculation, July 2019. 415 Source: National Bank of Serbia and the Securities Commission of the Republic of Serbia 416 Source: Market Participant Questionnaire, November 2019 417 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Accessibility Are there Primary Dealers / Market Makers418 No Do Primary Dealers / Market Makers have preferential access?419 No Are Auctions Accessible by regulated intermediaries420 Yes Are Auctions Accessible by retail investors421 Yes Are there auction bid channels for retail investors?422 Yes - Both competitive / non-competitive
Average Number of Days to of Auction
Notification
Bidding
Award
0 1 2 3 4 5 6
Days
Notification Bidding Award Total Average Number of Days423 3 1 2 6
Bid Submission Process
Cost (€) Electronic Auction Processing System (€ per annum)424 0 (PDA Auction platform) Fees paid for bid Submission425 0
16.4. Corporate Bond Issuance
This section outlines the structure process and cost in relation to the primary issuance of corporate bonds.
Requirements to issue a corporate bond426
Prospectus Listing on the local Credit Rating Other427 Approval Stock Exchange Required
418 Source: Market Participant Questionnaire, November 2019 419 Source: Market Participant Questionnaire, November 2019 420 Source: Market Participant Questionnaire, November 2019 421 Source: Market Participant Questionnaire, November 2019 422 Source: Market Participant Questionnaire, November 2019 423 Source: Market Participant Questionnaire, November 2019 424 Source: Market Participant Questionnaire, November 2019 425 Source: Market Participant Questionnaire, November 2019 426 Source: Securities Commission of the Republic of Serbia, Market Participant Questionnaire, November 2019 427 Bond issues are required to be registered with the Central Depositary Registry
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Other Issuance Factors428 Shelf Registration Allowed No Summary Prospectus of Small Issues No Yes. Prior to the issuance of financial instruments Currency Issuance Restrictions429 denominated in a foreign currency, the issuer must obtain the approval from the National Bank of Serbia.
Average Number of Days to Issue430
Prospectus Approval
Credit Rating
Listing
0 10 20 30 40 50 60 70 80
Days
Prospectus431 Listing Other Total Average Number of Days 45 15 16 76
428 Source: Market Participant Questionnaire, November 2019 429 Article 9. Law on Capital markets 430 Source: Market Participant Questionnaire, November 2019 431 Securities Commission of the Republic of Serbia stated that prospectuses should be reviewed within 20 days. The average number of days required for prospectus approval may significantly vary given that the decision on prospectus approval depends on the delivery of a complete application for approval of the publication of the prospectus. Pursuant to Article 27 of the Capital Market Law the Securities Commission shall issue a decision on approval of the publication of a prospectus within 10 working days following the receipt of a complete application for approval of the publication of the prospectus. The prescribed time limit may extended to 20 working days if the public offering involves securities issued by an issuer which does not have any securities admitted to trading on a securities market and which has not previously offered securities to the public. However, this conflicts with the consensus provided by market participants.
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Corporate Bond Issuance Fees
Minimum Fee Type Average Fee432 Cap (€) Fee (€) Small Issue Large Issue Prospectus Approval433 2,118 10,000 100,000 - Stock Exchange Listing Fees434 2,040 1,000 5,100 5,100 Stock Exchange Maintenance Fee (p/a)435 1,700 500 3,400 3,400 CSD Issuance Fee436 - 252 252 - Total 5,858 11,752 108,752 8,500
Common Bond Legal Features
Typical Covenants437
Covenant Rare Sometimes Common
Debt / EBITDA Debt / (EBITDA – Capital Expenditures) 438 Interest Coverage 439 Fixed Charge Coverage Debt / Equity Debt / Assets Total Assets Tangible Net Worth Dividend Pay-out Ratio Limitation on Mergers and Acquisitions Restrictions on Change of control
Callability440
No standard callable features were identified.
Disclosure requirements441
No standard disclosure requirements were identified.
432 Based on the model issuer parameters outlined in Section 2.4 433 Source: Securities Commission of the Republic of Serbia, July 2019. The fee is 0.20% of the nominal value of the issue of securities, with a minimum fee of 250,000 RSD. 434 Source: Belgrade Stock Exchange, July 2019. Cost: Prime Listing – 0.02% of issue value. Standard Listing – 0.02% of issue value. Open Market – 100,000 RSD. MTF BELEX - 65.000 RSD. Minimum fees: Prime Listing - 240.000 RSD, Standard Listing - 120.000 RSD. Cap: Prime Listing - 600.000 RSD, Standard Listing - 360.000 RSD. Prime listing used in this fee calculation. 435 Source: Belgrade Stock Exchange. Fee for Prime Listing – 0.01% of issue value. Standard Listing – 0.01% of issue value, Open Market - 35.000 RSD. MTP BELEX – 25,000 RSD. Minimum fees are as follows: Prime - 200,000 RSD. Standard - 120,000 RSD. CAP: Prime - 400,000 RSD, Standard - 240,000 RSD. 436 Source: : Central Securities Depository and Clearing House, July 2019 437 Source: Market Participant Questionnaire, November 2019 438 EBITDA or EBIT / Interest 439 EBITDA / (Total Debt Service + Capital Expenditures + Taxes 440 Source: Market Participant Questionnaire, November 2019 441 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
16.5. Trading
Trading Systems
Government Corporate Cost per annum (€) Stock Exchange Trading System442 0 (BELEXFIX) Alternative Trading System (ATS)443 43,132 (Bloomberg EBOND platform)
Average Bid Offer Spreads for On-The-Run Bonds444
Publically Traded 2yr 5yr 7yr 10yr 30yr Average Government Bonds 0-20 0-20 0-20 11-20 4-20 Corporate Bonds OTC Government Bonds 0-20 0-20 0-20 11-20 4-20 Corporate Bonds
Fees
Fee Type (per transaction)
Fee per Minimum Flat Fee (€) % (bps) Cap (€) transaction (€) Stock Exchange Trading Fees 445 10 43 43 ATS Trading Fees 446 - - - Brokerage fees447 3 - 300 Total 13 43 343
442 Source: Belgrade Stock Exchange, July 2019 443 Source: Market Participant Questionnaire, and author’s calculations, January 2020. The calculation assumes that access to the Bloomberg auctioning system is $24,000 per terminal (x2 terminals used for calculation). 444 Source: Market Participant Questionnaire, November 2019 445 Source: Belgrade Stock Exchange, July 2019. Prime Listing: 0.1% capped at 5,000 RSD. Standard Listing: 0.1% capped 5,000 RSD. Open Market: 0.1% capped at 10,000 RSD. MTF BELEX: 0.1% capped 20,000 RSD. 446 Source: Market Participant Questionnaire, November 2019 447 Source: Market Participant Questionnaire, November 2019. For smaller transactions, fees can go up to 30bps, however 3 is the modal average which is used in this calculation.
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16.6. Settlement & Safekeeping
Settlement fees
Fee Type (per transaction) Minimum (€) Fee (€) Cap (€) CSD clearing & settlement transaction fees448 13.75 13.75 Custodian Settlement Fees449 1 100 100 Total Settlement Fees 113.75
Safekeeping Fees
Fee Type (per annum) Fee (€) % (bps) Cap (€) CSD Safekeeping fees450 642 0.26 Custodian Safekeeping Fees451 25,000 10 Total Safekeeping Fees 25,642
16.7. Taxation
Tax Matrix452
Government (%) Corporate (%) Fee Type Individual Corporate Individual Corporate Transaction taxes on purchase (e.g. stamp duty) Withholding taxes on coupons / interest whilst 0% 0% 15% 15% holding bonds Taxes on the disposition / sale (e.g. capital gains) 0% 0% 15% 15%
16.8. Fee Analysis
This section provides an overview of the fees in relation to both issuance of corporate bonds and trading of bonds in in the secondary market.
Corporate Bond Issuer Cost
448 Source: Central Securities Depository and Clearing House, July 2019. The fees are for on exchange transaction. Government bonds OTC would be €45.83. Corporate Bonds OTC would be €1,100. 449 Source: Market Participant Questionnaire, November 2019. The average fee is 12.5 bps per transaction, but there are generally caps on fees. 450 Source: Central Securities Depository and Clearing House, July 2019. There are no safekeeping fees, but there are fees for beneficial owners and the issuer at maturity. Fees which are charged to beneficial owner: Coupon payment on maturity date: €5.5 per coupon amount of €10,000.Principal payment on maturity date: €45.83 for a principal amount of €2,500,000. Coupon income per annum is €1mn from the model. Assumed that 2 securities from portfolio mature each year, both with principal of €2.5mn. Fees which are charged to issuer: Principal payment on maturity date: 45.83 EUR for principal amount of 2.500.000 EUR. Application for coupon and principal payment: €504.17 for 10 applications. Publication of notice: €100.83 for 10 publications. Assumptions used in this calculation are: 2 bonds maturing annually; coupon income of €1,000,000 in line with the model portfolio. 451 Source: Market Participant Questionnaire, November 2019 452 Source: Market Participant Questionnaire, November 2019
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This outlines all the fees required in order to issue a corporate bond. It includes initial issuance costs as well as any ongoing fees. Ongoing fees are calculated as fees for a single year.
Small Issue453 Large Issue454 Initial Issuance Fees455 11,252 105,352 Ongoing Fees456 500 3,400 Total Cost457 11,752 108,752
Portfolio Costs
This outlines all the fees (direct and indirect) and taxes involved in the trading of a portfolio of bonds. All fees calculated for a single year based on the composition and trading details outlined in the model portfolio.
Natural Person - (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs458 17,125 17,125 58,132 Indirect Trading Costs459 1,000 - - Settlement & Clearing 5,688 5,688 5,688 Safekeeping 25,642 25,642 25,642 Tax460 - 300,000 - Total Portfolio Cost 49,454 348,454 89,461
Legal Person - (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs461 17,125 17,125 58,132 Indirect Trading Costs462 1,000 - - Settlement & Clearing 5,688 5,688 5,688 Safekeeping 25,642 25,642 25,642 Tax463 - 300,000 - Total Portfolio Cost 49,454 348,454 89,461
453 Source: Various sources outlined previously in this section. Based on an issuance amount of €5mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 454 Source: Various sources outlined previously in this section. Based on an issuance amount of €50mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 455 Includes prospectus approval fees, stock exchange listing fees and CSD issuance fees. 456 Includes stock exchange maintenance fees and any other mandatory annual fees. 457 Assuming first time issuance and listing for 1 year. This is therefore the total annual cost. 458 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 459 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 460 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn. 461 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 462 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 463 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn.
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17. Slovak Republic Factsheet
17.1. Overview
Cost Effectiveness
This section outlines the cost effectiveness of the market, based on the bond cost effectiveness framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Auction Fees 9 out of 15 Rank Score Corporate Bond Issuance Fees 16 out of 40
55 Trading Fees 7 out of 15 Out of 100 Settlement & Safekeeping Fees 11 out of 15 8
Taxation 13 out of 15
Issuance Efficiency
This section outlines the efficiency of the market in terms of speed and awareness of primary issuance, based on the bond efficiency framework. The score outlines in absolute in absolute terms how cost effective the market is. The rating outlines is rank relative to the other markets outlined in this study.
Rank Score Auction Timeline 24 out of 30 70 Out of 100 Corporate Bond Issuance 46 out of 70 4 Timeline
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
17.2. Market Dynamics
Breadth of Instruments464
Instrument Types 2yr 5yr 7yr 10yr 30yr Treasury Fixed Rate Treasury Floating Rate Treasury Inflation Linked Corporate Bonds (Fixed Rate) Corporate Bonds (Floating Rate) Repos with Central Banks Repos with Market Participants
Government Bond Yield Curve465 Corporate Bond Yield Curve466
1.0% 2.5% 0.8% 2.0% 0.6% 1.5% 0.4%
0.2% 1.0% Yield Yield 0.0% 0.5% -0.2% 0.0% -0.4% -0.6% -0.5% -0.8% -1.0% 1 5 7 10 30 2 5 7 10 30 Maturity Maturity
Distribution Requirements467
This outlines whether bond is required to be listed on the stock exchange or if it can be done through private placement.
Instrument Types Stock Exchange Private Placement
Government Bonds Corporate Bonds
There are no requirements that mean Government and Corporate bonds have to be listed on the Stock Exchange.
464 Source: Market Participant Questionnaire, November 2019 465 Government Bond Yield Source: World Government Bonds, January 2020, accessible at: http://www.worldgovernmentbonds.com/country/slovakia/ 466 Corporate Bond Yield Source: Cbonds, January 2020 - Corporate Bond Yield has been constructed using a number of A- rated bonds, primarily from banks. 467 Source: Bratislave Stock Exchange / Narodna Banka Slovenska, July 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Liquidity
Value of Outstanding Bonds Listed by Issuance Currency (€mn)468
LCY EUR Other Government 34,339 Corporate 2,338 33
There are no currency issuing restrictions for bond issuance in the Slovak Republic.469
Number of Bonds Listed in 2018470
Instrument Types Number Government 2 Corporate 18
Value of Bonds Listed in 2018 by Issuance Currency (€mn)471
LCY EUR Other Government 37,878 Corporate 2,010 32,894
Issuance in the Slovak Republic tends to be denominated in Euros, with a small fraction of outstanding bonds issued in other currencies. The market value of Government Bonds issued in 2018 far exceeds that of corporate bonds, which is also reflected in the total value of outstanding listed bonds. Despite this, there were many more Corporate Bonds issued in 2018 than there were Government Bonds, they just had a smaller market value.
Liquidity Indicators of Listed Bonds in 2018 (€)
Trading Volume (€)472 LCY EUR Other Government Corporate 463,865,104 Turnover Ratio (%)473 Government Corporate 19.8%
468 Source: Bratislave Stock Exchange, July 2019 469 Source Market Participant Questionnaire, November 2019 470 Source: Bratislave Stock Exchange, July 2019 471 Source: Bratislave Stock Exchange, July 2019 472 Source: Bratislave Stock Exchange, July 2019 473 Source: Bratislave Stock Exchange, July 2019 / Author’s calculations, January 2020
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Market Participants
Number of Entities Authorised to Carry Out the Following Activities474
Banking Brokerage Market-Making 12 22 0
17.3. Government Bond Auction Process
This section outlines the structure process and cost in relation to the primary issuance of government bonds through the auction process.
Structure Auction Schedule475 Timetabled (regular) Auction Frequency476 Monthly Auction Type477 Competitive Tender Award at Uniform Minimum Price Accessibility Are there Primary Dealers / Market Makers478 Yes Do Primary Dealers / Market Makers have preferential No access?479 Are Auctions Accessible by regulated intermediaries480 Yes Are Auctions Accessible by retail investors481 No Are there auction bid channels for retail investors?482 No
Average Number of Days to of Auction
Notification
Bidding
Award
0 2 4 6 8 10 12 14 16 18
Days
Notification Bidding Award Total Average Number of Days483 14 1 1 16
474 Source: Narodna Banka Slovenska, July 2019 475 Source: Market Participant Questionnaire, November 2019 476 Source: Market Participant Questionnaire, November 2019 477 Source: Market Participant Questionnaire, November 2019 478 Source: Market Participant Questionnaire, November 2019 479 Source: Market Participant Questionnaire, November 2019 480 Source: Market Participant Questionnaire, November 2019 481 Source: Market Participant Questionnaire, November 2019 482 Source: Market Participant Questionnaire, November 2019 483 Source: Market Participant Questionnaire, November 2019
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Government Bond auctions are timetabled at regular intervals of one month. At auction, bonds are awarded according to competitive tender at uniform minimum price. There are primary dealers / market makers at these auctions, however they do not have preferential access and the primary auction is also accessible to regulated intermediaries, though not to retail investors. The average number of days to auction is 16, though this is predominated by the notice period before the auction of 14 days.
Bid Submission Process
Cost (€) Electronic Auction Processing System (€ per annum)484 € 43,132 (Bloomberg) Fees paid for bid Submission485 €0
The electronic auction processing system is provided by Bloomberg. Hence, in order to access Government Bond auctions, one needs access to a Bloomberg terminal which is expensive relative to other electronic auction processing systems that are purpose-built.
17.4. Corporate Bond Issuance
This section outlines the structure process and cost in relation to the primary issuance of corporate bonds.
Requirements to issue a corporate bond
Prospectus Listing on the local Credit Rating487 Other489 Approval486 Stock Exchange488 Required
Receiving a credit rating and being listed on the local stock exchange are not necessary to issue a Corporate Bond. Prospectus Approval is only necessary for public offerings, not private placement. Shelf registration is also required and a summary prospectus for small issues.490
484 Source: Market Participant Questionnaire, November 2019 / Author’s calculations, January 2020. The calculation assumes that access to the Bloomberg auctioning system is $24,000 per terminal (x2 terminals used for calculation). 485 Source: Market Participant Questionnaire, November 2019 486 Source: Market Participant Questionnaire, November 2019. However, the National Bank of Slovakia stated that prospectus approval was not required. In the Act on Securities and Investment Services 566/2001, Article 125 (1) states that “No prospectus shall be published until it has been approved.” Can be accessed here: http://www.nbs.sk/_img/Documents/_Legislativa/_BasicActs/A566-2001.pdf. There are no private placement rules according to the Stock Exchange and National Bank and the obligation to publish a prospectus does not apply to private placement according to Act 566/2001. This is backed up by Act A530/1990 Act on Bonds Article 3 (11) which suggests that a prospectus is not always necessary. 487 Source: Narodna Banka Slovenska, July 2019 / Market Participant Questionnaire, November 2019 488 Source: Narodna Banka Slovenska, July 2019 / Market Participant Questionnaire, November 2019 489 Source: Market Participant Questionnaire, November 2019. The Market Participant(s) said that there were other requirements, referring to this document: www.bsse.sk/Portals/2/Issuers%20Guide/2017/Corp_Bonds_Issuance_March2017_EN.pdf However, other conditions necessary for listing could not be found, beyond normal expectations for the terms of issue. 490 Source: Narodna Banka Slovenska, July 2019
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Average Number of Days to Issue
Prospectus Approval
Credit Rating
Listing
0 2 4 6 8 10 12 Days
Prospectus491 Credit Rating Listing Total Average Number of Days 10 10
The average number of days to Corporate Bond issuance is 10 days, due to the time taken for prospectus approval. However, there are no requirements for private placement, meaning Corporate Bonds can be issued with no time delay.
Corporate Bond Issuance Fees
Minimum Fee Type Average Fee492 Cap (€) Fee (€) Small Issue Large Issue Prospectus Approval493 650 650 650 650 Stock Exchange Listing Fees494 2,500 2,500 7,500 10,000 Stock Exchange Maintenance Fee (p/a)495 0 10,000 10,000 0 CSD Issuance Fee496 601 3,007 26,443 600,000 Total 3,751 16,157 44,593 610,650
491 Source: Market Participant Questionnaire, November 2019. 492 Based on model issuer parameters 493 Source: Narodna Banka Slovenska, July 2019 494 Source: Bratislave Stock Exchange, July 2019. Fees are for listed market(s). Listing fee for regulated free market is €3,500. The listing fee in the listed market for the bottom band is €2,500 and for the top band is €10,000, there are fixed fees in 4 size bands. Fees can be found here: http://www.bsse.sk/Portals/2/BSSE%20Regulations/Stock%20Exchange%20Rules/Fee%20Order%2001012019/Fee%20Order_f rom01012019.pdf 495 Source: Bratislave Stock Exchange, July 2019. Parallel listed market: €4,000, Regulated free market: €700 496 Source: Centrálny depozitár cenných papierov SR, July 2019. CSD Issuance fees can be found in: https://www.ncdcp.sk/na- stiahnutie/subory/2017-10-30-ncdcp-general-fees-web.pdf
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Common Bond Legal Features
Typical Covenants497
Covenant Rare Sometimes Common
Debt / EBITDA Debt / (EBITDA – Capital Expenditures) 498 Interest Coverage 499 Fixed Charge Coverage Debt / Equity Debt / Assets Total Assets Tangible Net Worth Dividend Pay-out Ratio Limitation on Mergers and Acquisitions Restrictions on Change of control
Callability500
No callable features were identified as typical features of bond issue.
Disclosure requirements501
Annual / biannual financial reports and any change in financial situation that could cause a change in the price of bonds.
17.5. Trading
Trading Systems
Government Corporate Cost per annum [€]
502 Stock Exchange Trading System 0 503 504 Alternative Trading System (ATS) 43,132
The Electronic Stock Exchange Trading System (EBOS) enables the trading of both Government and Corporate Bonds and has no annual fee for access. The Alternative Trading System is provided by Bloomberg and therefore the annual fee is calculated according to the cost of terminal access. Bonds can also be traded OTC.505
497 Source: Market Participant Questionnaire, November 2019 498 EBITDA or EBIT / Interest 499 EBITDA / (Total Debt Service + Capital Expenditures + Taxes 500 Source: Market Participant Questionnaire, November 2019 501 Source: Market Participant Questionnaire, November 2019 502 Source: Bratislave Stock Exchange, July 2019 503 Source: Market Participant Questionnaire, November 2019 504 Author’s calculations, January 2020. The calculation assumes that access to the Bloomberg auctioning system is $24,000 per terminal (x2 terminals used for calculation). 505 Source: Market Participant Questionnaire, November 2019
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Average Bid Offer Spreads for On-The-Run Bonds506
Publically Traded 2yr 5yr 7yr 10yr 30yr Average Government Bonds 101-250 101-250 101-250 101-250 101-250 101-250 Corporate Bonds 101-250 101-250 101-250 101-250 101-250 101-250 OTC Government Bonds 21-50 21-50 51-100 51-100 101-250 49-110 Corporate Bonds 101-250 101-250 101-250 101-250 101-250 101-250
Fees
Fee Type (per transaction)
Fee per Minimum Flat Fee (€) % (bps) Cap (€) transaction (€) Stock Exchange Trading Fees 507 1 8 332 332 ATS Trading Fees 508 Brokerage fees509 25 7 700 Total 26 15 332 1,032
According to the model portfolio average trade size of €1,000,000, Stock Exchange Trading fees would cap out the fee per transaction at €332. ATS trading fees within the Bloomberg system are unknown. Brokerage fees at 7bps would generate fees of €700 per trade, meaning total fees per transaction are €1,032.
17.6. Settlement & Safekeeping
All numbers below are based on the model portfolio.
Settlement fees
Fee Type (per transaction) Minimum (€) Flat fee (€) Cap (€) CSD clearing & settlement transaction fees510 8 0 Custodian Settlement Fees511 17 17 17 Total Settlement Fees 17 25 17
506 Source: Market Participant Questionnaire, November 2019 507 Source: Bratislave Stock Exchange, July 2019. Fees can be accessed here: http://www.bsse.sk/Portals/2/BSSE%20Regulations/Stock%20Exchange%20Rules/Fee%20Order%2001012019/Fee%20Order_f rom01012019.pdf 508 Source: Market Participant Questionnaire, November 2019. No information on Bloomberg trading fees could be found. 509 Source: Market Participant Questionnaire, November 2019 510 Source: Centrálny depozitár cenných papierov SR, July 2019 511 Source: Market Participant Questionnaire, November 2019
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Safekeeping Fees
Fee Type (per annum) Flat fee (€) % (bps) Cap (€) CSD Safekeeping fees512 0 0.18 144,000 Custodian Safekeeping Fees513 0 11 0 Total Safekeeping Fees 0 11.18 144,000
17.7. Taxation
Tax Matrix514
Government (%) Corporate (%) Fee Type Individual Corporate Individual Corporate Transaction taxes on purchase (e.g. stamp duty) Withholding taxes on coupons / interest whilst 19% 0% 0% 0% holding bonds Taxes on the disposition / sale (e.g. capital gains) 0% 0% 21% 21%
17.8. Fee Analysis
This section provides an overview of the fees in relation to both issuance of corporate bonds and trading of bonds in in the secondary market.
Corporate Bond Issuer Cost
This outlines all the fees required in order to issue a corporate bond. It includes initial issuance costs as well as any ongoing fees. Ongoing fees are calculated as fees for a single year.
Small Issue515 Large Issue516 Initial Issuance Fees517 6,157 34,593 Ongoing Fees518 10,000 10,000 Total Cost519 16,157 44,593
512 Source: Centrálny depozitár cenných papierov SR, July 2019 513 Source: Market Participant Questionnaire, November 2019 514 Source: Market Participant Questionnaire, November 2019 515 Source: Various sources outlined previously in this section. Based on an issuance amount of €5mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 516 Source: Various sources outlined previously in this section. Based on an issuance amount of €50mn. For further information please refer to the details in the model portfolio outlined in Section 2.3. 517 Includes prospectus approval fees, stock exchange listing fees and CSD issuance fees. 518 Includes stock exchange maintenance fees and any other mandatory annual fees. 519 Assuming first time issuance and listing for 1 year. This is therefore the total annual cost.
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Portfolio Costs
Natural Person (€ per annum)
This outlines all the fees (direct and indirect) and taxes involved in the trading of a portfolio of bonds. All fees calculated for a single year based on the composition and trading details outlined in the model portfolio.
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs520 51,600 51,600 78,132 78,132 Indirect Trading Costs521 7,500 12,500 0 350 Settlement & Clearing 1,240 1,240 1,240 1,240 Safekeeping 27,950 27,950 27,950 27,950 Tax522 0 190,000 0 190,000 Total Trading Cost 88,290 283,290 107,322 297,672
Legal Person (€ per annum)
Stock Exchange ATS Government Corporate Government Corporate Direct Trading Costs523 51,600 51,600 78,132 78,132 Indirect Trading Costs524 7,500 12,500 0 350 Settlement & Clearing 1,240 1,240 1,240 1,240 Safekeeping 27,950 27,950 27,950 27,950 Tax525 0 0 0 0 Total Trading Cost 88,290 93,290 107,322 107,322
520 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 521 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 522 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn. 523 Includes trading system access for a year, platform and brokerage trading fees. Assumes 50 trades per year based on the model portfolio. 524 Calculated as average spread in bps for on the run 2, 5 and 10 year bonds. Assumes 50 trades per annum based on the model portfolio. 525 Calculated as transaction taxes; plus disposition / sales taxes (i.e. capital gains), assumes 50 trades per annum based on the model portfolio; plus any withholding taxes based on the model portfolio coupon income of €1mn.
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Appendix 1 – Data Table
Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Market Dynamics Treasury Fixed Rate [2yr] Yes No Yes Yes Yes Yes Yes Yes Yes Market Dynamics Treasury Fixed Rate [5yr] Yes Yes Yes Yes Yes Yes Yes Yes Yes Market Dynamics Treasury Fixed Rate [7yr] Yes Yes Yes Yes Yes No Yes Yes Yes Market Dynamics Treasury Fixed Rate [10yr] Yes Yes Yes Yes Yes Yes Yes Yes Yes Market Dynamics Treasury Fixed Rate [30yr] No No Yes No No Yes No No Yes Market Dynamics Treasury Floating Rate [2yr] No No No Yes No No No Yes Yes Market Dynamics Treasury Floating Rate [5yr] No No Yes Yes No No No No Yes Market Dynamics Treasury Floating Rate [7yr] No No Yes Yes No No No No Yes Market Dynamics Treasury Floating Rate [10yr] No No No Yes No No No No Yes Market Dynamics Treasury Floating Rate [30yr] No No No No No No No No No Market Dynamics Treasury Inflation Linked [2yr] No No No No No No No No No Market Dynamics Treasury Inflation Linked [5yr] No No No No No No No No No Market Dynamics Treasury Inflation Linked [7yr] No No No No No No No No No Market Dynamics Treasury Inflation Linked [10yr] No No No No No No No No No Market Dynamics Treasury Inflation Linked [30yr] No No No No No No No No No Market Dynamics Corporate Bonds (Fixed Rate) [2yr] Yes Yes Yes Yes Yes Yes Yes Yes Yes Market Dynamics Corporate Bonds (Fixed Rate) [5yr] Yes Yes Yes Yes Yes Yes Yes Yes Yes Market Dynamics Corporate Bonds (Fixed Rate) [7yr] Yes No Yes Yes No No Yes No Yes Market Dynamics Corporate Bonds (Fixed Rate) [10yr] No Yes Yes Yes No No Yes No Yes Market Dynamics Corporate Bonds (Fixed Rate) [30yr] No No No No No No No No No Market Dynamics Corporate Bonds (Floating Rate) [2yr] No No Yes Yes No No No Yes Yes Market Dynamics Corporate Bonds (Floating Rate) [5yr] No No Yes Yes Yes No No Yes Yes Market Dynamics Corporate Bonds (Floating Rate) [7yr] No No Yes No No No No No Yes Market Dynamics Corporate Bonds (Floating Rate) [10yr] No No No No No No No No Yes Market Dynamics Corporate Bonds (Floating Rate) [30yr] No No No No No No No No No Market Dynamics Repos with Central Banks [2yr] No No No Yes No Yes No Yes No Market Dynamics Repos with Central Banks [5yr] No No No Yes No No No No No Market Dynamics Repos with Central Banks [7yr] No No No No No No No No No Market Dynamics Repos with Central Banks [10yr] No No No No No No No No No Market Dynamics Repos with Central Banks [30yr] No No No No No No No No No Market Dynamics Repos with Market Participants [2yr] No Yes No Yes No Yes No Yes No Market Dynamics Repos with Market Participants [5yr] No No No No No No No No No Market Dynamics Repos with Market Participants [7yr] No No No No No No No No No Market Dynamics Repos with Market Participants [10yr] No Yes No No No No No No No Market Dynamics Repos with Market Participants [30yr] No No No No No No No No No Market Dynamics Government Bond Yield [2yr] 0.00% 1.73% -0.46% 0.16% 0.00% 0.00% 3.55% 2.10% -0.53% Market Dynamics Government Bond Yield [5yr] 0.00% 1.95% -0.11% 0.20% 0.00% 0.00% 3.92% 2.95% -0.20% Market Dynamics Government Bond Yield [7yr] 0.00% 1.94% 0.06% 0.00% 1.98% 0.00% 3.99% 2.88% -0.04% Market Dynamics Government Bond Yield [10yr] 0.00% 1.95% 0.28% 0.61% 2.63% 0.00% 4.41% 2.90% 0.04% Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Market Dynamics Government Bond Yield [30yr] 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.84% Market Dynamics Corporate Bond Yield [2yr] 0.00% 4.75% 0.36% 0.00% 5.15% 0.00% 0.00% 0.00% -0.06% Market Dynamics Corporate Bond Yield [5yr] 0.00% 5.64% 1.56% 1.90% 5.46% 0.00% 3.94% 0.00% 0.06% Market Dynamics Corporate Bond Yield [7yr] 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5.49% 0.00% 0.15% Market Dynamics Corporate Bond Yield [10yr] 0.00% 6.52% 3.85% 10.90% 0.00% 0.00% 0.00% 0.00% 0.28% Market Dynamics Corporate Bond Yield [30yr] 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.99% Does it have to be listed on the Stock Market Dynamics No Yes No No Yes No No No No Exchange? (Government Bonds) Are there Private Placement rules? Market Dynamics Yes No No No Yes No No Yes No (Government Bonds) Does it have to be listed on the Stock Market Dynamics No Yes No No Yes No No No No Exchange? (Corporate Bonds) Are there Private Placement rules? Market Dynamics Yes Yes Yes No Yes Yes No Yes No (Corporate Bonds) Total Value of Outstanding Listed Market Dynamics 593,414,187 556,843,58 2,102,692,974 8,928,878,710 1,056,196,723 10,995,350,000 8,109,719,057 Government Bonds [LCY] Total Value of Outstanding Listed Market Dynamics 669,105,000 5,535,228,379 308,604,216 48,900,000 4,150,000,000 34,339,360,000 Government Bonds [EUR] Total Value of Outstanding Listed Market Dynamics Government Bonds [Other] Total Value of Outstanding Listed Market Dynamics 61,253,725 4,067,006 129,736,122 476,445,019 2,493,250,000 Corporate Bonds [LCY] Total Value of Outstanding Listed Market Dynamics 841,037,494 69,449,935 14,000,000 5,000,000 2,037,525,000 2,338,096,700 Corporate Bonds [EUR] Total Value of Outstanding Listed Market Dynamics 32,720,923.05 Corporate Bonds [Other] Market Value of Government Bonds Market Dynamics 372,297,540 90,409,217 2,365,376,831 8,028,329,003 2,568,750,000 8,884,674,004 issued/listed in 2018 [LCY] Market Value of Government Bonds Market Dynamics 797,003,211 5,086,296,005 145,006,357 55,122,400 4,284,378,825 37,877,756,600 issued/listed in 2018 [EUR] Market Value of Government Bonds Market Dynamics issued/listed in 2018 [Other] Market Value of Corporate Bonds Market Dynamics 9,005,226 684,117 130,871,229 438,398,722 300,000,000 issued/listed in 2018 [LCY] Market Value of Corporate Bonds Market Dynamics 842,608,661 68,598,008 14,180,000 915,000,000 2,009,925,077 issued/listed in 2018 [EUR] Market Value of Corporate Bonds Market Dynamics issued/listed in 2018 [Other] 32,893,552.64 Trading Volume of Government Bonds Market Dynamics 12,596,611 154,699,925 12,679,668 73,631,724 129,766,274 335,308,411 in 2018 [LCY] Trading Volume of Government Bonds Market Dynamics 12,115,787 21,324,195 2,688,791 8,531,184 129,981,132 in 2018 [EUR] Trading Volume of Government Bonds Market Dynamics in 2018 [Other] Trading Volume of Corporate Bonds in Market Dynamics 199,154 1,781,763 9,175,025 3,401,613 2,024,247,408 2018 [LCY] Trading Volume of Corporate Bonds in Market Dynamics 17,233,799 632,406 551,665 100,000 4,500,000 463,865,104 2018 [EUR]
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Trading Volume of Corporate Bonds in Market Dynamics 2018 [Other] Number of Government Bonds Listed in Market Dynamics 4.00 7.00 1.00 1.00 2.00 4.00 11.00 2.00 2018 Number of Corporate Bonds Listed in Market Dynamics 1.00 6.00 16.00 1.00 18.00 2018 Turnover Ratio of Government Bonds Market Dynamics 2.12% 27.78% 0.60% 0.82% 0.00% 1.18% 4.13% (LCY) Turnover Ratio of Government Bonds Market Dynamics 1.81% 0.39% 0.87% 17.45% 3.13% 0.00% (EUR) Turnover Ratio of Government Bonds Market Dynamics (Other) Turnover Ratio of Corporate Bonds Market Dynamics 43.81% 7.07% 0.71% 81.19% (LCY) 0.00 Turnover Ratio of Corporate Bonds Market Dynamics 2.05% 0.91% 3.94% 2.00% 0.22% 19.84% (EUR) Turnover Ratio of Corporate Bonds Market Dynamics 0.00% (Other) Number of Entities Authorised to Carry Market Dynamics 16.00 8.00 26.00 20.00 13.00 14.00 24.00 26.00 12.00 Out Banking Number of Entities Authorised to Carry Market Dynamics 6.00 5.00 65.00 27.00 2.00 5.00 20.00 2.00 22.00 Out Brokerage Number of Entities Authorised to Carry Market Dynamics 2.00 1.00 2.00 Out Market Making Timetabled Timetabled Ad hoc Ad hoc Ad hoc Timetabled Timetabled Timetabled Timetabled Auction Process Type of Auction Schedule (regular) (regular) (irregular) (irregular) (irregular) (regular) (regular) (regular) (regular) Auction Process Auction Frequency 90.00 60.00 19.00 11.00 7.00 22.00 30.00 Competitive Competitive Competitive Competitive Competitive Competitive Competitive Competitive Tender Award Tender Award Ad Hoc (Non- Tender Award Tender Award at Tender Award at Tender Award at Tender Award at Tender Award at Auction Process Auction Type at Bid Price at Bid Price Competitive at Uniform Bid Price (Dutch- Uniform Bid Price (Dutch- Uniform Uniform Minimum (Dutch-Style (Dutch-Style Tender) Minimum Price Style Auction) Minimum Price Style Auction) Minimum Price Price Auction) Auction) Are there Primary Dealers/Market Auction Process No No Yes No Yes No Yes No Yes Makers? Do Primary Dealers/Market Makers Auction Process have preferential access to government No No No No No No Yes No No bond auctions? Is the Auction Process Accessible to Auction Process Yes Yes Yes Yes Yes Yes Yes Yes Yes Regulated Intermediaries? Auction Process Is the Auction Accessible by Retail? Yes Yes Yes No Yes No No Yes No Are there competitive and non- Competitive Auction Process competitive government bond auction Competitive Competitive Both Non-competitive Competitive Both Bid Channel - - bid channels for retail investors? Auction Process Notification 12.00 8.00 9.00 2.00 10.00 6.00 8.00 3.00 14.00 Auction Process Bidding 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Auction Process Award 1.00 3.00 1.00 1.00 2.00 1.00 1.00 2.00 1.00 Total Average Number of Days to Auction Process 14.00 12.00 11.00 4.00 13.00 8.00 10.00 6.00 16.00 Auction
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Electronic Auction Processing System Auction Process Yes Yes Yes Yes Yes Yes Yes Yes Yes Exist Electronic BSt-T system for Sarajevo Stock Banjaluka Government market Electronic Auction Processing System Exchange Stock Bloomberg Montenegro PDA Auction Auction Process Securities operations of SaFIR Bloomberg Name Trading System exchange Auction System stock exchange platform Auction System National bank of (BTS) system for North trading Macedonia Electronic Auction Processing System Auction Process 2,760.98 1,840.65 3,681.29 43,131.62 3,000.00 43,131.62 Cost to user
Auction Process Fees paid for bid Submission 502.50 500.00 2.22 Corporate Bond Prospectus Approval [Small Issue] Yes Yes No Yes Yes Yes Yes No Yes Issuance Corporate Bond Prospectus Approval [Large Issue] Yes Yes No Yes Yes Yes Yes No Yes Issuance Corporate Bond Shelf Registration No Yes No Yes Yes No Yes No Yes Issuance Corporate Bond Summary Prospectus for small issues Yes Yes No No Yes No Yes No Yes Issuance Corporate Bond Is Credit Rating necessary for issuing No No No No No No No No No Issuance [Small Issue] Corporate Bond Is Credit Rating necessary for issuing No No No No No No No No No Issuance [Large Issue] Corporate Bond Does the Bond have to be listed [Small No Yes No No Yes No No No No Issuance Issue] Corporate Bond Does the Bond have to be listed [Large No Yes No No Yes No No No No Issuance Issue] Corporate Bond Other [Small Issue] No No No No No Yes Yes Yes Yes Issuance Corporate Bond Other [Large Issue] No No No No No Yes Yes Yes Yes Issuance Prior to the issuance of financial instruments denominated in It is possible to a foreign issue and trade You can only Corporate Bond currency, the Currency Issuing Restrictions No No No No bonds only in No issue bonds in No Issuance issuer must local currency, RON and EUR. obtain the EUR. approval from the National Bank of Serbia. (Article 9. Law on Capital markets) Corporate Bond Prospectus 21.00 16.00 60.00 12.00 60.00 25.00 45.00 10.00 Issuance
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Corporate Bond Credit Rating Issuance Corporate Bond Listing 9.00 7.00 5.00 5.00 10.00 22.00 30.00 15.00 30.00 Issuance Corporate Bond Other 15.00 16.00 Issuance Corporate Bond Total Days to Issue 30.00 23.00 5.00 65.00 22.00 82.00 70.00 76.00 40.00 Issuance Corporate Bond Prospectus Approval [Minimum] 500.00 511.18 300.00 487.50 2,117.86 650.00 Issuance Corporate Bond Prospectus Approval [Small Issue 5,000.00 7,500.00 542.00 15,000.00 7,500.00 3,557.10 10,000.00 650.00 Issuance Average] Corporate Bond Prospectus Approval [Large Issue 7,500.00 75,000.00 542.00 150,000.00 75,000.00 26,057.10 100,000.00 650.00 Issuance Average] Corporate Bond Prospectus Approval [Cap] 7,500.00 106,767.10 650.00 Issuance Corporate Bond Stock Exchange Listing Fees [Minimum] 500.00 150.00 2,699.00 163.00 320.00 2,040.00 2,500.00 Issuance Corporate Bond Stock Exchange Listing Fees [Small 500.00 325.00 256.00 2,699.00 500.00 500.00 549.00 1,000.00 2,500.00 Issuance Issue Average] Corporate Bond Stock Exchange Listing Fees [Large 500.00 500.00 256.00 6,749.00 100.00 1,626.00 549.00 5,100.00 7,500.00 Issuance Issue Average] Corporate Bond Stock Exchange Listing Fees [Cap] 500.00 500.00 6,749.00 - 1,626.00 - 5,100.00 10,000.00 Issuance Corporate Bond Stock Exchange Maintenance Fee (p/a) 1,750.00 250.00 - 2,130.00 - - 300.00 1,700.00 - Issuance [Minimum] Corporate Bond Stock Exchange Maintenance Fee (p/a) 1,750.00 2,125.00 511.00 2,130.00 8,000.00 650.00 549.00 500.00 10,000.00 Issuance [Small Issue Average] Corporate Bond Stock Exchange Maintenance Fee (p/a) 2,500.00 5,000.00 511.00 2,130.00 10,500.00 650.00 549.00 3,400.00 10,000.00 Issuance [Large Issue Average] Corporate Bond Stock Exchange Maintenance Fee (p/a) 2,500.00 5,000.00 - 2,130.00 - - - 3,400.00 - Issuance [Cap] Corporate Bond CSD Issuance Fee [Minimum] 154.67 - 766.94 - 620.00 715.00 177.59 - 601.00 Issuance Corporate Bond CSD Issuance Fee [Small Issue Average] 741.55 600.00 818.06 540.00 1,215.00 820.00 177.59 252.45 3,007.00 Issuance Corporate Bond CSD Issuance Fee [Large Issue Average] 894.94 600.00 818.06 540.00 1,665.00 1,040.00 177.59 252.45 26,443.00 Issuance Corporate Bond CSD Issuance Fee [Cap] 894.94 - 2,556.45 - - 1,040.00 30,444.48 - 600,000.00 Issuance Corporate Bond Total Corporate Bond Issuance Fees 2,904.67 911.18 766.94 4,829.00 920.00 1,365.50 797.59 5,857.86 3,751.00 Issuance [Minimum] Corporate Bond Total Corporate Bond Issuance Fees 7,991.55 10,550.00 1,585.06 5,911.00 24,715.00 9,470.00 4,832.69 11,752.45 16,157.00 Issuance [Small Issue Average] Corporate Bond Total Corporate Bond Issuance Fees 11,394.94 81,100.00 1,585.06 9,961.00 162,265.00 78,316.00 27,332.69 108,752.45 44,593.00 Issuance [Large Issue Average] Corporate Bond Total Corporate Bond Issuance Fees 11,394.94 5,500.00 2,556.45 8,879.00 - 2,666.00 137,211.58 8,500.00 610,650.00 Issuance [Cap]
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Corporate Bond Debt / EBITDA [Rare] Yes Yes Yes No No No No Yes Yes Issuance Corporate Bond Debt / EBITDA [Sometimes] No No No Yes Yes Yes Yes No No Issuance Corporate Bond Debt / EBITDA [Common] No No No No No No No No No Issuance Corporate Bond Debt / (EBITDA - Capital Expenditures) Yes Yes Yes No No No Yes Yes Yes Issuance [Rare] Corporate Bond Debt / (EBITDA - Capital Expenditures) No No No Yes Yes Yes No No No Issuance [Sometimes] Corporate Bond Debt / (EBITDA - Capital Expenditures) No No No No No No No No No Issuance [Common] Corporate Bond Interest Coverage [Rare] Yes No No No No No No Yes Yes Issuance Corporate Bond Interest Coverage [Sometimes] No Yes No Yes Yes Yes Yes No No Issuance Corporate Bond Interest Coverage [Common] No No Yes No No No No No No Issuance Corporate Bond Fixed Charge Coverage [Rare] Yes No Yes Yes No No Yes Yes Yes Issuance Corporate Bond Fixed Charge Coverage [Sometimes] No Yes No No Yes Yes No No No Issuance Corporate Bond Fixed Charge Coverage [Common] No No No No No No No No No Issuance Corporate Bond Debt / Equity [Rare] No No No No No No No Yes Yes Issuance Corporate Bond Debt / Equity [Sometimes] No Yes No Yes Yes Yes Yes No No Issuance Corporate Bond Debt / Equity [Common] Yes No Yes No No No No No No Issuance Corporate Bond Debt / Assets [Rare] No No No No No No No Yes Yes Issuance Corporate Bond Debt / Assets [Sometimes] No Yes No Yes Yes Yes Yes No No Issuance Corporate Bond Debt / Assets [Common] Yes No Yes No No No No No No Issuance Corporate Bond Total Assets [Rare] No No Yes No No No Yes Yes Yes Issuance Corporate Bond Total Assets [Sometimes] Yes Yes No Yes Yes Yes No No No Issuance Corporate Bond Total Assets [Common] No No No No No No No No No Issuance Corporate Bond Tangible Net Worth [Rare] Yes No Yes Yes No No Yes Yes Yes Issuance Corporate Bond Tangible Net Worth [Sometimes] No Yes No No Yes Yes No No No Issuance Corporate Bond Tangible Net Worth [Common No No No No No No No No No Issuance
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Corporate Bond Dividend Pay-out Ratio [Rare] Yes No No Yes No Yes No Yes Yes Issuance Corporate Bond Dividend Pay-out Ratio [Sometimes] No Yes Yes No Yes No Yes No No Issuance Corporate Bond Dividend Pay-out Ratio [Common] No No No No No No No No No Issuance Corporate Bond Limitation on Mergers and Acquisitions Yes No No No Yes Yes No Yes Yes Issuance [Rare] Corporate Bond Limitation on Mergers and Acquisitions No Yes No Yes No No Yes No No Issuance [Sometimes] Corporate Bond Limitation on Mergers and Acquisitions No No Yes No No No No No No Issuance [Common] Corporate Bond Restrictions on Change of Control Yes No No No Yes Yes No Yes Yes Issuance [Rare] Corporate Bond Restrictions on Change of Control No Yes No Yes No No Yes No No Issuance [Sometimes] Corporate Bond Restrictions on Change of Control No No Yes No No No No No No Issuance [Common] Early redemption of bonds: The issuer may, at any time, redeem the bonds at any market price or otherwise, provided that, in the case of a public offering, Call option close such an offer is to expiry; equally Corporate Bond European style Typical callable features None available to all None None None None None None Issuance call options; bondholders Strike price at and such an par or higher offer is consistent with legal provisions. No bond holder is required to accept the Issuer's offer or sell any number of bonds in its possession. Annual and Annual audit if the issue is Basic and Annual and Corporate Bond Conflict of Typical disclosure requirements financial and financial traded on a None None historical data, None biannual financial Issuance interest report, audit reports stock exchange organisational reports, changes
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) report, other they disclose structure, in financial sensitive regular financial employees, main situation that information information - shareholders, could cause a like increase interim financial data, change in the yearly sales (quarterly) and management. price of shares more than 10 annual %, change of key person ARENA Berzanski Exchange BTS trading Electronic Stock Name of the Stock Exchange Trading AUTOMATED Trading Sistem Trading System Xetra T7 Xetra system version BEST BELEXFIX Exchange Trading System EXCHANGE Trgovine (BTS) (QuickTrade) 2.6 System (EBOS) PLATFORM Trading Can Government Bonds be traded? Yes Yes Yes Yes Yes Yes Yes Yes Yes Trading Can Corporate Bonds be traded? Yes Yes Yes Yes Yes Yes Yes Yes Yes Trading Cost of the trading system 2,147.00 3,681.30 1,175.97 520.00 8,000.00 2,400.00 320.00 - - Electronic System for Registration and BSE ALTERNATIVE Servicing of Bloomberg Trading Name of the Alternative Trading System No No No No No TRADING SYSTEM Bloomberg Trade in EBOND platform (AeRO) Government Securitites (ESROT) Trading Can Government Bonds be traded? - - Yes - - - No Yes Yes Trading Can Corporate Bonds be traded? - - No - - - Yes No Yes Trading Cost of the trading system - - 3,681.29 - - - 422.84 43,131.62 43,131.62 Average Spread in bps (on-the-run Trading 50.00 20.00 50.00 50.00 100.00 - 10.00 20.00 250.00 bonds) of 2yr Government Bonds (High) Average Spread in bps (on-the-run Trading 21.00 11.00 11.00 21.00 51.00 - - - 101.00 bonds) of 2yr Government Bonds (Low) Average Spread in bps (on-the-run Trading 50.00 20.00 250.00 100.00 100.00 50.00 10.00 20.00 250.00 bonds) of 5yr Government Bonds (High) Average Spread in bps (on-the-run Trading 21.00 11.00 101.00 21.00 51.00 21.00 - - 101.00 bonds) of 5yr Government Bonds (Low) Average Spread in bps (on-the-run Trading 100.00 20.00 - 100.00 100.00 - 10.00 20.00 250.00 bonds) of 7yr Government Bonds (High) Average Spread in bps (on-the-run Trading 51.00 11.00 250.00 21.00 51.00 - - - 101.00 bonds) of 7yr Government Bonds (Low) Average Spread in bps (on-the-run Trading bonds) of 10yr Government Bonds - 20.00 - 250.00 100.00 - 10.00 20.00 250.00 (High) Average Spread in bps (on-the-run Trading - 11.00 250.00 21.00 51.00 - - 11.00 101.00 bonds) of 10yr Government Bonds (Low) Average Spread in bps (on-the-run Trading bonds) of 30yr Government Bonds - - 250.00 - 100.00 20.00 20.00 - 250.00 (High) Average Spread in bps (on-the-run Trading - - 101.00 - 51.00 11.00 11.00 - 101.00 bonds) of 30yr Government Bonds (Low) Trading Average Government Bonds (High) 40.00 16.00 183.33 100.00 100.00 14.00 12.00 16.00 250.00
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Trading Average Government Bonds (Low) 18.60 8.80 142.60 16.80 51.00 6.40 2.20 2.20 101.00 Average Spread in bps (on-the-run Trading 250.00 - 250.00 100.00 250.00 - 50.00 - 250.00 bonds) of 2yr Coporate Bonds (High) Average Spread in bps (on-the-run Trading 101.00 - 101.00 51.00 101.00 - 21.00 - 101.00 bonds) of 2yr Corporate Bonds (Low) Average Spread in bps (on-the-run Trading - 250.00 250.00 100.00 250.00 - 50.00 - 250.00 bonds) of 5yr Corporate Bonds (High) Average Spread in bps (on-the-run Trading - 101.00 101.00 51.00 101.00 - 21.00 - 101.00 bonds) of 5yr Corporate Bonds (Low) Average Spread in bps (on-the-run Trading - - 250.00 100.00 250.00 - 50.00 - 250.00 bonds) of 7yr Corporate Bonds (High) Average Spread in bps (on-the-run Trading - - 101.00 51.00 101.00 - 21.00 - 101.00 bonds) of 7yr Corporate Bonds (Low) Average Spread in bps (on-the-run Trading - - 250.00 100.00 250.00 - 50.00 - 250.00 bonds) of 10yr Corporate Bonds (High) Average Spread in bps (on-the-run Trading - - 101.00 51.00 101.00 - 21.00 - 101.00 bonds) of 10yr Corporate Bonds (Low) Average Spread in bps (on-the-run Trading - - - - 250.00 - - - 250.00 bonds) of 30yr Corporate Bonds (High) Average Spread in bps (on-the-run Trading - - - - 101.00 - - - 101.00 bonds) of 30yr Corporate Bonds (Low) Trading Average Corporate Bonds (High) 50.00 50.00 250.00 80.00 250.00 - 50.00 - 250.00 Trading Average Corporate Bonds (Low) 20.20 20.20 101.00 40.80 101.00 - 21.00 - 101.00 Trading Can Bonds be Traded OTC? No Yes Yes Yes No Yes Yes Yes Yes Average Spread in bps (on-the-run Trading - 20.00 50.00 50.00 - - 10.00 20.00 50.00 bonds) of 2yr Government Bonds (High) Average Spread in bps (on-the-run Trading - 11.00 11.00 21.00 - - - - 21.00 bonds) of 2yr Government Bonds (Low) Average Spread in bps (on-the-run Trading - 20.00 250.00 100.00 - 50.00 10.00 20.00 50.00 bonds) of 5yr Government Bonds (High) Average Spread in bps (on-the-run Trading - 11.00 11.00 21.00 - 21.00 - - 21.00 bonds) of 5yr Government Bonds (Low) Average Spread in bps (on-the-run Trading - 20.00 250.00 100.00 - - 10.00 20.00 100.00 bonds) of 7yr Government Bonds (High) Average Spread in bps (on-the-run Trading - 11.00 21.00 21.00 - - - - 51.00 bonds) of 7yr Government Bonds (Low) Average Spread in bps (on-the-run Trading bonds) of 10yr Government Bonds - 20.00 250.00 250.00 - - 10.00 20.00 100.00 (High) Average Spread in bps (on-the-run Trading - 11.00 51.00 21.00 - - - 11.00 51.00 bonds) of 10yr Government Bonds (Low) Average Spread in bps (on-the-run Trading bonds) of 30yr Government Bonds - - 250.00 - - 20.00 - - 250.00 (High) Average Spread in bps (on-the-run Trading - - 101.00 - - 11.00 - - 101.00 bonds) of 30yr Government Bonds (Low) Trading Average Government Bonds (High) - 16.00 210.00 100.00 - 14.00 8.00 16.00 110.00 Trading Average Government Bonds (Low) - 8.80 39.00 16.80 - 6.40 - 2.20 49.00
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Average Spread in bps (on-the-run Trading - - 250.00 100.00 - - 50.00 - 250.00 bonds) of 2yr Corporate Bonds (High) Average Spread in bps (on-the-run Trading - - 101.00 51.00 - - 21.00 - 101.00 bonds) of 2yr Corporate Bonds (Low) Average Spread in bps (on-the-run Trading - 250.00 250.00 100.00 - - 50.00 - 250.00 bonds) of 5yr Corporate Bonds (High) Average Spread in bps (on-the-run Trading - 101.00 101.00 51.00 - - 21.00 - 101.00 bonds) of 5yr Corporate Bonds (Low) Average Spread in bps (on-the-run Trading - - 250.00 100.00 - - 50.00 - 250.00 bonds) of 7yr Corporate Bonds (High) Average Spread in bps (on-the-run Trading - - 101.00 51.00 - - 21.00 - 101.00 bonds) of 7yr Corporate Bonds (Low) Average Spread in bps (on-the-run Trading - - 250.00 100.00 - - 50.00 - 250.00 bonds) of 10yr Corporate Bonds (High) Average Spread in bps (on-the-run Trading - - 101.00 51.00 - - 21.00 - 101.00 bonds) of 10yr Corporate Bonds (Low) Average Spread in bps (on-the-run Trading ------250.00 bonds) of 30yr Corporate Bonds (High) Average Spread in bps (on-the-run Trading ------101.00 bonds) of 30yr Corporate Bonds (Low) Trading Average Corporate Bonds (High) - 50.00 250.00 80.00 - - 40.00 - 250.00 Trading Average Corporate Bonds (Low) - 20.20 101.00 40.80 - - 16.80 - 101.00 Trading Stock Exchange Trading Fees (Flat Fee) ------Trading Stock Exchange Trading Fees (bps) 10.00 2.00 1.00 3.00 9.00 2.50 0.70 10.00 8.00 Stock Exchange Trading Fees Trading - - 1.02 - - - - - 1.00 (Minimum) Trading Stock Exchange Trading Fees (Cap) ------42.50 332.00 Trading Stock Exchange Fee per Transaction 1,000.00 200.00 100.00 300.00 900.00 250.00 70.00 42.50 332.00 Trading ATS Trading Fees (Flat Fee) - - 5.00 ------Trading ATS Trading Fees (bps) ------1.00 - - Trading ATS Trading Fees (Minimum) - - 2.50 ------Trading ATS Trading Fees (Cap) - - 5.00 ------Trading ATS Fee Per Transaction - - 5.00 - - - 100.00 - - Trading Brokerage Fees (Flat Fee) ------Trading Brokerage Fees (bps) 35.00 20.00 7.50 10.00 17.50 75.00 25.00 3.00 7.00 Trading Brokerage Fees (Minimum) 10.00 4.00 5.00 10.00 10.00 3.00 - - 25.00 Trading Brokerage Fees (Cap) ------Trading Brokerage Fees per Transaction 3,500.00 2,000.00 750.00 1,000.00 1,750.00 7,500.00 2,500.00 300.00 700.00 Trading Total Fees (Flat Fee) - - 5.00 300.00 - - - - - Trading Total Fees (bps) 45.00 22.00 8.50 10.00 26.50 77.50 26.70 13.00 15.00 Trading Total Fees (Minimum) 10.00 4.00 8.52 10.00 10.00 3.00 - - 26.00 Trading Total Fees (Cap) - - 5.00 - - - - 42.50 332.00 Trading Total Fees per Transaction 4,500.00 2,200.00 855.00 1,300.00 2,650.00 7,750.00 2,670.00 342.50 1,032.00 Settlement and CSD Clearing and Settlement 830.00 150.00 0.31 14.00 300.00 1,000.00 32.00 13.75 8.20 Safekeeping Transaction Fees Settlement and CSD Clearing and Settlement - - - 14.00 - - 31.71 13.75 - Safekeeping Transaction Fee Cap
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Settlement and Custodian Settlement Fees 25.00 1,500.00 10.00 22.50 1,000.00 16.00 21.00 100.00 16.60 Safekeeping Settlement and Minimum Custodian settlement fee 10.00 - 10.00 5.00 10.00 - 21.00 1.00 16.60 Safekeeping Settlement and Custodian settlement fee cap - - - - - 16.00 21.00 100.00 - Safekeeping Settlement and Total Settlement Fees 855.00 1,650.00 10.31 36.50 1,300.00 1,016.00 53.00 113.75 24.80 Safekeeping Settlement and CSD Safekeeping Fee Rate 5.00 0.06 0.02 1.00 - 0.02 0.07 0.26 0.18 Safekeeping Settlement and CSD Safekeeping Fee 12,500.00 153.39 47.04 2,500.00 - 50.00 177.59 641.66 450.00 Safekeeping Settlement and CSD Safekeeping Fee Cap 20,451.68 - - 32,400.00 - 725.00 30,444.48 45.83 144,000.00 Safekeeping Settlement and Custodian Safekeeping Fee Rate 27.50 10.00 5.00 3.00 10.00 20.00 3.00 10.00 11.00 Safekeeping Settlement and Custodian Safekeeping Fees 68,750.00 25,000.00 12,500.00 7,500.00 25,000.00 50,000.00 7,500.00 25,000.00 27,500.00 Safekeeping Settlement and Total Safekeeping Fees 81,250.00 25,153.39 12,547.04 10,000.00 25,000.00 50,050.00 7,677.59 25,641.66 27,950.00 Safekeeping Purchase of Government Bonds (% Taxation 0% 0% 0% 0% 0% 0% 0% 0% 0% marginal tax rate) [Natural Person] Purchase of Government Bonds (value) Taxation ------[Natural Person] Purchase of Government Bonds (% Taxation 0% 0% 0% 0% 0% 0% 0% 0% 0% marginal tax rate) [Legal Person] Purchase of Government Bonds (value) Taxation ------[Legal Person] Purchase of Corporate Bonds (% Taxation 0% 0% 0% 0% 0% 0% 0% 0% 0% marginal tax rate) [Natural Person] Purchase of Corporate Bonds (value) Taxation ------[Natural Person] Purchase of Corporate Bonds (% Taxation 0% 0% 0% 0% 0% 0% 0% 0% 0% marginal tax rate) [Legal Person] Purchase of Corporate Bonds (value) Taxation ------[Legal Person] Total transaction taxes on purchase of Taxation Government and Corporate Bonds ------[Natural Person] Total transaction taxes on purchase of Taxation Government and Corporate Bonds ------[Legal Person] Coupon/Interest on Government Bonds Taxation 0% 10% 0% 12% 9% 0% 10% 0% 0% (% marginal tax rate) [Natural Person] Coupon/Interest on Government Bonds Taxation - 100,000.00 - 120,000.00 90,000.00 - 100,000.00 - - (value) [Natural Person] Coupon/Interest on Government Bonds Taxation 10% 0% 0% 0% 9% 0% 16% 0% 0% (% marginal tax rate) [Legal Person]
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Coupon/Interest on Government Bonds Taxation 100,000.00 - - - 90,000.00 - 160,000.00 - - (value) [Legal Person] Coupon/Interest on Corporate Bonds Taxation 0% 10% 0% 12% 9% 10% 10% 15% 19% (% marginal tax rate) [Natural Person] Coupon/Interest on Corporate Bonds Taxation - 100,000.00 - 120,000.00 90,000.00 100,000.00 100,000.00 150,000.00 190,000.00 (value) [Natural Person] Coupon/Interest on Corporate Bonds Taxation 10% 10% 0% 0% 9% 10% 16% 15% 0% (% marginal tax rate) [Legal Person] Coupon/Interest on Corporate Bonds Taxation 100,000.00 100,000.00 - - 90,000.00 100,000.00 160,000.00 150,000.00 - (value) [Legal Person] Total withholding taxes on the Taxation Coupon/Interest of Government and - 200,000.00 - 240,000.00 180,000.00 100,000.00 200,000.00 150,000.00 190,000.00 Corporate Bonds [Natural Person] Total withholding taxes on the Taxation Coupon/Interest of Government and 200,000.00 100,000.00 - - 180,000.00 100,000.00 320,000.00 150,000.00 - Corporate Bonds [Legal Person] Capital Gain on Government Bonds (% Taxation 10% 10% 10% 12% 9% 7% 10% 0% 0% marginal tax rate) [Natural Person] Capital Gain on Government Bonds Taxation 100,000.00 100,000.00 100,000.00 120,000.00 90,000.00 70,000.00 100,000.00 - - (value) [Natural Person] Capital Gain on Government Bonds (% Taxation 10% 10% 10% 18% 9% 10% 16% 0% 21% marginal tax rate) [Legal Person] Capital Gain on Government Bonds Taxation 100,000.00 100,000.00 100,000.00 180,000.00 90,000.00 100,000.00 160,000.00 - 210,000.00 (value) [Legal Person] Capital Gain on Corporate Bonds (% Taxation 10% 10% 10% 12% 9% 7% 10% 15% 0% marginal tax rate) [Natural Person] Capital Gain on Corporate Bonds (value) Taxation 100,000.00 100,000.00 100,000.00 120,000.00 90,000.00 70,000.00 100,000.00 150,000.00 - [Natural Person] Capital Gain on Corporate Bonds (% Taxation 10% 10% 10% 18% 9% 10% 16% 15% 21% marginal tax rate) [Legal Person] Capital Gain on Corporate Bonds (value) Taxation 100,000.00 100,000.00 100,000.00 180,000.00 90,000.00 100,000.00 160,000.00 150,000.00 210,000.00 [Legal Person] Total taxes on the disposition/sale of Taxation Government and Corporate Bonds 200,000.00 200,000.00 200,000.00 240,000.00 180,000.00 140,000.00 200,000.00 150,000.00 - [Natural Person] Total taxes on the disposition/sale of Taxation Government and Corporate Bonds 200,000.00 200,000.00 200,000.00 360,000.00 180,000.00 200,000.00 320,000.00 150,000.00 420,000.00 [Legal Person] Fee Analysis Initial Issuance fees (Small Issue) 6,241.55 8,425.00 1,074.06 3,781.00 16,715.00 8,820.00 4,283.69 11,252.45 6,157.00 Fee Analysis Initial Issuance fees (Large Issue) 8,894.94 76,100.00 1,074.06 7,831.00 151,765.00 77,666.00 26,783.69 105,352.45 34,593.00 Fee Analysis Ongoing Fees (Small Issue) 1,750.00 2,125.00 511.00 2,130.00 8,000.00 650.00 549.00 500.00 10,000.00 Fee Analysis Ongoing Fees (Large Issue) 2,500.00 5,000.00 511.00 2,130.00 10,500.00 650.00 549.00 3,400.00 10,000.00 Fee Analysis Total Cost (Small Issue) 7,991.55 10,550.00 1,585.06 5,911.00 24,715.00 9,470.00 4,832.69 11,752.45 16,157.00 Fee Analysis Total Cost (Large Issue) 11,394.94 81,100.00 1,585.06 9,961.00 162,265.00 78,316.00 27,332.69 108,752.45 44,593.00 Direct Costs to a Natural Person of Fee Analysis 227,147.00 113,681.30 43,675.97 65,520.00 140,500.00 389,900.00 128,820.00 17,125.00 51,600.00 Trading Government Bonds Direct Costs to a Legal Person of Fee Analysis 227,147.00 113,681.30 43,675.97 65,520.00 140,500.00 389,900.00 128,820.00 17,125.00 51,600.00 Trading Government Bonds
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Direct Costs to a Natural Person of Fee Analysis 227,147.00 113,681.30 43,675.97 65,520.00 140,500.00 389,900.00 128,820.00 17,125.00 51,600.00 Trading Corporate Bonds Direct Costs to a Legal Person of Fee Analysis 227,147.00 113,681.30 43,675.97 65,520.00 140,500.00 389,900.00 128,820.00 17,125.00 51,600.00 Trading Corporate Bonds Indirect Costs to a Natural Person of Fee Analysis 1,250.00 1,000.00 12,500.00 5,000.00 2,500.00 2,500.00 500.00 1,000.00 7,500.00 Trading Government Bonds Indirect Costs to a Legal Person of Fee Analysis 1,250.00 1,000.00 12,500.00 5,000.00 2,500.00 2,500.00 500.00 1,000.00 7,500.00 Trading Government Bonds Indirect Costs to a Natural Person of Fee Analysis - 12,500.00 12,500.00 5,000.00 6,250.00 - 2,500.00 - 12,500.00 Trading Corporate Bonds Indirect Costs to a Legal Person of Fee Analysis - 12,500.00 12,500.00 5,000.00 6,250.00 - 2,500.00 - 12,500.00 Trading Corporate Bonds Settlement and Clearing Costs to a Fee Analysis Natural Person of Trading Government 42,750.00 82,500.00 515.34 1,825.00 65,000.00 50,800.00 2,650.00 5,687.50 1,240.00 Bonds Settlement and Clearing Costs to a Fee Analysis Legal Person of Trading Government 42,750.00 82,500.00 515.34 1,825.00 65,000.00 50,800.00 2,650.00 5,687.50 1,240.00 Bonds Settlement and Clearing Costs to a Fee Analysis Natural Person of Trading Corporate 42,750.00 82,500.00 515.34 1,825.00 65,000.00 50,800.00 2,650.00 5,687.50 1,240.00 Bonds Settlement and Clearing Costs to a Fee Analysis Legal Person of Trading Corporate 42,750.00 82,500.00 515.34 1,825.00 65,000.00 50,800.00 2,650.00 5,687.50 1,240.00 Bonds Safekeeping Costs to a Natural Person Fee Analysis 81,250.00 25,153.39 12,547.04 10,000.00 25,000.00 50,050.00 7,677.59 25,641.66 27,950.00 of Trading Government Bonds Safekeeping Costs to a Legal Person of Fee Analysis 81,250.00 25,153.39 12,547.04 10,000.00 25,000.00 50,050.00 7,677.59 25,641.66 27,950.00 Trading Government Bonds Safekeeping Costs to a Natural Person Fee Analysis 81,250.00 25,153.39 12,547.04 10,000.00 25,000.00 50,050.00 7,677.59 25,641.66 27,950.00 of Trading Corporate Bonds Safekeeping Costs to a Legal Person of Fee Analysis 81,250.00 25,153.39 12,547.04 10,000.00 25,000.00 50,050.00 7,677.59 25,641.66 27,950.00 Trading Corporate Bonds Tax Costs to a Natural Person of Fee Analysis 100,000.00 200,000.00 100,000.00 240,000.00 180,000.00 70,000.00 200,000.00 - - Trading Government Bonds Tax Costs to a Legal Person of Trading Fee Analysis 200,000.00 100,000.00 100,000.00 180,000.00 180,000.00 100,000.00 320,000.00 - 210,000.00 Government Bonds Tax Costs to a Natural Person of Fee Analysis 100,000.00 200,000.00 100,000.00 240,000.00 180,000.00 170,000.00 200,000.00 300,000.00 190,000.00 Trading Corporate Bonds Tax Costs to a Legal Person of Trading Fee Analysis 200,000.00 200,000.00 100,000.00 180,000.00 180,000.00 200,000.00 320,000.00 300,000.00 210,000.00 Corporate Bonds Total Trading Costs to a Natural Person Fee Analysis 452,397.00 422,334.69 169,238.34 322,345.00 413,000.00 563,250.00 339,647.59 49,454.16 88,290.00 of Trading Government Bonds Total Trading Costs to a Legal Person of Fee Analysis 552,397.00 322,334.69 169,238.34 262,345.00 413,000.00 593,250.00 459,647.59 49,454.16 298,290.00 Trading Government Bonds Total Trading Costs to a Natural Person Fee Analysis 451,147.00 433,834.69 169,238.34 322,345.00 416,750.00 660,750.00 341,647.59 348,454.16 283,290.00 of Trading Corporate Bonds Total Trading Costs to a Legal Person of Fee Analysis 551,147.00 433,834.69 169,238.34 262,345.00 416,750.00 690,750.00 461,647.59 348,454.16 303,290.00 Trading Corporate Bonds
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Direct Costs to a Natural Person of Fee Analysis 175,000.00 100,000.00 41,431.29 50,000.00 87,500.00 375,000.00 130,422.84 58,131.62 78,131.62 Trading Government Bonds Direct Costs to a Legal Person of Fee Analysis 175,000.00 100,000.00 41,431.29 50,000.00 87,500.00 375,000.00 130,422.84 58,131.62 78,131.62 Trading Government Bonds Direct Costs to a Natural Person of Fee Analysis 175,000.00 100,000.00 41,431.29 50,000.00 87,500.00 375,000.00 130,422.84 58,131.62 78,131.62 Trading Corporate Bonds Direct Costs to a Legal Person of Fee Analysis 175,000.00 100,000.00 41,431.29 50,000.00 87,500.00 375,000.00 130,422.84 58,131.62 78,131.62 Trading Corporate Bonds Indirect Costs to a Natural Person of Fee Analysis ------50.00 - - Trading Government Bonds Indirect Costs to a Legal Person of Fee Analysis ------50.00 - - Trading Government Bonds Indirect Costs to a Natural Person of Fee Analysis 1,750.00 1,000.00 375.00 500.00 875.00 3,750.00 1,250.00 150.00 350.00 Trading Corporate Bonds Indirect Costs to a Legal Person of Fee Analysis 1,750.00 1,000.00 375.00 500.00 875.00 3,750.00 1,250.00 150.00 350.00 Trading Corporate Bonds Settlement and Clearing Costs to a Fee Analysis Natural Person of Trading Government 42,750.00 82,500.00 515.34 1,825.00 65,000.00 50,800.00 2,650.00 5,687.50 1,240.00 Bonds Settlement and Clearing Costs to a Fee Analysis Legal Person of Trading Government 42,750.00 82,500.00 515.34 1,825.00 65,000.00 50,800.00 2,650.00 5,687.50 1,240.00 Bonds Settlement and Clearing Costs to a Fee Analysis Natural Person of Trading Corporate 42,750.00 82,500.00 515.34 1,825.00 65,000.00 50,800.00 2,650.00 5,687.50 1,240.00 Bonds Settlement and Clearing Costs to a Fee Analysis Legal Person of Trading Corporate 42,750.00 82,500.00 515.34 1,825.00 65,000.00 50,800.00 2,650.00 5,687.50 1,240.00 Bonds Safekeeping Costs to a Natural Person Fee Analysis 81,250.00 25,153.39 12,547.04 10,000.00 25,000.00 50,050.00 7,677.59 25,641.66 27,950.00 of Trading Government Bonds Safekeeping Costs to a Legal Person of Fee Analysis 81,250.00 25,153.39 12,547.04 10,000.00 25,000.00 50,050.00 7,677.59 25,641.66 27,950.00 Trading Government Bonds Safekeeping Costs to a Natural Person Fee Analysis 81,250.00 25,153.39 12,547.04 10,000.00 25,000.00 50,050.00 7,677.59 25,641.66 27,950.00 of Trading Corporate Bonds Safekeeping Costs to a Legal Person of Fee Analysis 81,250.00 25,153.39 12,547.04 10,000.00 25,000.00 50,050.00 7,677.59 25,641.66 27,950.00 Trading Corporate Bonds Tax Costs to a Natural Person of Fee Analysis 100,000.00 200,000.00 100,000.00 240,000.00 180,000.00 70,000.00 200,000.00 - - Trading Government Bonds Tax Costs to a Legal Person of Trading Fee Analysis 200,000.00 100,000.00 100,000.00 180,000.00 180,000.00 100,000.00 320,000.00 - 210,000.00 Government Bonds Tax Costs to a Natural Person of Fee Analysis 100,000.00 200,000.00 100,000.00 240,000.00 180,000.00 170,000.00 200,000.00 300,000.00 190,000.00 Trading Corporate Bonds Tax Costs to a Legal Person of Trading Fee Analysis 200,000.00 200,000.00 100,000.00 180,000.00 180,000.00 200,000.00 320,000.00 300,000.00 210,000.00 Corporate Bonds Total Trading Costs to a Natural Person Fee Analysis 399,000.00 407,653.39 154,493.67 301,825.00 357,500.00 545,850.00 340,800.43 89,460.78 107,321.62 of Trading Government Bonds Total Trading Costs to a Legal Person of Fee Analysis 499,000.00 307,653.39 154,493.67 241,825.00 357,500.00 575,850.00 460,800.43 89,460.78 317,321.62 Trading Government Bonds
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Federation of Bosnia and Republika North Section Item Bulgaria Croatia Montenegro Romania Serbia Slovak Republic Herzegovina Srpska (B&H) Macedonia (B&H) Total Trading Costs to a Natural Person Fee Analysis 400,750.00 408,653.39 154,868.67 302,325.00 358,375.00 649,600.00 342,000.43 389,610.78 297,671.62 of Trading Corporate Bonds Total Trading Costs to a Legal Person of Fee Analysis 500,750.00 408,653.39 154,868.67 242,325.00 358,375.00 679,600.00 462,000.43 389,610.78 317,671.62 Trading Corporate Bonds
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Appendix 2 – Bond Market Analysis Scoring Framework
Tier 1 Tier 2 Tier 3 Tier 4 Boolean Max Indicator Measurement Criteria Range Score Range Score Range Score Range Score Yes No COST EFFECTIVENESS Auction Fees 8 Electronic Auction Processing System Cost in € per annum €15,001 < 1 € 5,001 € 15,000 2 € 2,001 € 5,000 3 € 0 €2,000 4 4 Fees for the submission of bids Cost per bid in € €21 < 1 € 11 € 20 2 € 6 € 10 3 € 0 € 5 4 4 Corporate Bond Issuance Fees 36 Prospectus Approval Fee (Small Issue) Cost per issue in € € 5,001 €10,000 1 € 1,001 € 5,000 2 € 501 € 1,000 3 € 0 € 500 4 4 Prospectus Approval Fee Large Issue) Cost per issue in € €10,000 €50,000 1 € 2,001 € 10,000 2 € 1,001 € 2,000 3 € 0 €1,000 4 4 Prospectus Approval Fee Cap Yes / No 1 0 1 Stock Exchange Listing Fee (Small Issue) Cost per listing in € € 2,001 < 1 € 1,001 € 2,000 2 € 501 € 1,000 3 € 0 € 500 4 4 Stock Exchange Listing Fee (Large Issue) Cost per listing in € € 5,001 €10,000 1 € 2,001 € 5,000 2 € 1,001 € 2,000 3 € 0 €1,000 4 4 Stock Exchange Listing Fee Cap Yes / No 1 0 1 Stock Exchange Maintenance Fee (Small Cost in € per annum € 2,001 € 5,000 1 € 1,001 € 2,000 2 € 501 € 1,000 3 € 0 € 500 4 4 Issue) Stock Exchange Maintenance Fee Cost in € per annum € 5,001 €10,000 1 € 2,001 € 5,000 2 € 1,001 € 2,000 3 € 0 €1,000 4 4 (Large Issue) Stock Exchange Maintenance Fee Cap Yes / No 1 0 1 CSD Issuance Fee (Small Issue) Cost per issue in € € 2,001 € 5,000 1 € 1,001 € 2,000 2 € 501 € 1,000 3 € 0 € 500 4 4 CSD Issuance Fee (Large Issue) Cost per issue in € € 5,001 €10,000 1 € 2,001 € 5,000 2 € 1,001 € 2,000 3 € 0 €1,000 4 4 CSD Issuance Fee Cap Yes / No 1 0 1 Trading 36 Direct Costs 20 Stock Exchange Trading System Access Cost in € per annum €15,001 < 1 € 5,001 € 15,000 2 € 2,001 € 5,000 3 € 0 €2,000 4 4 Alternative Trading System (ATS) Access Cost in € per annum €15,001 < 1 € 5,001 € 15,000 2 € 2,001 € 5,000 3 €1 €2,000 4 4 Stock Exchange Trading Fees Cost per trade in € € 151 < 1 € 101 € 150 2 € 51 € 100 3 €0 € 50 4 4 ATS Trading Fees Cost per trade in € € 151 < 1 € 101 € 150 2 € 51 € 100 3 €1 € 50 4 4 Brokerage Fees Cost per trade in € € 2,001 < 1 € 1,001 € 2,000 2 € 501 € 1,000 3 €0 € 500 4 4 Indirect Costs 16 Bid Offer Spreads (Government) - Avg Spread in bps (on-the-run 251 < 1 101 250 2 51 100 3 0 50 4 4 Publicly traded 2,5,10yr bonds) Avg Spread in bps (on-the-run Bid Offer Spreads (Government) - OTC 251 < 1 101 250 2 51 100 3 0 50 4 4 2,5,10yr bonds) Bid Offer Spreads (Corporate) - Publicly Avg Spread in bps (on-the-run 251 < 1 101 250 2 51 100 3 0 50 4 4 traded 2,5,10yr bonds) Avg Spread in bps (on-the-run Bid Offer Spreads (Corporate) - OTC 251 < 1 101 250 2 51 100 3 0 50 4 4 2,5,10yr bonds)
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Settlement & Safekeeping 18 Settlement & Clearing 9 CSD clearing & settlement transaction Cost per trade in € € 21 < 1 € 11 € 20 2 € 6 € 10 3 €0 € 5 4 4 fees CSD clearing & settlement transaction Yes / No 1 0 1 fee cap Custodian Settlement Fees Cost per trade in € € 50 < 1 € 26 € 50 2 € 11 € 25 3 €0 € 10 4 4 Safekeeping 9 CSD Safekeeping fees Cost for portfolio in € per annum € 2,501 < 1 € 1,251 € 2,500 2 € 1,250 € 751 3 €0 € 750 4 4 CSD Safekeeping fee cap Yes / No 1 0 1 Custodian Safekeeping Fees Cost for portfolio in € per annum € 50,001 < 1 € 25,001 € 50,000 2 €12,501 €25,000 3 €0 € 12,500 4 4 Taxation 48 Transaction taxes 16 Purchase of Government Bonds Cost per trade in € € 21,000 < 1 € 11,000 € 20,000 2 € 1 € 10,000 3 € 0 € 0 4 4 (Individual) Purchase of Government Bonds Cost per trade in € € 21,001 < 1 € 11,000 € 20,000 2 € 1 € 10,000 3 € 0 € 0 4 4 (Corporate) Purchase of Corporate Bonds Cost per trade in € € 21,001 < 1 € 11,000 € 20,000 2 € 1 € 10,000 3 € 0 € 0 4 4 (Individual) Purchase of Corporate Bonds Cost per trade in € € 21,001 < 1 € 11,000 € 20,000 2 € 1 € 10,000 3 € 0 € 0 4 4 (Corporate) Withholding taxes 16 Coupon / Interest on Government Cost in € based on annual € < 1 €150,001 €200,000 2 €100,001 €150,000 3 € 0 €100,000 4 4 Bonds (Individual) portfolio coupon income 200,001 Coupon / Interest on Government Cost in € based on annual € < 1 €150,001 €200,000 2 €100,001 €150,000 3 € 0 €100,000 4 4 Bonds (Corporate) portfolio coupon income 200,001 Coupon / Interest on Corporate Bonds Cost in € based on annual € < 1 €150,001 €200,000 2 €100,001 €150,000 3 € 0 €100,000 4 4 (Individual) portfolio coupon income 200,001 Coupon / Interest on Corporate Bonds Cost in € based on annual €200,001 < 1 €150,001 €200,000 2 €100,001 €150,000 3 € 0 €100,000 4 4 (Corporate) portfolio coupon income Disposition / Sales taxes 16 Capital gain on Government Bonds Cost of annual profit on trades in €200,001 < 1 €150,001 €200,000 2 €100,001 €150,000 3 € 0 €100,000 4 4 (Individual) € Capital gain on Government Bonds Cost of annual profit on trades in €200,001 < 1 €150,001 €200,000 2 €100,001 €150,000 3 € 0 €100,000 4 4 (Corporate) € Capital gain on Corporate Bonds Cost of annual profit on trades in €200,001 < 1 €150,001 €200,000 2 €100,001 €150,000 3 € 0 €100,000 4 4 (Individual) € Capital gain on Corporate Bonds Cost of annual profit on trades in €200,001 < 1 €150,001 €200,000 2 €100,001 €150,000 3 € 0 €100,000 4 4 (Corporate) € Total 146
143
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Tier 1 Tier 2 Tier 3 Tier 4 Boolean Max Indicator Measurement Criteria Range Score Range Score Range Score Range Score Yes No ISSUANCE EFFICIENCY Auction Efficiency 16 Notification Time Number of days 0 7 1 8 14 2 15 30 3 30 < 4 4 Bidding Time Number of days 10 < 1 7 10 2 4 6 3 0 3 4 4 Award Time Number of days 10 < 1 7 10 2 4 6 3 0 3 4 4 Days (i.e. weekly, monthly, Auction Frequency 95 < 1 36 95 2 15 35 3 0 14 4 4 quarterly, etc.) Corporate Bond Issuance Efficiency 20 Shelf Registrations Allowed Yes / No 4 0 4 Prospectus Approval Time in Days 31 < 1 15 30 2 8 14 3 0 7 4 4 Credit Rating Time in Days 31 < 1 15 30 2 8 14 3 0 7 4 4 Listing Time in Days 31 < 1 15 30 2 8 14 3 0 7 4 4 Other Processes Time in Days 31 < 1 15 30 2 8 14 3 0 7 4 4 Total 36
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Appendix 3 – Bond Market Analysis Scores
Raw Scores
Cost Effectiveness
Srpska (B&H)
Federation of Bosnia and Herzegovina (B&H) Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic Max
Auction Fees 7 8 4 5 4 8 8 8 5 8 Electronic Auction Processing System 3 4 3 1 3 4 4 4 1 4 Fees for the submission of bids 4 4 1 4 1 4 4 4 4 4 Corporate Bond Issuance Fees 27 21 31 21 13 23 27 21 14 36 Prospectus Approval Fee (Small Issue) 2 1 4 3 0 1 2 1 3 4 Prospectus Approval Fee Large Issue) 2 0 4 4 0 0 1 0 4 4 Prospectus Approval Fee Cap 1 0 0 0 0 0 1 0 1 1 Stock Exchange Listing Fee (Small Issue) 4 4 4 1 4 4 3 3 1 4 Stock Exchange Listing Fee (Large Issue) 4 4 4 1 4 3 4 1 1 4 Stock Exchange Listing Fee Cap 1 1 0 1 0 1 0 1 1 1 Stock Exchange Maintenance Fee (Small Issue) 2 1 3 1 0 3 3 4 0 4 Stock Exchange Maintenance Fee (Large Issue) 2 2 4 2 0 4 4 2 1 4 Stock Exchange Maintenance Fee Cap 1 1 0 1 0 0 0 1 0 1 CSD Issuance Fee (Small Issue) 3 3 3 3 2 3 4 4 1 4 CSD Issuance Fee (Large Issue) 4 4 4 4 3 3 4 4 0 4 CSD Issuance Fee Cap 1 0 1 0 0 1 1 0 1 1 Trading 21 22 25 20 18 21 31 29 17 36 Direct Costs 5 6 17 8 5 5 15 13 9 20
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Stock Exchange Trading System Access 3 3 4 4 2 3 4 4 4 4 Alternative Trading System Access 0 0 3 0 0 0 4 1 1 4 Stock Exchange Trading Fees 1 1 3 1 1 1 3 4 1 4 ATS Trading Fees 0 0 4 0 0 0 3 0 0 4 Brokerage Fees 1 2 3 3 2 1 1 4 3 4 Indirect Costs 16 16 8 12 13 16 16 16 8 16 Bid Offer Spreads (Government) - Publicly traded 4 4 2 3 3 4 4 4 2 4 Bid Offer Spreads (Government) - OTC 4 4 2 3 4 4 4 4 2 4 Bid Offer Spreads (Corporate) - Publicly traded 4 4 2 3 2 4 4 4 2 4 Bid Offer Spreads (Corporate) - OTC 4 4 2 3 4 4 4 4 2 4 Settlement & Safekeeping 7 9 16 13 9 11 14 12 13 18 Settlement & Clearing 4 2 8 6 2 4 5 4 6 9 CSD clearing & settlement transaction fees 1 1 4 2 1 1 1 2 3 4 CSD clearing & settlement transaction fee cap 0 0 0 1 0 0 1 1 0 1 Custodian Settlement Fees 3 1 4 3 1 3 3 1 3 4 Safekeeping 3 7 8 7 7 7 9 8 7 9 CSD Safekeeping fees 1 4 4 2 4 4 4 4 4 4 CSD Safekeeping fee cap 1 0 0 1 0 1 1 1 1 1 Custodian Safekeeping Fees 1 3 4 4 3 2 4 3 2 4 Taxation 48 48 48 40 48 48 42 44 40 48 Transaction taxes 16 16 16 16 16 16 16 16 16 16 Purchase of Government Bonds (Individual) 4 4 4 4 4 4 4 4 4 4 Purchase of Government Bonds (Corporate) 4 4 4 4 4 4 4 4 4 4 Purchase of Corporate Bonds (Individual) 4 4 4 4 4 4 4 4 4 4 Purchase of Corporate Bonds (Corporate) 4 4 4 4 4 4 4 4 4 4 Withholding taxes 16 16 16 14 16 16 14 14 14 16 Coupon / Interest on Government Bonds (Individual) 4 4 4 3 4 4 4 4 4 4 Coupon / Interest on Government Bonds (Corporate) 4 4 4 4 4 4 4 4 4 4 Coupon / Interest on Corporate Bonds (Individual) 4 4 4 3 4 4 4 3 2 4 Coupon / Interest on Corporate Bonds (Corporate) 4 4 4 4 4 4 2 3 4 4 Disposition / Sales taxes 16 16 16 10 16 16 12 14 10 16 Capital gain on Government Bonds (Individual) 4 4 4 3 4 4 4 4 4 4 Capital gain on Government Bonds (Corporate) 4 4 4 2 4 4 2 4 1 4 Capital gain on Corporate Bonds (Individual) 4 4 4 3 4 4 4 3 4 4 Capital gain on Corporate Bonds (Corporate) 4 4 4 2 4 4 2 3 1 4 Cost Effectiveness Score 110 108 124 99 92 111 122 114 89 146
146
Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Issuance Efficiency Analysis
(B&H)
of Bosnia andof
Srpska
Federation Federation Herzegovina (B&H) Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic Max
Auction Timeline 12 12 14 12 14 13 14 12 13 16 Notification Time 2 2 2 1 2 1 2 1 2 4 Bidding Time 4 4 4 4 4 4 4 4 4 4 Award Time 4 4 4 4 4 4 4 4 4 4 Auction Frequency 2 2 4 3 4 4 4 3 3 4 Corporate Bond Issuance Timeline 13 14 16 13 14 11 10 9 13 20 Shelf Registrations Allowed 0 0 0 0 0 0 0 0 0 4 Prospectus Approval 2 2 4 1 3 1 2 1 3 4 Credit Rating 4 4 4 4 4 4 4 4 4 4 Listing 3 4 4 4 3 2 2 2 2 4 Other Processes 4 4 4 4 4 4 2 2 4 4 Issuance Efficiency Total 25 26 30 25 28 24 24 21 26 30
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Effectiveness and Efficiency of Debt Capital Markets – A Comparative Study
Weighted Scores
Cost Effectiveness
(B&H)
(B&H)
Srpska
Federation of Bosnia and Herzegovina Republika Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic Weights
Auction Fees 13 15 8 9 8 15 15 15 9 15 Corporate Bond Issuance Fees 30 23 34 23 14 26 30 23 16 40 Trading 9 9 10 8 8 9 13 12 7 15 Settlement & Safekeeping 6 8 13 11 8 9 12 10 11 15 Tax 15 15 15 13 15 15 13 14 13 15 Cost Effectiveness 73 70 81 64 52 73 83 74 55 100 Rank 5 6 2 7 9 4 1 3 8
Issuance Efficiency
H)
(B&
(B&H)
Srpska
ka
Federation of Bosnia and Herzegovina Republi Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovak Republic Weights
Auction Timeline 23 23 26 23 26 24 26 23 24 30 Corporate Bond Issuance Timeline 46 49 56 46 49 39 35 32 46 70 Issuance Efficiency Total 68 72 82 68 75 63 61 54 70 100 Rank 5 3 1 5 2 7 8 9 4
148
Appendix 3 – Table of Figures
Figure 1: Government Bond Yield Curves ...... 15 Figure 2: Corporate Bond Yield Curves ...... 16 Figure 3: Stock Exchange Listing Requirements ...... 17 Figure 4: Listed Bonds Outstanding (€mn) ...... 18 Figure 5: Listed Government Bonds Outstanding by Issuance Currency (€mn) ...... 18 Figure 6: Listed Corporate Bonds Outstanding by Issuance Currency (€mn) ...... 19 Figure 7: Bonds Traded on the Stock Exchange in 2018 (€mn) ...... 19 Figure 8: Government Bonds Traded on the Stock Exchange in 2018 by Issuance Currency (€mn) ... 20 Figure 9: Corporate Bonds Traded on the Stock Exchange in 2018 by Issuance Currency (€mn) ...... 21 Figure 10: Auction Type Matrix ...... 22 Figure 11: Auction Scheduling Type Matrix ...... 22 Figure 12: Total Number Days to Conduct and Auction (Chart and Data Table) ...... 23 Figure 13: Auction Processing System Cost Chart ...... 24 Figure 14: Auction Processing System Matrix ...... 24 Figure 15: Corporate Bond Issuance Requirements Matrix ...... 25 Figure 16: Average Number of Days to Issue a Corporate Bond (Chart and Matrix) ...... 26 Figure 17: Total Corporate Bond issuance Fees - Chart and Table (€) ...... 27 Figure 18: Small Corporate Bond Issuance Cost Breakdown – Chart and Table (€) ...... 28 Figure 19: Large Corporate Bond Issuance Cost (€) ...... 28 Figure 20: Trading Systems Availability Matrix ...... 30 Figure 21: Trading Systems Cost – Chart and Table (€) ...... 30 Figure 22: Publicly Traded Government Bond Spreads – Chart and Table (bps) ...... 31 Figure 23: Publicly Traded Corporate Bond Spreads - Chart and Table (bps)...... 32 Figure 24: OTC Government Bond Spreads – Chart and Table (bps) ...... 32 Figure 25: OTC Corporate Bond Spreads (bps) ...... 33 Figure 26: Direct Trading Fee Cost Per Transaction – Chart and Table (€)...... 34 Figure 27: Settlement Fees Per Transaction – Chart and Table (€) ...... 36 Figure 28: Safekeeping Fees Per Annum – Chart and Table (€) ...... 37 Figure 29: Withholding Tax Matrix (%) ...... 39 Figure 30: Taxes on Disposal / Sale Matrix (%)...... 40 Figure 31: Cost Effectiveness Rank ...... 41 Figure 32: Issuance Efficiency Rank ...... 42 Figure 33: Portfolio Cost to Natural Person – Chart and Table (€) ...... 43 Figure 34: Portfolio Cost to Legal Person (€) ...... 44
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