In a consultation reply to the European Commission’s proposal for preferential treatment of a new class of state bond-backed securities, the Association for Financial Markets in Europe noted that there are “genuine and sincerely held doubts regarding the feasibility of the Commission’s proposals as they currently stand.” The draft document, seen by and reported on by news agency Reuters, is aimed at enabling the uptake of so-called Sovereign Bond-Backed Securities (SBBS), a new low-risk asset which would be composed of bonds from all 19 countries that use the euro.
AFME said: “Our members have concerns on the potential unintended consequences on European government bond markets, particularly the knock-on effect that this proposal could have on market liquidity. We therefore encourage the Commission to consider further consultations with stakeholders before deciding to progress this initiative further. A European initiative on SBBS would require significant planning and coordination among stakeholders involved in government bond markets, including official bodies, debt management offices, primary dealers and investors. The issues identified in this response would need to be addressed, particularly the need for regulatory clarity. Any new framework should establish the same prudential treatment agreed at international level in order to avoid potential inconsistencies between European regulation and international standards and to ensure a level playing field across jurisdictions.