FICC Markets Standards Board proposes greater transparency in new issue process for debt

London, 18 November 2016. Banks should be more transparent about their allocation policies and investors should make sure their orders are a true representation of their demand, according to a proposed new standard on corporate and other debt issues from the FICC Markets Standards Board (“FMSB”).

The New Issue Process Standard for the Fixed Income Markets sets out a range of improvements to the new issue process in the European market, from the granting of a mandate to publication of statistics.

The standard, which is being published as a transparency draft for comment, builds on the ICMA code for investment grade debt but would apply to all widely syndicated offerings of credit products in the wholesale markets, including investment grade, high yield, securitization and emerging market debt.

The standard is the third to be published by the FMSB, following earlier standards on Reference Price Transactions and Binary Options in the commodities markets.

Mark Yallop, Chair of the FMSB, said:
“This standard is the result of a unique joint effort by corporate users of the market, institutional investors and underwriting banks to bring greater clarity to the process for issuing debt and ensure it works fairly and effectively for all concerned.  We believe it is a significant step in raising standards.” 

Robert Rooney, Chief Executive of Morgan Stanley International and chair of the FMSB’s Fixed Income, Spread Products sub-committee, said:
“These proposals are aimed at the wholesale fixed income markets in Europe but over time we think market pressures will lead to this standard being adopted more broadly internationally. This is what good practice looks like whatever part of the world you are in.”

Russell O’Brien, Group Treasurer, Royal Dutch Shell and FMSB Board Member, said: “Corporates issuing debt in the fixed income markets will welcome having greater clarity and transparency in the process.  We would like to see all our syndicate banks and investors adopting this standard.”

The new standard is applicable to all the main participants in the wholesale fixed income markets in the Europe, including issuers, investors and underwriting banks.  Although initially the standard will be adopted by FMSB members in respect of issues in the European markets, the expectation is that primary markets participants in other jurisdictions will adopt the standard over time.

The main proposals in the standard are that:

  • Banks’ allocation policies should be made available to market participants.
  • Issuer preferences in the allocation process should take priority.
  • When a mandate is granted, the lead banks and issuer should agree a document setting out the issuer’s aims for the transaction and how the banks will achieve that, including allocation preferences and marketing strategy.
  • Banks should disclose to the market their policy on how they select investors for market soundings and investor roadshows.
  • Lead banks should agree a strategy on book disclosure frequency with the issuer. Book updates should be disclosed publicly and should not be misleading.
  • Investors need time to collate their demand for a transaction.  It is best practice not to make significant changes to indicative issue terms or publicise the order book size during the last 15 minutes of the bookbuild.
  • Investors should put in orders which are a true reflection of their demand and should not be misleading.

The FMSB is seeking comment from interested parties on the New Issue Process Standard for the Fixed Income Markets over the next two months.  Submissions should be sent to standards@fmsb.com by midday (12:00pm GMT), 17 January, 2017.  A final version of the standard will be published by the FMSB after evaluating public comments.

Final versions of the FMSB standards on Reference Price Transactions and Binary Options in the commodities markets have now been posted on the FMSB website at http://www.fmsb.com/standards/ following the period for comment.

– ENDS –

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Sehr Sarwar
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Notes to Editors: 

1) The Fixed Income, Currency and Commodities or FICC Markets Standards Board (“FMSB”) is an independent body set up by market practitioners to improve standards of conduct in wholesale FICC markets. It aims to bring transparency to grey areas in the wholesale FICC markets by documenting existing practice and agreeing standards to improve conduct and market behaviour. Ensuring that wholesale FICC markets are transparent, fair and effective is at the heart of the FMSB’s mission.

2) Setting up the FMSB was one of the main recommendations to emerge from the Fair and Effective Markets Review (“FEMR”), which was conducted by HM Treasury, the Bank of England and the Financial Conduct Authority and reported in June 2015. The FEMR was launched in June 2014 to reinforce confidence in wholesale Fixed Income, Currency and Commodities markets in the wake of the serious misconduct seen in recent years.

3) The FMSB has a high-level Standards Board drawn from senior executives from across wholesale markets, from corporate clients, other market users such as asset managers and asset owners, and infrastructure providers such as exchanges and custodians. Reporting to the Standards Board are standing sub-committees addressing Market Practices, Codes & Standards Convergence and Conduct & Ethics. The Market Practices sub-committees are split into 4 asset-class specific committees. There is also an Advisory Council representing the interests of member firms.

4) The FMSB’s 38 members and 5 standing guests bring together sellside investment banks, buyside asset managers, exchanges, custodians and users of the market such as corporates. They are:

Member Firms:
Aberdeen Asset Management; Allianz Global Investors; Bank of America Merrill Lynch; Bank of New York Mellon; Barclays; BlackRock; Bloomberg; BNP Paribas; Citi; CQS; Crédit Agricole CIB; Credit Suisse; Deutsche Bank; Deutsche Börse Group; Goldman Sachs; HSBC; ICAP; J.P. Morgan; Legal & General Investment Management; Linklaters (Legal Advisor); Lloyds Banking Group; London Stock Exchange Group; M&G Investments; Morgan Stanley; Nomura; PGGM; RBS; Royal Dutch Shell; Scotiabank; Société Générale; Standard Chartered; Standard Life Investments; State Street; Thomson Reuters; Tradeweb; Unilever; UBS; Vodafone.

Standing Guests:
Association of Corporate Treasurers; Banking Standards Board; Hedge Fund Standards Board; KPMG; Oliver Wyman.

A full list of Advisory Council representatives and Standards Board members, can be found here: 16-11 FMSB Member List