QUARTERLY ASSESSMENT OF MARKET PRACTICE AND REPORT REGULATORY POLICY INSIDE: PROGRESS IN TRANSITIONING TO RISK-FREE RATES OPPORTUNITIES FOR DEEPENING CAPITAL MARKETS UNION INITIATIVES ON SUSTAINABLE FINANCE 10 January 2020 First Quarter. Issue 56. Editor: Paul Richards SECTION TITLE The mission of ICMA is to promote resilient and well-functioning international and globally integrated cross-border debt securities markets, which are essential to fund sustainable economic growth and development. ICMA is a membership association, headquartered in Switzerland, committed to serving the needs of its wide range of members. These include public and private sector issuers, financial intermediaries, asset managers and other investors, capital market infrastructure providers, central banks, law firms and others worldwide. ICMA currently has over 580 members located in 62 countries. ICMA brings together members from all segments of the wholesale and retail debt securities markets, through regional and sectoral member committees, and focuses on a comprehensive range of market practice and regulatory issues which impact all aspects of international market functioning. ICMA prioritises four core areas – primary markets, secondary markets, repo and collateral markets, and the green and social bond markets. 2 | ISSUE 56 | | icmagroup.org First Quarter 2020 SECTION TITLE FEATURES: Progress01: in Opportunities02: for Initiatives03: on transitioning to deepening Capital sustainable risk-free rates Markets Union finance CONTENTS 4 MESSAGE FROM THE CHIEF 37 ICMA Primary Market Handbook 68 ASSET MANAGEMENT EXECUTIVE changes 68 Fund liquidity 4 Reflections on an exceptionally busy 38 Asset-Backed Commercial Paper 69 The IOSCO leverage recommendations year for ICMA 39 ICMA Primary Market Forum 70 ELTIFs 71 The ESAs’ review of PRIIPs: 6 QUARTERLY ASSESSMENT 40 SECONDARY MARKETS the buy-side view 6 The transition from LIBOR to 40 A consolidated tape for EU bond 71 AMIC Sustainable Finance risk-free rates: legacy bonds markets Working Group 43 MiFID II/R: ESMA guidance in the 71 Other buy-side regulatory 13 INTERNATIONAL CAPITAL fourth quarter of 2019 developments MARKET FEATURES 45 CSDR mandatory buy-ins: ICMA’s 73 Buy-side oriented research 13 Key publications on the global implementation work 75 AMIC Conference transition to risk-free rates 46 Updated ETP mapping directory 20 Putting the capital in the European 46 Recent secondary market research 76 INTERNATIONAL REGULATORY Capital Markets Union 47 ICMA Secondary Market Forum DIGEST 22 MiFID II/R and the bond markets: 48 ICE Data Services Corporate Bond 76 G20 financial reform developments the second year Market Liquidity IndicatorsTM 80 European financial reform 24 CSDR impact study on mandatory developments buy-ins 49 REPO AND COLLATERAL MARKETS 83 Macroprudential risk 27 An overview of EBRD’s pioneering 49 SFTR implementation 90 The transition to risk-free rates: green bond programme 50 European Commission consultation other recent publications on Basel III 92 Credit rating agencies 28 INTERNATIONAL CAPITAL 51 Other repo and collateral regulatory 92 OTC (derivatives) regulatory MARKET PRACTICE AND developments developments REGULATION 52 Recent repo and collateral research 94 Market infrastructure 28 Summary of practical initiatives 52 ICMA ERCC AGM by ICMA 53 Master Regulatory Reporting 97 FINTECH IN INTERNATIONAL 31 ICMA’s approach to Brexit Agreement CAPITAL MARKETS 54 The registration and depository system 97 FinTech regulatory developments 32 PRIMARY MARKETS in China’s bond market 101 DLT-related legislation and regulatory 32 The EU Prospectus Regulation: six frameworks months in 57 GREEN, SOCIAL AND 34 Other issues impacting prospectus SUSTAINABILITY BOND MARKETS 104 ICMA CAPITAL MARKET disclosure 57 Green, social and sustainability RESEARCH 35 The new Swiss prospectus regime: bond market developments a practical guide 60 European Action Plan on 105 ICMA EVENTS AND EDUCATION 36 The ESMA market abuse Sustainable Finance consultation 65 Asia-Pacific SDG/ESG survey: 108 GLOSSARY 37 The ESAs’ consultation on the overview and key takeaways PRIIPs KID 37 The IOSCO consultation on conflict in debt capital raising This newsletter is presented by the International Capital Market Association (ICMA) as a service. The articles and comment provided through the newsletter are intended for general and informational purposes only. ICMA believes that the information contained in the newsletter is accurate and reliable but makes no representations or warranties, express or implied, as to its accuracy and completeness. ICMA welcomes feedback and comments on the issues raised in the Quarterly Report. Please e-mail: [email protected] or alternatively the ICMA contact whose e-mail address is given at the end of the relevant article. © International Capital Market Association (ICMA), Zurich, 2020. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission from ICMA. Published by: Corporate Communications, International Capital Market Association Limited, 23 College Hill, London EC4R 2RP Phone: + 44 207 213 0310 [email protected] 3 | ISSUE 56 | | icmagroup.org First Quarter 2020 MESSAGE FROM THE CHIEF EXECUTIVE Reflections on an exceptionally busy year for ICMA By Martin Scheck Let me start by thanking all of you for your support last As far as the transition to risk-free rates is concerned, we year, through your membership, active participation on our are directly involved in the risk-free rate working groups committees and councils, and support of our many events. of the UK, the euro area and Switzerland and have regular I would also like to thank specifically the ICMA Board for calls with the ARRC in the US. Our focus is on the bond their time, support and guidance over the year, and our markets, where we continue to chair the sterling bond dedicated and experienced staff for all their efforts and market transition group, working with the FCA and the continual sheer hard work. Bank of England. The transition from the IBORs to risk-free rates is complex and far-reaching and, whilst adoption of ICMA’s resources are deployed in four major areas: the the new risk-free rates in the bond market is going well in primary markets, secondary markets, repo and collateral many jurisdictions (and extremely well in the GBP market), and sustainability. In each area, we focus on the market as the legacy problem is not yet solved. We have commented a whole, involving the sell side and the buy side together. on the transition widely in the Quarterly Report, through We also focus on the impact of new financial technology a series of member calls in Europe and Asia and in many across these areas and on helping avoid unnecessary committee meetings and individual member discussions. market fragmentation. This will continue to be a dominant theme for at least the Last year there were four overriding themes – next two years. sustainability, the transition from IBORs to risk-free In December, the UK held a general election which has rates, Brexit and continuing market access, and FinTech. clarified the UK’s position on Brexit. ICMA is not of course All will affect the way our members do business in the involved in politics. Our focus has been on the potential capital market, and so our engagement on their behalf is market impact of Brexit, where we have updated our necessarily extensive. members regularly on the situation as it emerges, both Sustainability emerged at or near the top of the agenda as regards the market impact of so-called cliff-edge risks for the public and politicians in most countries last year, when passporting rights between the EU27 and the UK with increasing demand for private sector financing for the cease, and the scope for regulatory equivalence after changes we need to make. Whilst we continue to oversee Brexit. It would appear that most of our major buy and the evolution of the Green and Social Bond Principles sell-side members are now set up and authorised so as to through our work as the secretariat for the growing GBP/ be able to serve clients in both the EU27 and the UK, but SBP community, ICMA’s overall engagement now runs even nevertheless smaller members may not yet be ready. We deeper. We are a member of the European Commission’s will continue our work on Brexit as long as necessary. Technical Expert Group and have been involved in the In the fast-changing domain of FinTech, which is rapidly development of both the new European taxonomy and the reshaping our market, we have chosen initially to help our EU green bond standard. ESG disclosure is an increasingly members by providing information on what solutions are important topic for our buy-side members and also for our commercially available to them - through our mapping issuer community. We are committed to playing a full role in directories in the primary and secondary markets and in the globally coordinated development of green and social repo operations and by promoting information exchange finance, working on definitions and market practice in many between FinTech providers and members at meetings different jurisdictions with members and the authorities - and conferences. We have also built relationships with China, ASEAN, Japan, Russia, India, and the US as well as a broader set of relevant regulators and are keenly Europe, promoting the sector at events across the world monitoring international developments in this area. A and offering education courses. 4 | ISSUE 56 | | icmagroup.org First Quarter 2020 newly established FinTech committee of members will help allows more junior fixed income professionals to connect guide our future efforts. with a mentor, has seen a corresponding uptick and the metrics from our social media accounts also show that Aside from these major themes, the important day-to- more of you are choosing to interact with us through them. day work with our members continues. For example, the advocacy and education around the impact of the In Asia-Pacific, the fastest growing of our regions, we mandatory buy-in regime under CSDR has been augmented welcomed to ICMA a number of significant new members with a new impact study.