ECSDA raises concerns on EDDI & suggests a solution to increase depth of issuance in EU

ECSDA raises concerns on EDDI & suggests a solution to increase depth of issuance in EU

On 9 July 2019, ECSDA responded to the ECB public consultation on EDDI (European Distribution for Debt Instruments) initiative.

ECSDA welcomes the ECB market consultation on its possible European Distribution of Debt Instruments (EDDI) initiative. ECSDA is committed to further foster the Capital Markets Union (CMU) initiatives and underlines its commitment to increased efficiency in the issuance of debt instruments. CSDs strongly support harmonisation, particularly when enabled by market-led initiatives. Although following discussions and workshops with the ECB and based on the content of the market consultation document, ECSDA believes that several concerns need to be addressed before any decision is made with regard to EDDI.  In particular, ECSDA would like to highlight the following points:

  1. Substantiation and quantification of market demand;
  2. Definition of scope and value proposition;
  3. Compatibility with the ongoing and planned EU CMU and post-trade policy agenda implementation;
  4. Need for a further investigation of the compatibility of different ECB roles;
  5. Compatibility of the need of a “neutral” party with competitive pre-issuance and post-trade markets;
  6. Compatibility of CMU objectives with potential weakening of the infrastructure efficiency for equity, local issuers and local investors;
  7. Compatibility of EDDI with T2S objectives and priorities; and
  8. Complex legal, contractual, and regulatory challenges.

Due to the above-mentioned concerns, ECSDA believes that in the shape it is currently designed, EDDI is not the appropriate solution for the problem indicated in the Eurosystem’s consultation. We recommend considering the above-mentioned concerns before any further decision on EDDI is proposed.

ECSDA believes that the path to further scalability for issuers and enhancing efficiency and depth of issuance across different EU markets is a coherent legislative and fiscal environment across EU. Efficient market practices established at national level may meet specific needs of relevant actors and support issuance of securities in the local market according to the local requirements and expectations. The tax framework applicable to debt issuance remains an element of significant divergence. Though governments use withholding tax applied to debt proceeds for their national budget, ECSDA recommends that the new European Commission identify a path in this area for further harmonisation (without imparting to this national area of responsibility, if there is no such political will). A similar reasoning is applicable to the securities law domain, where harmonisation would be a major catalyst to cross-jurisdictional issuance.  Without such harmonisation, actions undertaken by commercial or public actors will not bring substantial benefits.

We are persuaded that a coherent and harmonised legislative and fiscal framework would be central to the success of the Financial Market and CMU. ECSDA will remain a proactive contributor to the dialogue with policymakers.

ECSDA’s full response can be found here.

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