Luxembourg stock exchange brushes off FCA debt-market proposal


The Luxembourg Stock Exchange (LuxSE) has shrugged off the possibility the UK may move to create a debt market for institutional investors, saying it was confident its leading position was built on “sound foundations”.

Responding to a recent Financial Conduct Authority (FCA) report recommending that the UK government develop a primary debt MTF market to compete directly with Luxembourg and Ireland, LuxSE Chief Executive Robert Scharfe said the FCA’s idea had come rather late in the game.

“(The FCA’s) preliminary conclusion confirms that the initiative taken by the Luxembourg Stock Exchange back in 2005 to create its Euro MTF for wholesale debt issues was the right one,” he said.

In a report published earlier this month, the UK’s watchdog notes that the UK lacks any equivalent to Luxembourg’s Euro MTF market or Ireland’s GEM and points out that both have enjoyed “considerable success”.

Many institutional investors see MTFs – or multi-lateral facilities – as a sort of ‘exchange lite’ or an alternative to more formal exchanges.

Bonds traded on regulated markets require, among other transparency requirements, a Prospectus Directive, designed to protect investors. MTFs, however, carry no such obligations.

Way in for emerging market issuers

In its report, the FCA cites the rapid growth over the last decade of specialist MTFs in Europe focused on bonds that are marketed only to institutional investors.

It says its market research suggests the debt MTF option could serve as a “global debt” option for large emerging market issuers – from India or China, for example – that lack an EU listing.

“Furthermore,” it says, “UK primary debt capital markets have a relatively limited share of international high-yield bond markets, and perhaps more could be done here.”

But the LuxSE’s chief executive seems unlikely to lose any sleep over the FCA’s plan to exploit the “MTF gap”.

“Our Euro MTF market,” Scharfe said, “has gained a great amount of experience and credibility with key issuers over its 12 years of existence and today represents the biggest MTF within the EU.

“This puts the entry bar for new MTFs quite high. Considering the increase in regulation governing EU-regulated markets, it makes sense to use more intensively the MTF instrument, especially for issuers of wholesale debt.

“(We) are confident our leading position is built on sound foundations and continues to be privileged by the most important international issuers of all origins.”