The European Commission’s borrowing and debt management activities – Establishment of the primary dealer network of credit institutions

SUMMARY OF:

Implementing Decision (EU) 2023/1602 on the primary dealer network and defining eligibility criteria for lead and co-lead mandates for syndicated transactions for the purposes of European Commission borrowing activities

WHAT IS THE AIM OF THE DECISION?

It aims to:

establish the EU primary dealer network;
lay down the criteria and procedures for the application and admittance to the network, suspension of membership and exclusion;
set out the rights and obligations of the members of the network;
provide criteria and a process by which members of the network are awarded mandates in syndicated transactions for EU debt securities*.

KEY POINTS

The decision applies to any borrowing and debt management the European Commission carries out with private financial institutions on behalf of the European Union (EU) and the European Atomic Energy Community (Euratom).

Primary dealer network

The network is:

involved in the following Commission borrowing and debt management activities:
- placing debt securities on primary capital markets, especially through auctions* and syndicated transactions,
- promoting the liquidity of EU and Euratom debt securities on financial markets,
- providing the Commission with fair advice and market intelligence,
- promoting and developing the placement of EU and Euratom debt securities;
open to credit institutions and investment firms which are:
- a legal entity with their head office in the EU or the European Economic Area,
- supervised by an EU authority and authorised to carry out business as either a credit institution or investment firm,
- a member of a European sovereign or supranational primary dealer network.

Network members:

commit to:
- buying a minimum of 0.05% of the amount of the EU and/or Euratom auction every 6 months (Annex I sets out the technical details),
- reporting monthly to the Commission on the EU and Euratom debt securities they trade,
- submitting a signed copy of the ‘General terms and conditions for European Union primary dealers’ setting out the rules, procedures and time limits for borrowing and debt management activity,
- ensuring their trading authorisation is valid and reviewed quarterly,
- complying with market practices and ethics,
- treating all information from the Commission in confidence;
have the right to:
- advertise themselves as ‘Member of the European Union primary dealer network’,
- participate and bid in any EU or Euratom debt securities auction,
- receive regular feedback on their performance,
- be involved in debt management operations such as private placements, repurchase transactions and swaps,
- resign from the network;
are eligible for lead or co-lead mandates for syndicated transactions if they satisfy certain criteria.

Membership

The following procedure applies:

credit institutions and investment firms apply to the Commission, providing the necessary information and credentials and agreeing to comply with the general terms and conditions;
the Commission:
- approves or rejects the application within 2 months,
- publishes an annual list of network members in the Official Journal of the European Union,
- verifies whether members comply with the network’s rules and suspends or excludes those that do not.

The legislation repeals Decision (EU, Euratom) 2021/625. This established the primary dealer network in the aftermath of the COVID-19 crisis. It had already been amended by Commission Decision (EU) 2021/857.

FROM WHEN DOES THE DECISION APPLY?

It entered into force on 24 August 2023.

BACKGROUND

The treaties authorise the Commission to borrow from international capital markets. Borrowing is done by the Commission in accordance with Article 220a of Regulation (EU, Euratom) 2018/1046 as amended by Regulation (EU, Euratom) 2022/2434, borrowings authorised under Article 5(1) of Council Decision (EU, Euratom) 2020/2053.

Since January 2023, the Commission, which is well established in debt securities markets, has used a unified funding approach whose main component is EU debt securities. The proceeds are placed in a central pool which funds different policy programmes, such as the NextGenerationEU recovery instrument and the macrofinancial assistance+ programme for Ukraine.

As of 1 December 2023, the network had 37 members, most of them well-known household names.

KEY TERMS

Debt securities. Notes and/or short-term financial instruments such as treasury bills, and any other financial instruments issued by the EU and/or Euratom.

Auction. Issuing debt securities based on competitive bids through an auction platform on the primary market.

MAIN DOCUMENT

Commission Implementing Decision (EU) 2023/1602 of 31 July 2023 on the primary dealer network and the definition of eligibility criteria for lead and co-lead mandates for syndicated transactions for the purposes of the borrowing activities by the Commission on behalf of the Union and of the European Atomic Energy Community (OJ L 196, 4.8.2023, pp. 44–60).

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