Securities Issuance Consortium

The founding principle of this working group is to provide a collaborative and innovative space for the securities issuance markets to evolve towards their future state.

The consortium notes that only 15% of European issuer and 3% of Asian issuer 144As are currently set up within the XS Eurobond ISIN (ICSD) structure, despite the following benefits.

• An XS 144A converts into an XS REG-S security up to 57% faster than if the 144A used a more traditional US ISIN. This boosts liquidity and reduces settlement risks.
• Only XS ISIN securities offer collateral eligibility with the ECB.
• Using only one security depository for both REG-S and 144A issues means halving the time of review for security admission and eligibility and equally reduces the work done by agent banks and counsels. It also eliminates delays that occur from having a security operating within US time zones.

Regulation S and Rule 144A securities are both exempt from Securities and Exchange Commission (SEC) registration under the US Securities Act of 1933. Bonds can be issued under one or another exemption, and often a bond issue will be issued under both Reg S and Rule 144A.

Group findings in relation to innovating the REG-S/144A conversion process

• All issuer legal documentation can be easily changed to support 144A tranches settling within the ICSDs as XS ISINs.
• All major investors have ICSD accounts (either directly or indirectly).
• US agent banks are very open to the idea of removing their Medallion Stamp requests which speeds up US security conversions (an area fors continued group action).
• Third party legal firms and data vendors also have an interest in more efficient conversions and security representation in general.

Rather than having to allocate two distinct ISIN codes, the Unitary ISIN represents one single global security in registered form which is deposited at an ICSD Common Depository. The advantages include less administration, higher liquidity and no conversion processing. 

Group findings in relation to using a Unitary ISIN

• The Unitary ISIN (representing a single global security in registered form which is deposited with the ICSDs) is increasingly popular and most importantly removes the need for REG-S/144A conversions all together.
• Liquidity is maximised within a Unitary ISIN. There is no arbitrage or mispricing, as when using two ISINs.
• Security administration is absolutely minimal and distribution to investors is easy.
• The ICSDs can operationally accept a single ISIN approach and frequently do.
• Hundreds of active Unitary ISIN securities have been issued over the past years, with 45% coming from Corporate/Financial issuers and 55% coming from Sovereign issuers. Typical issue sizes range from USD 1 Million to USD 1 Billion.
• Many agent banks advocate for increasing adoption of the Unitary ISIN as their processing time is halved for data entry, issuance, billings and payments.
• Agent banks have no requirement to provide the investor holdings split to the ICSDs, or state what investors sit within settlement systems.
• Investors should always be made aware that they are buying Unitary notes and that they must adhere to the regulations in place.
• Lead managers may decide to update their agreements with institutional buyers to ensure that transfer restrictions are observed by them.

The consortium also promotes change within the paying agent community and the operational processes that are undertaken in conversions. This aims to boost the speed of all conversions:

Trustee exhibits
Goal: The consortium seeks to either remove exhibits completely or standardise them. Unnecessary exhibits are delaying conversions and are provided in a non-standard format. Our members suggest developing a standardised exhibit template.

Chill periods
Goal: The consortium wants to work with the industry to promote the proper application of chill periods. Paying agents can incorrectly quote a "coupon chill" during which conversions are halted. The group encourages agents to act with discretion and review wording and processes in detail.

Medallion Stamp
Goal: The consortium seeks the removal of the stamp for European transactions. A few agent banks have led the way and removed it already. The consortium seeks industry wide removal as the extra work involved in obtaining the signed stamp adds to the timeframe on transfers.