By Axel Reiserer
A new report, published May 21, has called for substantial reforms of debt capital markets in central and south-eastern Europe in order to improve their cost-effectiveness and the efficiency of bond issuances.
The study finds “a number of factors that every country should consider” after examining the markets in Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, North Macedonia, Romania, Serbia and the Slovak Republic by using, for the first time, standardised models to ensure that each market was compared on equal terms.
The coronavirus pandemic has resulted in unprecedented demand for emergency financing. Coping with the immediate crisis and its aftermath highlights the need for effective and efficient debt capital markets. In order to improve their performance the report makes the following recommendations:
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 issuances) 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 or central banks should consider providing more consistency and notice to the market to facilitate greater participation from retail investors.
Regulators should consider providing prospectus templates which can be used as benchmarks. 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.
The report, “Effectiveness and efficiency of debt capital markets – a comparative study”, is based on 2018 data and was put together by InvestorConnected, a UK consultancy. It was commissioned by the EBRD Local Currency and Capital Markets Development team with the support of the EBRD Shareholder Special Fund. Similar reports on other debt capital markets in the economies where the Bank invests are under preparation.
