The dissertation aims to analyze the process of issuing new bonds in the EUR debt capital markets and, more specifically, the approach by which investment banks consort with each other (syndicates) to jointly execute a new issue. In this thesis, the aspects of fairness, efficiency, and regulatory implications were first analyzed from a theoretical perspective in the literature review, and the information gleaned was thereafter combined with a practical view based on a survey conducted with 54 active syndicate professionals. Additionally, experts with more than ten years of experience were interviewed in order to enhance the reliability of the findings. The outcomes, therefore, showcase an extensive comparison between theory and practice, while also outlining prospective trends within the business of primary markets.
In summary, this thesis reveals aspects of the syndication process, as it is executed on a daily practical basis, that appear contrary to a theoretical impression of efficiency and fairness. However, the input from current professionals highlights the immensely complex and varied applicable strategies, and that many aspects must be evaluated on a case-by-case basis.
On the contrary, the newly implemented regulations that shape the syndication process were determined to be unable to comply with such sophisticated requirements. Thus the analysis concludes that the syndication business is self- regulating by nature and that it is harmed by a lack of equal application by the investment banks within the EUR area.
Moreover, the syndication professionals indicated a strong trend towards automation and digitalization of the process, even though a more detailed investigation of this aspect showed that full exclusion of investment banks is not desirable because of a number of operational and strategic reasons.
Table of Contents
AUTHOR’S BACKGROUND
ABSTRACT
ACKNOWLEDGEMENTS
TABLE OF CONTENTS
TABLE OF FIGURES
TABLE OF TABLES
ABBREVIATIONS
CHAPTER 1 INTRODUCTION
1. I) CONTEXTUAL BACKGROUND INFORMATION
1. II) RESEARCH SCOPE AND OBJECTIVES
1. III) OVERVIEW OF METHODOLOGY AND DATA ANALYSIS
1. IV) RESEARCH QUESTIONS AND EXPECTED RESULTS
1. V) IMPORTANCE OF THIS RESEARCH
1. VI) GENERAL RESEARCH LIMITATIONS
CHAPTER 2 LITERATURE REVIEW
2. I) THE SYNDICATION PROCESS
2. II) IMPORTANCE OF EFFICIENCY WITHIN THE SYNDICATION PROCESS
2. III) IMPORTANCE OF FAIRNESS WITHIN THE SYNDICATION PROCESS
2. IV) IMPORTANCE OF REGULATION WITHIN THE SYNDICATION PROCESS
CHAPTER 3 RESEARCH DESIGN AND METHODS
3. I) METHODOLOGICAL APPROACH FOR THE RESEARCH
3. II) METHODS DESIGN AND SAMPLE SIZES
3. III) LIMITATIONS OF AND JUSTIFICATIONS FOR THE RESEARCH APPROACH
CHAPTER 4 FINDINGS
4. I) EFFICIENCY WITHIN THE SYNDICATION PROCESS
4. II) FAIRNESS WITHIN THE SYNDICATION PROCESS
4. III) REGULATION WITHIN THE SYNDICATION PROCESS
4. IV) TRENDS WITHIN THE SYNDICATION PROCESS
CHAPTER 5 DISCUSSION
5. I) DISCUSSION ON EFFICIENCY IN DCM SYNDICATION
5. II) DISCUSSION ON FAIRNESS IN DCM SYNDICATION
5. III) DISCUSSION ON REGULATION IN DCM SYNDICATION
CHAPTER 6 CONCLUSIONS
6. I) RESULTS IN RELATION TO THE RESEARCH QUESTIONS
6. II) FUTURE RESEARCH AND CONCLUDING REMARKS
APPENDICES
APPENDIX 1. SURVEY QUESTIONS AND RESULTS
APPENDIX 2. INTERVIEW SUMMARY QUESTIONS AND NOTES
REFERENCE LIST
Research Objectives and Core Themes
This dissertation aims to investigate the complex processes involved in issuing new bonds within the EUR debt capital markets (DCM), focusing specifically on how investment bank syndicates execute these new issues. The research addresses key questions regarding the efficiency, fairness, and regulatory compliance of these operations by bridging theoretical academic frameworks with the practical, daily insights of active industry professionals.
- The operational efficiency of bond issuance via syndication
- The concept of fairness in allocation and syndication practices
- The impact of evolving EU regulations, including MiFID II, MiFIR, and MAD II/MAR
- Empirical insights gathered from a survey of 54 syndicate professionals
- Technological trends and the future of automation in primary markets
Excerpt from the Book
1. I) Contextual Background Information
The scope, developmental pace, and complexity of financial markets have always been tremendous, yet they are somehow detached from most ordinary people who do not work in finance. Several markets have evolved over time, such as the equity capital market (ECM), the market for derivatives, the money market (MM), and the debt capital market (DCM)—to name just a few. This thesis concentrates on the DCM and focuses on a very particular segment—the process of issuing new bonds into the DCM.
In accordance with the literature, the DCM can be defined as the market where debt securities (e.g. corporate debt, governmental debt, etc.) are traded. Underlining the significance of the DCM, the Bank for International Settlement (BIS) (2016) found that at the end of the second quarter of 2015, the outstanding amount of debt securities was more than eight trillion dollars ($8,000,000,000,000+) just within the euro area. In comparison to the MM, which deals with short-term debt, the DCM includes debt securities starting from two years in tenor: mid- to long-term debt. Additionally, the DCM can be divided into a primary market—where new bonds are firstly introduced (issued) into the DCM—and a secondary market—where outstanding bonds can be traded (Kohn, 2003).
In the following, the term DCM syndication is used when referring to primary market transactions. In detail, this implies the execution of a new bond issue, usually conducted by several investment banks incorporated in a so-called syndicate consortium (usually 3-6 banks). The major advantage of this structure lies in the risk diversification of the investment banks, meaning that the execution risk (of a bond that cannot fully be sold to investors remaining with the investment banks) is spread over the participating banks (Webster, 2014).
Summary of Chapters
CHAPTER 1 INTRODUCTION: Outlines the contextual background of debt capital markets and defines the research scope regarding syndication processes, efficiency, fairness, and regulatory impacts.
CHAPTER 2 LITERATURE REVIEW: Analyzes existing academic and practical literature, breaking down the syndication process into its core components and evaluating the importance of efficiency, fairness, and regulation.
CHAPTER 3 RESEARCH DESIGN AND METHODS: Details the mixed-methods approach, including the qualitative and quantitative data collection from 54 industry experts and face-to-face interviews.
CHAPTER 4 FINDINGS: Presents the primary data collected from syndicate professionals, highlighting practical insights on market efficiency, fairness, regulatory challenges, and technological trends.
CHAPTER 5 DISCUSSION: Evaluates the collected findings against the theoretical framework, exploring the inherent conflicts of interest and the practical implications of EU regulations.
CHAPTER 6 CONCLUSIONS: Synthesizes the results to answer the core research questions and provides an outlook on future research requirements in the field.
Keywords
Debt Capital Market, DCM, Syndication, Investment Banking, Bond Issuance, Book Building, Market Efficiency, Financial Regulation, MiFID II, Market Abuse Regulation, Syndicate Consortium, Order Inflation, Allocation, Transparency, Fixed Income
Frequently Asked Questions
What is the core focus of this dissertation?
The dissertation examines the process of issuing new benchmark bonds in the EUR debt capital market, specifically focusing on the syndication process managed by investment banks.
What are the primary thematic areas of the research?
The research centers on three main pillars: operational efficiency, the fairness of allocation procedures, and the impact of current and upcoming regulatory frameworks on market practices.
What is the primary objective of this study?
The study aims to detect potential inefficiencies or misconduct in current syndication processes by comparing theoretical academic expectations with the hands-on experiences and data provided by active industry professionals.
Which research methods were applied?
The thesis utilizes a mixed-methods case study approach, combining literature review with quantitative survey data from 54 European syndicate professionals and qualitative insights from expert interviews.
What does the main body of the work cover?
The main body systematically reviews the DCM structure, analyzes the book-building and allocation procedures, discusses market regulations like MiFID II/MAR, and presents empirical findings from industry participants.
Which keywords best describe this research?
Key terms include DCM syndication, book building, market efficiency, financial regulation, and investor allocation.
How do syndicate professionals view the current regulatory changes?
The findings indicate that while regulation is intended to increase transparency, professionals report increased administrative burdens and concerns that these changes may inadvertently harm open collaboration and market function.
Is it feasible to replace investment banks with automated platforms?
The consensus among the interviewed professionals is that a full exclusion of investment banks is not desirable due to the need for human consultation, strategic advice, and operational support during complex bond issuance transactions.
- Quote paper
- Alexander Malitsky (Author), 2017, Investigation and Evaluation of the Primary Market Benchmark Syndication Process in Debt Capital Markets, Munich, GRIN Verlag, https://www.grin.com/document/373202
