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-- Daniel O’Leary
The European Commission will consult the market this year on whether bond underwriting practices need to be regulated, according to an EC official. The practices are coming under scrutiny now as the new commissioner of internal markets, tipped to be French European Parliament Member Michel Barnier, will take office in February. Barnier is widely known for his regulatory bent and is understood to be seeking a review of the Markets in Financial Instruments Directive to see if underwriting, which is not currently covered by the directive, should be included, the official said.
The commission will start the consultation process by asking market participants to flag any problems with underwriting practices, the official said. If problems are found, the EC will recommend step to regulate underwriting via the directive. "At the moment, [whether or not underwriting needs regulation] is an open question," he said. "That’s something we’ll be asking market participants to comment on this year."
Rob Ford, portfolio manager with TwentyFour Asset Management, said the EC could be looking to limit the amount of risk lead managers take on when underwriting bonds. For example, regulators could standardize the ratio of capital charge to risk used in underwriting.