Title: The Unilateral Issuance Framework for the European Stability Mechanism and the European Commission
Summary: This paper focuses on a specific regime recently enacted under Luxembourg law for the ESM and European Commission, which represents a particular case in the general framework applicable to issuers of debt securities.
Authors: Stefano Finesi (ESM) and Giovanni Patuzzi (European Commission)
Abstract: In Europe, how and when a given security and the relevant rights incorporated into it come into existence is mostly left to national law. The creation of debt securities generally implies a contractual relationship between the issuer and the securities holder. As such, all the contractual elements required under the relevant legal system (in particular the necessary presence of a counterparty and the payment of a subscription price) must be in place for the debt securities to exist.
In some instances, issuers may want to retain their own debt securities from the outset in their treasury, for example to use these securities as collateral to obtain central bank liquidity. Legally, unless there are explicit exemptions or specific regimes, retaining debt securities at issuance generally requires going through an issuance and repurchase process, and results in an issuance settled with a counterparty to bring to existence the debt securities, followed by an immediate repurchase by the issuer from that counterparty. Recent legislative developments in Luxembourg provide an alternative issuance path for the European Stability Mechanism and the European Commission.
Disclaimer: This Working Paper should not be reported as representing the views of the ESM. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the ESM or ESM policy. No responsibility or liability is accepted by the ESM in relation to the accuracy or completeness of the information, including any data sets, presented in this Working Paper.
Keywords: unilateral issuance, debt securities, repurchase, Luxembourg law
JEL codes: K22, K33