Policies to foster corporate bond markets for SMEs
The main actions undertaken by public authorities in corporate bond markets have aimed at improving transparency and protection for investors, to favour greater participation and liquidity. This is the case of the above-mentioned Transaction Reporting and Compliance Engine (TRACE), introduced in the US in 2002 by the Securities and Exchange Commission (SEC), and, for private placements, the credit scoring provided by the US National Association of Insurance Commissioners (NAIC).
To foster the development of a corporate bond market that is still barely accessible by SMEs, the European Commission has proposed reforms to improve market structure through the creation of new trading venues, enhance transparency and information efficiency, enhance requirements to reduce short-term and speculative trading activities, and improve investor protection (EC, 2013).
In other cases, like in Germany, relevant regulation was reformed to allow greater flexibility on the side of issuers and investors. The new German Bond Act, which came into force in 2009, aims to align German bond law with international standards and to improve the ability to affect bond restructurings outside of insolvency proceedings. To this end, the Act allows amendment of the bond terms by way of a majority resolution of the bondholders, with the issuer’s consent, and to hold creditor meetings also in virtual form (Vogelmann and Halasz, 2013). The reform is expected to ease bond issue by German Mittelstand. Also, to this end, the larger German stock exchanges in Frankfurt, Munich, Stuttgart and Ddsseldorf have developed a special segment where those Mittelstand bonds can be listed and traded publicly.
In some countries, recent policies have especially targeted the SME sector, in order to encourage unlisted and smaller companies to raise money via the bond market and move away from solely relying on their bank lenders.
This is the case of Italy, where, in 2012, the government designed rules for a new debt security instrument, the so-called “minibond”. This is a typology of corporate bond that can be issued by non-listed SMEs, under certain conditions. The new regulation abolishes rules that restricted the amount of debt companies could issue, as long as the bonds are listed on a regulated market platform, and indicates for these bonds the same tax treatment as debt issued by listed companies, including tax relief on interest costs and issuance expenses. Furthermore, there are relatively few, and simplified, regulatory requirements for issuing the debt instruments. However, retail investors cannot buy these instruments directly. The Milan stock exchange has set up a special trading platform for mini-bonds (ExtraMOT PRO), which is active since March 2013. As of May 2014, around thirty unlisted firms had used mini-bonds (OECD, 2014). Also, in the wake of these regulatory changes, in 2013 some Italian banks launched Mini-bond Funds, open to institutional investors, which allow investors to gain exposure to the country’s large unlisted private sector.3
In other countries, credit risk mitigation instruments typically applied to bank loans have been extended to bonds. In Japan, the credit guarantee instruments of the SME Unit of the Japanese Finance Corporation (JFC), a public corporation entirely owned by the government, extend to SMEs that fall short of collateral when issuing corporate bonds. The JFC also acquires newly issued bonds by SMEs.