Pushing Back the Boundaries

1. Introduction
§ Debt markets → the most important developments have been continued deregulation and regulatory harmonization
§ Eurobond, Euro-medium ten note (EMTN) and Euro-commercial paper (ECP) markets
§ Access to the Eurobond market → be made less cumbersome by the rapidly growing acceptance of EMTNs by investors who traditionally purchased Eurobonds
§ Access to the Euromarkets → has always been determined less by overt regulation than by unofficial or investor-driven market practice
§ Current economic climate → regulatory developments which have facilitated access to the securities markets have been partially offset by investors' concerns over credit risk
§ Ratings have become increasingly important → unrated entities will find it more difficult than before to borrow via a Eurobond offering
§ Financial covenants for corporate issuers → more restrictive → as investors try to protect themselves against downgrading and defaults
§ Domestic markets have also continued to benefit from deregulation and regulatory harmonization:
i. Standards of prospectus and listing requirements converge → issuers find it less expensive and time consuming to issue outside their home market
ii. Deregulation often permits the issuance of a more sophisticated range of instruments than was previously allowed
iii. The distinction between international and domestic securities markets has become increasingly blurred → it has become correspondingly easier for issuers to find an appropriate investor base for their securities
§ The international equity markets → have traditionally been far smaller in issuance volume terms than their debt counterpart → because of regulatory differences and equities tend to be denominated in the currency of the issuer and settled in its home market

2. Europe
§ The international bond market has traditionally had its headquarters in London
§ Eurobond market → can be accessed by institutions ranging from small, unrated corporations to large supranational institutions
§ The liberalization → has increased the pressure on other regulatory authorities to bring their regulations into line
i. The strongest candidates for change are the French, Dutch and Swiss markets
§ Banking industry is pressing for the securities industry to be forced to comply with bank-style capital adequacy requirements
i. Large corporations and state and sovereign entities might find it more difficult to access the markets
§ Continental European equity markets still differ considerably in structure, liquidity and regulation
§ Supply of equity is increasing → as family-run businesses are sold off by a generation that does not wish to continue running these businesses
§ The European investor base is becoming more institutionalized
§ Admission Directive → coordinates the conditions for the admission of securities to official stock exchange listing → by setting minimum requirements which have to be met by any company seeking a listing
§ European Commission (EC) Directives → should mean greater efficiency and transparency in the markets for public securities → both debt and equity

3. United States
§ The US authorities still operate a separate environment
§ All public offerings of securities in the US → must be registered under the Securities Act of 1933
§ The appeal of the US public markets for foreign issuers → has traditionally been limited to larger borrowers with the time
§ By limiting the extraterritorial impact of the existing regulations and extending the exemption for private placements → the Securities and Exchange Commission (SEC) has made it easier and cheaper for foreign borrowers to access the US debt and equity markets

4. Emerging Markets
§ One of the most significant trends → has been the increase in companies and financial institutions from emerging markets seeking to raise capital outside their home markets
§ The size of predicted capital flows from these countries → has serious implications for the international securities markets
§ The economic and political background of the companies whose shares are being offered → involve particular challenges when the shares are being offered internationally

5. New Products
§ Most encouraging for potential issuers of securities → is the increased range of instruments and currencies available
§ Development in derivatives as well as a proliferation of hybrid debt / equity instruments → have allowed issuers far greater flexibility in choosing securities
§ These new instruments → require a far greater understanding of the legal and accounting environments of:
i. the jurisdiction from which the securities are issued
ii. Of those into which they may be sold
§ Some of the most powerful instruments and structures → have developed simply as a response to the increased internationalization of world securities markets
§ Global offerings → allow issuers to gain access to a more diverse investor base than was available to them previously → enabling them to lower their cost of funds and to increase name recognition
§ Debt markets → global bond issues are becoming an increasingly popular tool for certain of the larger borrowers
§ Development of the Global Depository Receipt (GDR) → another indication of the increasing internationalization of the international securities markets
§ GDR → a capital raising structure that provides issuers with a means to tap international capital markets through the simultaneous issuance of a single, fungible security in the US and other markets
§ The GDR → is offered simultaneously in several jurisdictions
§ GDRs → have facilitated offerings of securities from Korea, Malaysia, the Philippines, India, China, Taiwan, Thailand and Singapore → without obliging investors to operate within the confines of the local trading and settlement systems
§ The general trend is clear and it is a positive one for issuers of debt and equity securities
§ By giving issuers access to a greater diversity of markets and so a greater number of potential investors → these trends should also lower borrowers' costs of borrowing