Context:
NeuCP market is a lot larger than the NeuMTN market. Former having a lot more issuers than the latter.
By the way, NeuCP is easier to digitize thanks to its shorter maturity period. A lot of characteristics present for medium-term debt (interest periods, floating rates, floor) were not required for short-term debt.
However, a treasurer informed us in the beginning of our platform definition, during our Product Discovery journey, that he traded NeuMTN exactly as a NeuCP. But with a greater maturity period. And that it worked for some NeuMTNs with maturities between 1 and 3 years.
Bingo! We decided to add NeuMTN to the platform with the same functionalities as NeuCP. It wasn’t the most popular NeuMTN on the market. But the effort of putting it on Onbrane was minimal compared to the reward of being able to offer issuers, in addition to NeuCP, the possibility of negotiating this particular type of NeuMTN.
Afterwards we continued the improvement of the platform by adding ECP and USCP to reach new CP markets, instead of working on sophisticated features for NeuMTN. This was mainly caused by positive feedback from foreign market players
Such developments put NeuMTN projects on hold for several months, but were crucial as we wanted to show that Onbrane is not only a French CP market negotiation platform, but that of a global CP market.
Today we implemented the long-awaited specific features in order to propose a successful negotiation and a safe issuance of NeuMTN on Onbrane.
Because it was in our original contract. Because we believe that this market is promising and will grow. Because we want to accompany the NeuMTN market in its growth.
Let’s negotiate NeuMTN on Onbrane !
Link with the community
For NeuMTNs, just like for all the other products/features we add/improve/delete, the feedback from our community has been overwhelming. From my discussions with NeuMTN actors, I would like to emphasize two points that made me believe in the development of this market and decide to accelerate its development.
A NeuMTN is certainly the fastest way to issue medium-term debt (mostly between 1 and 3 years). All you need is a programme at the Banque de France to issue on. No roadshow, no preparations for days with your dealers like you would need during a bond issuance. Issuers can (like with NeuCP) express their need and start negotiating the price with their counterparties.
In fact, it is an established market with a constant total volume around €50 Billion in the last 3 years. For example, it makes NeuMTN reach the size of all the Swedish CPs. NeuMTN has reached this size without a lot of French issuers, who have a NeuCP Programme but not an NeuMTN programme. And without a lot of investors who do not know this product well.
For the active NeuMTN issuers with whom I talked to during my reflection about this product, the current NeuMTN market works fine. But they would like a better liquidity in order to issue more and with longer maturity. Indeed, most of NeuMTNs issued do not exceed 2 years of maturity although there are no rules about a maximum maturity period.
For this purpose, I would like to take this opportunity to especially thank the Carrefour Banque treasury desk for the quality of our exchanges and the informed feedback on the workings of NeuMTN.
Pain points of the market
The first pain points of the NeuMTN market are of course very similar to the ones of the NeuCP market.
It is a non-digitized market. This is why the negotiations are conducted via a phone or chats with the lack of efficiency, transparency and compliance it causes. In addition, it can cause a problem of liquidity in case of a crisis, such as the COVID crisis that we live in now. Furthermore, it is very difficult and time-consuming to negotiate a Commercial Paper with many counterparties by phone or chat.
Moreover, the post-trade process is also not optimized. It is often done manually, so the issuers and dealers sometimes wait up to 2 days before retrieving the ISIN Code of the Commercial Paper traded from Euroclear France.
For that matter, the market is not transparent. It is difficult to see market trends, average rates and issued amounts for NeuMTN. Despite the documentation efforts of the Banque de France the data is too erratic and complex to read and to have a good knowledge of this market.
In addition, as I said numerous times before in this paper, NeuMTN has a liquidity problem. There are not a lot of issuers of this particular market, because on the other hand there are not a lot of investors ready to buy this kind of paper. Besides, the covid crisis has negatively affected this market and its liquidity, with investors preferring to fall back on short-term papers.
However this uncertainty about the future will not last forever and investors will progressively come to this market as it is simple to negotiate on and invest in. Besides a lot of insurance can be set to lower the risk for investors: Floor, option (Putable/Callable)…
Short term solution
The new specific features implemented for NeuMTN lets us cover 90% of the NeuMTN market.
Market players on Onbrane can now negotiate all characteristics specific to this medium-term debt product (amount, rate type, interest periods, maturity …) without any addition of platform’s complexity. We allow a maximum maturity of 4 years at the moment and €,$ or £ as currency!
Some advanced offers can also be made with the setup of a Floor if needed.
They can, of course, retrieve their ISIN Code in less than 1 minute, thanks to our connection to Euroclear France.
By the way, all negotiations made via Onbrane are auditable. And every action made or data received can be retrieved by API Rest directly in our users’ systems! No more manual entries, no more errors, from pre-trade to post trade.
Thanks to our data room, our users can follow the characteristics of the NeuMTN market and its evolution.
We have the ambition to improve the liquidity of NeuMTN by attracting new investors through the quality of the product, the ease of information on market news. And the advanced yet simple trading processes on the platform.
Long term solution
In the long term, we aim to reinforce our platform by giving the opportunity to create structured offers as we can sometimes see with NeuMTN. This will allow us to create NeuMTNs with increasing rates encouraging investors to hold the paper to term, add options on it (Putable, Callable, Putable with a Callable link to it…)
All this while keeping the offer-counter-offer system as simple as possible!
And then if the average maturity of NeuMTNs extends beyond 4 years, we will also be able to extend the maximum maturity of our NeuMTNs in no time at all.
We would cover 99% of the NeuMTN market (the last 1% with exotic contract set up in addition of the NeuMTN would never be implemented but you can discuss it in the chat or in comment ;))
