The FICC Markets Standards Board published its proposed new standard for debt issuance on November 18 and has invited market participants to comment by January 17, 2017.
The proposals would apply to issuers, underwriters and investors across all syndications of credit products in the European market, including investment grade, high yield, securitised and emerging market debt. They aim to bring new clarity in how bonds are marketed and sold, by introducing several measures not currently adopted across the industry.
Robert Rooney, chair of the FMSB’s fixed income, spreads sub-committee and the chief executive of Morgan Stanley International, told FN: “There’s always been controversy around aspects of the new issue process, allocation being the one most regularly in the news. We decided that diving into this you couldn’t only focus on allocations – you had to go from the beginning to the end of the process. So we tried to break down the new issues into its basic bits and build it back up, trying to make the output more effective and fairer.”
Among the proposals are a suggestion that banks and issuers should set out their preferences for which investors the bonds should be allocated to, at the time of a mandate.
Another proposal is that a bank’s allocation policies should be made available to all market participants, including details of how they select investors for market soundings and roadshows.
The standard also proposes that issuer preferences should take priority in the allocation process, and that investors themselves should only put in orders that are “a true reflection of their demand”.
To give investors enough time to collate their demand for a trade, the standard encourages the “best practice” of not making “significant changes” to issue terms during the final 15 minutes of the bookbuild, rather than making last-minute changes to pricing or issuance size.
Finally, the FMSB wants to see lead banks sending out statistics on the transaction “on a public basis and not selectively”.
Rooney said some of the proposals could be significant changes for banks running deals.
He said: “Most banks have allocation policies, certainly the big ones. But I think very few make their allocation policies publicly available. I think far fewer have detailed policies around the marketing stage, meaning roadshows and one-on-ones. We put both in there because we think there could be a perception that people who get one-on-ones might have a better shot at allocations. Banks who don’t have marketing policies or have them scattered about are going to have to pull them together.”
Rooney added that encouraging sellside banks and issuers to come together to draw up a public strategy for an issuance was another important shift: “That comes out of the fact that we’re trying to make sure investors know what they’re getting into ahead of the deal. They can see in advance, based on who the leads are and issuer is, the principles by which this deal with be marketed and allocated.”
In October, FN revealed that the UK’s Investment Association had sent a letter to several investment banks and the Association for Financial Markets in Europe voicing concerns about some investors receiving too great a “pre-sounding” advantage before new asset-backed securitisation deals are launched.
The IA said that having a smaller pool of buyers for issues could lessen trading volumes and so threaten secondary market liquidity.
UPDATE: This story has been updated with comments from Robert Rooney, chair of the FICC Markets Standards Board’s fixed income, spreads sub-committee and the chief executive of Morgan Stanley International. A reference to the FMSB as a trade body has also been corrected to describe the organisation as a standard setter