Issuers of short, medium and long term international debt securities have the option of utilising a new form of global note, known as the New Global Note or NGN.
The new form of global note was introduced jointly by the two international central securities depositaries (ICSD), Euroclear Bank SA/NV and Clearstream Banking, Luxembourg, following a recommendation by the Eurosystem of Central Banks regarding the issuance, processing and custody of international debt securities.
The NGN structure
The NGN structure will be relevant to parties involved in the issue of international debt securities which are in bearer form and deposited with an ICSD. In particular, the NGN structure is mandatory as of 1 January 2007 for an issuer based in a European Economic Area (EEA) country or in any other G10 country (Qualifying Issuers) if that issuer intends for the issue of such securities to constitute eligible collateral for Eurosystem operations.
The NGN structure is not required to be used by issuers who are not Qualifying Issuers, such as Australian issuers.
The NGN structure is substantially the same as for existing forms of global note (known as the Classical Global Note or CGN), except for the following notable differences:
it only applies to securities in bearer form;
the issue outstanding amount is determined by the ICSD’s records (rather than physical annotations on the note);
issuers must enter into an agreement with the ICSDs in order for the securities to be accepted by them; and
the common depository role is divided between two agents appointed by the ICSDs known as the Common Service Provider (CSP), responsible for providing asset services to the ICSDs, and the Common Safekeeper (CSK), responsible for taking custody of NGNs.
Structuring for ECB and Eurosystem
The CGN structure will continue to exist alongside the NGN structure. The important consideration for issuers choosing between the two structures is whether the securities should be structured so as to constitute eligible collateral for Eurosystem operations.
If the issue of international debt securities is intended to constitute eligible collateral for Eurosystem operations then, in addition to complying with the European Central Bank’s (ECB) eligibility criteria, the issue must be made by a Qualifying Issuer in NGN form and the securities must be kept in the custody of a CSK appointed by a ICSD. NGNs deposited with a commercial bank CSK will not satisfy the ECB’s requirements. The ECB’s eligibility criteria can be found on the ECB’s website at www.ecb.int/ paym/coll/assets/html/index.en.html.
International debt securities may still be issued in NGN form even if they are not intended to constitute eligible collateral for Eurosystem operations or do not satisfy the ECB’s eligibility criteria. In addition, issuers who are not Qualifying Issuers (such as Australian issuers) may choose to use the NGN structure for the issue of international debt securities, but the securities cannot constitute eligible collateral for Eurosystem operations.
International debt securities issued as CGNs before 1 January 2007 will continue to be eligible as collateral for Eurosystem operations provided that the ECB’s other eligibility criteria have been satisfied. International debt securities issued as CGNs after that date are no longer eligible.
The legal documentation currently used for CGNs will need to be adapted to take into consideration the features of the new NGN structure, in particular the segregation of the common depository role between the CSP and the CSK and the recording of the issue outstanding amount (which will no longer appear on the face of the note, but will be determined by the ICSD’s records). The issuer will also be required to enter into a new agreement with the ICSDs in order for the securities to be accepted by the ICSDs.
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