The set-up of a liquidity contract for bonds is intended to improve the liquidity of the secondarybond market. As with the equity market, this practice comes within a framework whereby it requires prior approval from the AMF.
By a decision of 10 May 2012, the Autorité des Marchés Financiers (AMF) accepted a new market practice relating to liquidity contracts for bonds. The decision sets out the legal framework for liquidity contracts, in particular:
- The rules of independence that liquidity providers must follow,
- the conditions under which they can trade in the securities of issuers,
- the transparency rules to be complied with, including the obligation for monthly reporting to the AMF.
This decision by the AMF comes further to a request submitted by Paris Europlace as part of the work carried out to identify ways to provide the secondary bond market with greater liquidity.1 Certain market players wished to see the set-up of a liquidity contract for bonds - like the one which already exists for the equity market - whereby an intermediary acts in full independence on the secondary market in their securities.
The new market practice was accepted after a series of consultations2 and is based on the Code ofConduct drawn up by Paris Europlace, featuring in the appendix of the practice.3
The declaration form for transactions in debt securities (bonds) effected under liquidity contracts is available on the website of the AMF, in the section Issuers > Forms > Declaration form for liquidity contracts for bonds. It must be sent by email to the AMF at the following address: ReportingCLOblig@amf- france.org
1This work led on the one hand to the introduction, via the Banking and Financial Regulation Law of 22 October 2010, of the possibility for issuers to acquire and hold, within the limit of 15% of the amount of an issue, their debt securities that do not give access to capital with the aim of favouring liquidity; and on the other hand, to the set-up in 2011 of the first bond trading facilities conforming to the specifications of the Cassiopée Committee.
2 Consultations conducted with the AMF consultative commissions, trade associations and organisations, and other European regulatory bodies through the ESMA.
3 Paris Europlace has a template liquidity contract and an explanatory note available on its website.