Participants in euro-denominated fixed income can now exchange and debate ideas affecting the market under the auspices of the Association des Marchés de Taux en Euro (AMTE), a central forum responsible for setting up working groups to address topical issues.
The AMTE, or Euro Debt Market Association, was formed in July 2002 but historically only addressed issues that affected the domestic French market. Now the association has internationalised its membership to represent the views of the euro-denominated fixed-income and derivatives markets. A new board has been formed and the membership has been extended to include eight investors and issuers.
“The common goal is to make the market more efficient and deeper and the association is therefore aiming at concrete actions to ensure the market’s development in terms of harmonisation and standardisation,” says René Karsenti, director-general of finance at the European Investment Bank and AMTE president.
Heinz-Wilhelm Fesser, head of fixed income Germany at DWS Investments and elected to the AMTE board, believes that the euro market poses many challenges due to its increasing size, not least countries’ own particular financial nuances and habits. “For a prosperous market environment, it is supportive to start discussions with all the different market participants across Europe on best practices,” he says.
The AMTE is hoping to solve this problem by having a Euroland focus for all parties involved, whether intermediaries, issuers or investors. What sets the AMTE apart from other best practice initiatives, such as the BVI, a body that represents German institutional investors, or the Group 26, a pressure group set up to improve bondholder terms, is that the AMTE stretches across the whole spectrum of the fixed-income markets and, more importantly, encourages European countries to work together to achieve reasonable solutions.
The association operates on a principle of subsidiarity, where it will try not to overlap or duplicate the work done by other associations. “As soon as we are interested in one subject, we first examine what other associations have done. It is possible that we could share a theme or way of thinking with another association, such as the BVI,” says Valérie Blanchin, AMTE’s secretary-general.
The AMTE aims to position itself as an intermediary, encouraging dialogue between market participants in an effort to find ways to improve conditions in the market. “On certain aspects, you will get opposing views, but if you do not express them then how can you expect things to improve. If you do not debate, then nothing will happen,” says Jean-François Boulier, head of euro fixed-income and credits at Crédit Agricole Asset Management (CAAM) and secretary of the AMTE.
The new AMTE board held its first official meeting on September 23 and selected three themes of work to support the development and efficiency of the euro debt markets. Two working groups are planned for this month, looking at infrequent issuers and the inflation-linked market and a third is earmarked for December on the subject of covered bonds.
The case study on infrequent issuers is aimed at establishing certain standards across the market. It was chaired by Peter Wahlburg, head of credit research at DWS on November 4. “We will recommend guidelines and standards to follow, for instance with regard to transparency and disclosure, and also look at credit research, covenants and liquidity,” says René Karsenti. He explains that other markets will be reviewed for benchmarking purposes, but not copied, and that the association will apply whatever it learns from these reviews to the euro market.
At the time of press and before the groups had sat down at the table, the AMTE board was in the process of finalising the composition of the group and negotiating with corporate issuers to join in the discussions. For Valérie Blanchin, sovereign and agency issuers are blazing a trail for other borrowers to follow, but this is in stark contrast to the corporates which are more concerned with their own strategies. “We have not found many that are leading the way for other corporates: they have more of a free-rider behaviour. We are nonetheless confident that the association could provide over time an efficient platform and forum for corporates to contribute in improving the euro debt markets,” she says.
The inflation-linked product working group, to be chaired by Guillaume Amblard, head of inflation, options and structured products at BNP Paribas, also has an agenda of standardisation and promotion. Attendees will include asset managers, issuers, banks, official publishers of the inflation indices and regulatory bodies.
A principal aim is to increase liquidity by lifting barriers of entry, such as regulatory, fiscal, accounting and legal obstacles. Because of such constraints, many French, German and Spanish investors are limiting their use of inflation-linked products. At the same time, corporate issuers are restricted by the way IAS treats inflation-linked products. The AMTE inflation group will liaise with regulatory bodies to propose changes as well as to clarify the impact of these constraints.
“We will be making pragmatic recommendations that can offer quick solutions. This will be a good opportunity to broaden the investor and issuer base,” says Amblard.
A third working group has been pencilled for December after the board convenes its next meeting and Karsenti explains this is aimed at improving the harmonisation of the covered bonds market. “We will discuss measures to enhance the market and overcome disparities across the domestic markets,” he says. Boulier adds that it will not be an issuer versus market debate, but more about national organisation and breaking down the barriers between different countries’ markets.
More working groups are set to follow. Blanchin says that when the initial list was drawn up following a thorough consultation among AMTE members and other market participants, the board had a catalogue of about 80 themes to go under the spotlight, which was whittled down to a first selection of 25.
“We are working in a very big and young market. And although the achievements of five-year-old euro markets have been already very impressive in terms of size, efficiency and new products, we are looking forward to further achievements to be done in order to create a real industry of the euro debt markets,” says Blanchin.
AMTE is still receptive to new members and Blanchin says the asset manager community is one group with which the association is working hard to strengthen ties. “Discussions are continuing, particularly with insurance companies. And it would be useful to have other large players included, such as hedge funds, as they are turning over volumes very fast and are very influential for market movements. We have been looking to invite a number of UK-based hedge funds,” she says.
On the issuer side, most of the largest sovereign and quasi-sovereign borrowers are on board, but one priority for AMTE, says Blanchin, is to include more corporates, not just those domiciled in Europe but global companies that are frequent issuers in the euro-denominated market.
There is an air of optimism within the AMTE and though Karsenti stresses that the association is ambitious, the members are keen not to make the mistake of trying to take on too many projects. This is why the association has started with just three items on the agenda. “We are providing an important contribution by taking concrete steps to enhance the market,” he says.
Though Blanchin says that it will be hard trying to build a consensus among the differing groups – buy side and sell side – she is still optimistic of finding consensus in the short to medium term. “The proof is the willingness of the various participants from both sides of the market to group together in our association. Decisions will be made through the unanimity of issuers, intermediaries and investors who are all represented on our board,” she says.
Karsenti believes that AMTE’s history in the French market, where working procedures were laid out for primary dealers in France on the repo market, bodes well for the future. “We have achieved results and contributed to the enhancement of the market, so we expect something similar to occur here,” he says.
Intermediaries ABN Amro, Barclays Bank, BNP Paribas, Calyon, CDC Ixis, Citigroup, Credit Suisse First Boston, Deutsche Bank, Dresdner Bank, Goldman Sachs, HSBC, HVB, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Natexis Banques Populaires, Nomura, Société Générale, Royal Bank of Scotland, UBM, UBS, Viel & Cie
Italics: new members