Brussels,

Corporate Bonds

Corporate bonds are a vital funding source for European companies, enabling them to invest in growth and job creation. They provide businesses with access to diverse funding options beyond traditional bank loans and offer new investment opportunities for European savers. These objectives align with the Commission's Capital Markets Union (CMU) project, which aims to create a more integrated and efficient capital market in the EU.

Functioning of Corporate Bond Markets

Corporate bonds are initially issued and sold to investors in primary markets. These bonds can subsequently be traded in secondary markets. However, concerns have been raised about the limited liquidity in these secondary markets, which can make trading corporate bonds difficult and lead to higher costs for issuers and investors.
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Issuance of corporate bonds in Europe has more than doubled since 2007, driven by low interest rates and the European Central Bank's (ECB) bond purchase programs. Nonetheless, there are uncertainties about the sustainability of this trend if economic conditions change.

Functioning of Corporate Bond Markets

Improving Corporate Bond MarketsTo enhance the role of corporate bonds as a funding source, the European Commission launched a review of EU corporate bond markets. An expert group of 17 market practitioners examined these markets and made 22 recommendations for improvement. Additionally, a quantitative study on corporate bond market liquidity was conducted, indicating a deterioration in liquidity.

Functioning of Corporate Bond Markets

  1. Study on EU Markets for Private Placements (16 February 2018): Identifies market and regulatory obstacles to the development of private debt placements in the EU.
  2. Expert Group Report (20 November 2017): Presents findings and recommendations for improving corporate bond markets.
  3. Study on Corporate Bond Market Liquidity (13 December 2017): Conducted by Risk Control Limited, this study analyzes the factors affecting liquidity in corporate bond markets.
  4. Workshop on Corporate Bond Market Liquidity (26 July 2016): Brought together policymakers, researchers, and market participants to discuss liquidity issues in Brussels.

Relevant Legislation and Further Information

  • Prospectus Regulation (EU) 2017/1129
    • Objective: This regulation lays down the rules for the preparation, approval, and distribution of the prospectus that must be published when securities, including corporate bonds, are offered to the public or admitted to trading on a regulated market within the EU.
    • Key Provisions:
      • Simplified disclosure regimes for SMEs and secondary issuances.
      • Aimed at enhancing investor protection and market efficiency by ensuring that sufficient information is provided to investors.
    • Legislation: Prospectus Regulation
  • MiFID II (Directive 2014/65/EU) and MiFIR (Regulation (EU) No 600/2014)
    • Objective: These regulations aim to increase transparency and reduce the risks in the EU’s financial markets, including those for corporate bonds.
    • Key Provisions:
      • Pre- and post-trade transparency requirements for bond markets.
      • Obligations for trading venues to make data available to the public.
    • Legislation: MiFID II, MiFIR
  • Capital Requirements Regulation (CRR) (Regulation (EU) No 575/2013)
    • Objective: Sets out prudential requirements for credit institutions and investment firms, influencing the issuance and holding of corporate bonds.
    • Key Provisions:
      • Risk weightings for corporate bonds held by banks.
      • Requirements on liquidity and capital adequacy.
    • Legislation: CRR
  • Central Securities Depositories Regulation (CSDR) (Regulation (EU) No 909/2014)
    • Objective: To improve securities settlement in the EU and regulate central securities depositories (CSDs).
    • Key Provisions:
      • Requirements for settlement discipline, including penalties for settlement fails.
      • Measures to improve settlement efficiency for corporate bonds.
    • Legislation: CSDR
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Additional information