SIFMA Unites Some Major Covered Bond Underwriters to Form European Dealers Association--Update #1

The Securities Industry and Financial Markets Association (SIFMA) just launched an association for European covered bond dealers that it says should eventually help develop covered bond markets in the U.S. and Asia.

Membership in the newly formed European Covered Bond Dealers Association (ECBDA)  initially consists of eleven underwriting institutions, including Barclays, Morgan Stanley, and UBS.  According to a SIFMA statement, each of these “either makes markets in at least 50 covered bond [sic] or ranks among the top 20 underwriters of covered bonds in Europe.”  Additional members are expected.

Despite covered bonds’ current liquidity problems, the ECBDA’s managing director, Mark Austen, is quoted in the statement as saying he is “optimistic” about their “long term future.”

“Now is the time for dealers to discuss how that market should re-emerge,” Austen says.

The group's launch comes several months after SIFMA announced (on July 28) its formation of "U.S. Covered Bonds Trading Committee."   Austen says the ECBDA will complement SIFMA’s U.S. and Asian efforts in the field.

“As regulators in the United States consider the development of this product, we would like to think that European dealers will have a valuable contribution to make, given their expertise and the strong history of this product in Europe.  We will therefore be working closely with SIFMA’s offices in New York, Washington, and Hong Kong.”

You can get more insight from a Reuters story on the ECBDA: "Europe covered bond dealers form industry group."  Among other things, sources quoted in the story attribute some of covered bonds' current difficulties in Europe to a poorly designed market structure, which the ECBDA might help improve.  But they say a year or two may pass before the market comes back.

One of Europe’s major financial publications, Euromoney, has greeted news of the ECBDA’s formation with skepticism.  In “Covered bond traders find their voice,”  Euromoney points out that so far some of the biggest players, including JPMorgan and Citi, have failed to join.   

The article agrees that it would be positive for covered traders to achieve more consensus on how best to rev up the currently stalled covered bond market, given current fragmentation among various European jurisdictions.  But it expresses doubts that the ECBDA will be able to make this consensus happen while the market is so dead. 

 Read SIFMA’s press release:  “European Covered Bond Dealers Get New Association”