The pan-European exchange is calling on Brussels to open up the market for the listing and custody of NextGenerationEU issues, which until now has been handled by the Luxembourg Stock Exchange and Clearstream. Euronext, which now owns the MTS trading platform, is highlighting its ability to boost the secondary market to convince the European Commission to use its range of services. The Luxembourg Stock Exchange is playing the historical legitimacy card.
Euronext wants to play a full part in the European Commission's ecosystem of obligations, in terms of trading, custody and listing.
The issue is of course economic, since NextGenerationEU (NGEU), the recovery plan designed to bring Europe out of the health crisis, will be financed between now and 2026 by some 800 billion euros of issues, including 30% of green bonds. 150 billion per year, through syndication or auction.
But these loans, made by the executive branch of the European Union, also have a strategic and marketing dimension for market companies. This is illustrated by the strong communication from the Luxembourg Stock Exchange, where NGEU securities are currently listed, on the occasion of the listing of the very first green European bonds last Tuesday. Having the European Commission as a client means having a first-class reference to convince the many private issuers of international bonds.
Prime Minister Xavier Bettel
The highly symbolic "Ring the bell ceremony" took place in the Grand Duchy in the presence of the European Commissioner for Budget and Administration, the Austrian Johannes Hahn, as well as Xavier Bettel, the Luxembourg Prime Minister in person. It is usually the Minister of Finance, Pierre Gramegna, who represents the government at this type of event.
To convey its message and mark its territory, the Luxembourg Stock Exchange has multiplied its tweets and retweets.
Today, @JHahnEU and I 'rang the bell' at the @LuxembourgSE, celebrating the listing of the very first #NextGenerationEU Green Bond.
I am proud of my country for being at the forefront of #GreenFinance, and thus contributing to a sustainable recovery in Europe and beyond. 🇱🇺🇪🇺 pic.twitter.com/8fnmm2IcGi- Xavier Bettel (@Xavier_Bettel) October 19, 2021
The @LuxembourgSE is an important partner for us. All of our bonds are listed here. With the issuance of the #NextGenerationEU #GreenBond our partnership continues to grow with the @LuxembourgSE being a hub for sustainable finance. 3/3
- Johannes Hahn (@JHahnEU) October 19, 2021
Euronext, which is presenting its 2024 strategic plan next month, does not intend to play the spectator on these issues. For several months now, the pan-European stock exchange has been engaged in a campaign to influence and defend its interests with several European commissioners in order to take a decisive step forward in the European bond market. The market operator, which manages the Amsterdam, Brussels, Dublin, Lisbon, Oslo, Paris and now Milan stock exchanges, is presenting the European institution with the full range of services it can provide to encourage it to diversify its partners.
Capital Markets Union
"The NGEU plan (...) is a game changer for Europe, not only in nature but also in scope. Decisions on how to implement it will have a major impact on the achievement of other public policy objectives, notably in the context of the Capital Markets Union," says Euronext.
"While today the listing and issuance of European Commission bonds is handled by two incumbent operators, the Luxembourg Stock Exchange and Clearstream (a Luxembourg-based subsidiary of Deutsche Boerse), this activity should be opened to competition", continues the Exchange in its plea.
As an alternative listing place, Euronext proposes the Dublin Stock Exchange, which is now part of the pan-European exchange and is Luxembourg's main competitor in the listing of international bonds. For custody and settlement of securities, it advocates Monte Titoli, the central securities depository (CSD) of Borsa Italiana, which could replace or complement Clearstream.
Liquidity of securities
To strengthen its case, the pan-European exchange promises the Commission an improvement in the functioning of the secondary market, which its current suppliers cannot offer.
"Euronext is particularly well placed (...), especially since the acquisition of Borsa Italiana (...). The Commission could promote the liquidity of NGEU bonds through the services of MTS, Europe's leading bond trading platform"EC continues.
The reasoning was echoed last week by Fabrizio Testa, CEO of MTS and tipped to take over as head of the Milan Stock Exchange in a few weeks, in an interview with Reuters.
"MTS has offered to provide the European Commission with its market infrastructure, data and reports on primary dealer activity. The trading platform, owned by Borsa Italiana, can also be used by the European Commission in the context of its debt management to organise buybacks and exchanges of securities"Fabrizio Testa said.
In the interest of the European taxpayer
Primary dealers are institutions that are authorised to subscribe to issues on the primary market. The European Commission designated 39 banking counterparties, including five French ones, in early June.
Improving the efficiency of the secondary market and the liquidity of NGEU bonds would make them more attractive to investors. This would reduce issuance costs to the benefit of the borrower and ultimately the European taxpayer.
"The new EU bonds are already traded on MTS, but introducing incentives for primary dealers to continually trade bonds on a regulated platform like ours would really make a difference"Fabrizio Testa insisted.
"For the time being, the dialogue with the European Commission is open. We hope that a decision will be taken early next year." he said.
The Luxembourg Stock Exchange, which has chosen to live its life on its own, is countering this comprehensive offer from the Euronext group with its historical legitimacy:
45% market share
"The Luxembourg Stock Exchange is the leading market place for international debt securities. According to figures from data provider Dealogic, it has a market share of 45 % in 2021 for international securities issued by sovereign, supranational and agency (SSA) issuers. The Exchange serves approximately 120 SSA issuers and has long-standing relationships with European institutions and agencies such as the EIB (European Investment Bank), ESM (European Stability Mechanism) and the EU. Additional element: Bonds issued by the EU under the EU debt issuance programme are currently governed by Luxembourg law".
Together with the administration of investment funds, the listing of international bonds is one of the pillars of the Luxembourg financial centre.
The first Eurobonds in history were listed on the Luxembourg Stock Exchange in 1963 by the Italian motorway operator Autostrade. This dollar-denominated transaction is often cited as a milestone in the development of the Grand Duchy's financial centre.