Step the emergence of a new market
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STEP: the emergence of a new market. Marco Laganá Taormina, 20 April 2007. Agenda. STEP and the main features for smooth functioning financial markets Safety Accessibility Transparency Prospects Liquidity EU market growth STEP market growth Conclusion ….

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Step the emergence of a new market

STEP: the emergence of a new market

Marco Laganá

Taormina, 20 April 2007


Agenda

Agenda

  • STEP and the main features for smooth functioning financial markets

  • Safety

  • Accessibility

  • Transparency

  • Prospects

  • Liquidity

  • EU market growth

  • STEP market growth

  • Conclusion


Step the emergence of a new market

The STEP Governance Structure

Euribor ACI

Euribor EBF

EBF

ACI

Agreement or MoU

STEP Market Convention

STEP Market Committee

STEP Secretariat

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

ECB/ESCB

STEP features provide additional investors’ safeguards


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

Accessibility:

- Non discriminatory access

- Standardisation

STEP features can favour a more open and accessible market


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

Transparency is taken as unimpeded access to information on:

1) the market’s rules of procedure and operation,

2) the financial features of the assets,

3) the price formation mechanism, and

4) the relevant prices and quantities (quotes, interest rates, trading volumes, outstanding amounts, etc.).

STEP features enhance market transparency


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

STEP yield curves and rate times series

Safety-accessibility-transparency-adaptability-special

Breakdown by issuer group and rating levels are available

STEP times series

New price discovery tools

Source: ECB


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

- UCITS directive and STEP

  • Eligibility of STEP papers as ECBcollateral

  • STEP and financialintegration

STEP features are “institutionally” valuable


Step the emergence of a new market

Features for smooth functioning markets Prospects Conclusion

Liquidity-EU market growth-STEP market growth

Prospects

  • Liquidity

  • EU market growth

  • STEP market growth


Step the emergence of a new market

Features for smooth functioning markets Prospects Conclusion

Liquidity-EU market growth-STEP market growth

Electronic trading in unsecured markets 1999 – 2006: e-MID

Liquidity in money markets

Electronic trading in secured markets 2002 – 2006

Increase in electronic trading

18

Source: ECB Euro MMS 2006


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

Liquidity-EU market growth-STEP market growth

Liquidity in money markets

Short-term securities’ evolution of secondary market turnover 2000 - 2006

Source: ECB Euro MMS 2006, 2002=100

In short-term securities, liquidity refers mostly to primary markets

Increase in MFI primary market activity

22

Source: ECB securities database


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

Liquidity-EU market growth-STEP market growth

Cross-market segment analysis: trading structure 2005 - 2006

Source: ECB Euro MMS 2006

STEP features are designed to favour a) financial integration,b) standardisation, and c) a broadening of the investor base. Similarly to what has occurred for the secured and unsecured markets,this should result in higher liquidity, especially in terms of electronic activity.

26


Step the emergence of a new market

Features for smooth functioning markets Prospects Conclusion

Liquidity-EU market growth-STEP market growth

Outstanding amounts of US short term securities (USD bln)

Outstanding amounts of euro-denominated short term securities (EUR bln, world residents)

MFI-driven growth

Source: ECB Euro MMS 2006, Fed, ECB securities issues database


Step the emergence of a new market

Features for smooth functioning markets Prospects Conclusion

Liquidity-EU market growth-STEP market growth

US ABCP is 10 times larger than the European ABCP segment!

The European ABCP is seen as the segment with the major growth potential

ABCP segment to be monitored

Source: ECB Euro MMS 2006


Step the emergence of a new market

Features for smooth functioning markets Prospects Conclusion

A potential total of EUR 417 bln of programmes is STEP labelled…

Liquidity-EU market growth-STEP market growth

STEP growth

~ 80% euro-denominated

The STEP markets is rapidly growing

Source: ECB, STEP secretariat


Step the emergence of a new market

Features for smooth functioning markets Prospects Conclusion

Liquidity-EU market growth-STEP market growth

Potential and effective growth of the STEP market

Max potential amount than can be issued

Actual outstanding

The STEP market has further potential to grow

Source: ECB and STEP Secretariat


Step the emergence of a new market

Features for smooth functioning markets Prospects Conclusion

Liquidity-EU market growth-STEP market growth

Outstanding euro denominated short term issues (non-govt sectors, world residents)

Actual STEP outstanding

Comparing the total outstanding with the STEP potential and effective growth

Max potential STEP amount that can be issued

The STEP market has already a large share of the STS market

Source: ECB and STEP market secretariat


Step the emergence of a new market

  • 1) STEP features promote safety, accessibility, transparency and adaptability for the short term securities’ segment.Positive news for smooth functioning

  • 2) STEP features are designed to favour a) financial integration,b) standardisation, and c) a broadening of the investor base. This should result in higher liquidity.

  • 3) The STEP market faces a rapid growth and shows further potential, especially for ABCP

Features for smooth functioning marketsProspects Conclusion

Conclusion


Step the emergence of a new market

Thank you

Features for smooth functioning marketsProspects Conclusion


Step the emergence of a new market

Annexed material

Features for smooth functioning marketsProspects Conclusion


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

Safety

  • 1) Organizational requirements and Governance structure

  • 2) The STEP Legal Documentation

  • 3) The labeling cycle (admission to trading)

STEP features provide additional investors’ safeguards


Step the emergence of a new market

The STEP legal documentation

Euribor EBF

Euribor ACI

Agreement or MoU

STEP Market Convention

Provision of data for

the production of STEP statistics

Technical assistance for the management of the STEP label (for 2 years)

Static data

Dynamic data

Agreement between the ECB, and Euribor FBE, Euribor ACI

(STEP Secretariat)

Standard Agreement between the ECB and Eligible Data Providers

Agreement between

9 NCBs, ECB and

Euribor FBE, Euribor ACI

(STEP Secretariat)

Annex: ECB Reporting Instructions

Annex: Manual of Procedures on labelling

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

The ECB/Eurosystem is involved


Step the emergence of a new market

The STEP labelling cycle

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability--special

Issuer/arranger

  • application form

  • information memorandum

  • declaration of adherence to Convention

STEP Secretariat

  • application form

  • information memorandum

  • declaration of adherence to Convention

  • STEP identifier

Eurosystem

Assessment of compliance with STEP standards

STEP Secretariat

Info memo NOT STEP-compliant

Info memo STEP-compliant

STEP Secretariat

STEP Secretariat

  • Declaration of STEP-compliance

  • info memo on STEP Market website

Message on causes of non-compliance

Issuer/arranger, relevant NCB, ECB

If all information is provided, the STEP label is granted in a few days


Step the emergence of a new market

Number of “active” banks per year and per segment

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

Signs that Banks’ participation in the STS‘ market is slowly growing…

4

Source: ECB survey and Euro Money Market Study (MMS) 2006 www.ecb.int/pub/pdf/other/euromoneymarketstudy200702en.pdf


Step the emergence of a new market

Money market concentration

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

…however the market is currently quite concentrated

24

Source: ECB euro money market survey 2006,Concentration % in Q2 2006


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

Number of issuers whose programmes received the STEP label

…the financial features of individual programmes are available

Market transparency enhanced


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

STEP spreads

Safety-accessibility-transparency-adaptability-special

Breakdown by issuer group and rating levels is available

New price setting and discovery tools

Source: ECB


Step the emergence of a new market

Features for smooth functioning marketsProspects Conclusion

Safety-accessibility-transparency-adaptability-special

Adaptability to structural developments and innovation

The STEP Market Committee:

  • Shall monitor market developments.

  • Shall establish and review the standards on which the STEP label is based.

  • May amend the provisions of the STEP Market Convention…

  • Shall provide guidance on the appropriate and consistent interpretation of the STEP Market Convention’s provisions.

STEP features are adapted to a predominantly OTC wholesale market

Source: STEP market convention


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