First dematerialised bond under Luxembourg law issued through LuxCSD

  • Climate Awareness Bond of the European Investment Bank (EIB) successfully issued in dematerialised form through LuxCSD
  • Dematerialised issuance significantly reduces inefficiencies and costs for the industry
  • Issuance performed as zero risk through delivery-versus-payment (DVP) in central bank money between the EIB and the lead manager

LuxCSD successfully issued and settled the first dematerialised security following the implementation of the new law in Luxembourg in April 2013. The Climate Awareness Bond with a notional amount of 650 million Euros and a 6 year tenor issued by the European Investment Bank (EIB) was launched into the primary markets on 11 July 2013. On settlement date, the 18 July 2013, LuxCSD successfully handled the dematerialised issuance and delivery-versus-payment (DVP) settlement in Euro central bank money during the night giving the issuer access to his funds at the central bank in the early morning. Joint bookrunners for the transaction were Bank of America Merrill Lynch, Crédit Agricole CIB, DZ BANK and UniCredit.

LuxCSD was always fully supporting the issuance of dematerialised securities as these significantly reduce inefficiencies, risks and costs for the industry. Dematerialised issuance is generally recognised as the most efficient and secure form of issuance.

Aldo M. Romani, Deputy Head of Funding – EUR at the EIB, said: “In addition to providing socially responsible investors with a new product of higher liquidity, this issue has successfully tested innovative issuance and settlement features with the ultimate goal to provide more value to investors as European market infrastructure improves: better operational efficiency, lower risk, shorter settlement cycle and lower transaction costs upon the establishment of TARGET2-Securities, the common technical platform that the Eurosystem is building for the seamless provision of borderless securities settlement services in Europe.”

Patrick Georg, General Manager of LuxCSD, said: “Supporting the first dematerialised bond issuance of the EIB is a further reference for LuxCSD in fulfilling its mandate to bring Luxembourg in line with international best practice to further strengthen the financial place as issuance and distribution hub in Euro central bank money. I am particularly pleased that such a prestigious issuer of the European financial market is the first to issue a dematerialised bond through LuxCSD.”

Thanks to direct access to central bank money which the EIB has in place, the issuance could be performed as “true” DVP between the EIB and the lead manager. The EIB only issued the bond when the lead manager paid for the bond resulting in an immediate credit of central bank money to the EIB’s account. With this structure, there is no risk that securities circulate in the market without the issuer receiving the payment of the borrowed amount. The risks involved in separating the delivery of securities from the payment to be made by the lead manager are completely eliminated in the LuxCSD process.

In 2013, Luxembourg adopted the law governing the dematerialisation of physical securities as well as the issuance of dematerialised securities, permitting electronic records to replace the currently predominant global certificate. Issuers benefit from the ability to receive information on the holders of their issued securities and from more favourable treatment of electronic securities under foreign laws, e.g. for tax purposes.

About LuxCSD

LuxCSD is jointly (50/50) owned by the Banque centrale du Luxembourg (BCL) and Clearstream International S.A. LuxCSD offers custodians and distributors across Europe excellent custody and added value services built on a highly efficient settlement process with access to many counterparties. Settlement of securities transactions in central bank money reduces risk for financial market participants. The CSD fully supports dematerialised securities as these will significantly reduce inefficiencies, risks and costs for the industry. LuxCSD can also advise issuers in dematerialising existing physical securities.

The company was created in July 2010 within the context of the future implementation of the Eurosystem’s TARGET2-Securities (T2S) initiative. LuxCSD will provide the Luxembourg financial market infrastructure with a national access point to T2S and so will enable Luxembourg market participants to reduce their settlement risks as delivery versus payment (DVP) settlement in central bank money is widely recognised as the safest way to achieve securities settlement. This is an important factor in helping the Luxembourg market to remain competitive as a financial centre once the new European settlement infrastructure
is established.

Following completion of its technical implementation in September 2011, LuxCSD was designated a Securities Settlement System by the Luxembourg central bank in October 2011. This is a requirement to operate under the protection of the Settlement Finality Directive and LuxCSD has been fully operational since then. The company’s commitment in May 2012 to join TARGET2-Securities marked another milestone in the young life of the Luxembourg CSD. In March 2013, LuxCSD has received approval by the European Central Bank (ECB) for its Securities Settlement System (SSS) being eligible for use in the collateralisation Eurosystem credit operations.

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