120 4 Debt
The euro area money market plays a crucial role in transmitting the monetary
policy decisions of the ECB (see Volume II), and the Eurosystem’s “General
Documentation” framework provides information about market practices.^175
The instruments traded on the short-term securities market include government
securities (mainly treasury bills) and securities issued by private entities. Securi-
ties issued by private entities are mainly commercial paper (which are short-term
securities traditionally issued by non-financial corporations) and certificates of
deposit (which are short-term securities issued by banks).^176
The growth in popularity of loan facilities, under which the borrower’s pay-
ment obligations are contained in debt securities issued pursuant to the facility,
has blurred the distinction between bank lending and debt securities.^177
Commercial paper. The term commercial paper (CP) refers to short-term secu-
rities where “an unsecured promissory note [is] issued for a specified amount and
maturing on a specific day. All commercial paper is negotiable, but most paper
sold to investors is held by them to maturity. Commercial paper is issued not only
by industrial and manufacturing firms, but [also] by finance companies. Finance
companies normally sell their paper directly to investors. Industrial firms, on the
other hand, typically issue their paper through dealers. Over the years, bank hold-
ing companies, municipalities and municipal authorities have joined the ranks of
commercial paper issuers.”^178
The issuers of medium-term notes (MTN) are generally the same type of insti-
tutions that may issue CP. The emergence of a market for MTN had its origins in
the commercial paper markets whereby MTNs were initially CP with longer ma-
turity.^179
Integretion among national commercial paper markets is still low and a com-
mon internal market for commercial paper does not yet exist.^180
Euro commercial paper. The euro commercial paper (ECP) market emerged in
the early 1980s and was characterised by US dollar-based uncommitted pro-
grammes with a small group of intermediaries acting as dealers for each pro-
gramme. ECP did not comply with SEC exemptions in the USA and could not,
therefore, be sold to US investors. Since then, the ECP market has developed into
a multi-currency short-term market. It is international in terms of issuers, inves-
tors, and currencies. London-based dealers distribute ECP around the world. Most
other major ECP markets are largely focused on domestic issuers and investors.^181
(^175) Guideline of the European Central Bank of 31 August 2000 on monetary policy instru-
ments and procedures of the Eurosystem (ECB/2000/7) (as amended); EFMLG, The
Money Market: Legal Aspects of Short-term Securities, Consultation Report (2 Septem-
ber 2002) p 9.
(^176) EFMLG, op cit, pp 11–12.
(^177) Fuller G, Corporate Borrowing. Third Edition. Jordans, Bristol (2006) paragraph 4.1.
(^178) Stigum M, The Money Market, third edition (1990) p 48, cited in EFMLG, The Money
Market: Legal Aspects of Short-term Securities, Consultation Report (2 September
2002) p 14.
(^179) EFMLG, op cit, p 15.
(^180) Ibid, pp 47–48.
(^181) Ibid, p 34.