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Submitted by: Amit, Ajit and Poonam.
European Market vs American Market
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Bond Market EUR vs US; Equity Market EUR vs US; Clearing Systems EUR vs US;
Others
Index
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Historically, the U.S. bond market dominated the global bond market, with the U.S. market representing a key sourceof financing for U.S. and foreign corporations.
However, since the expansion of the European Union and the
advent of the Euro-Zone, Europes importance in the global bond market as grown.
In 2001, the U.S represented 44% of the worlds bond market; theEuropean Union represented 28% (the Euro-zone countries: 23%).
By 2009, the U.S. share of the global bond market had fallen to 34%and the European Unions share had grown to 36% (the Euro-zonecountries: 30%).
While today the U.S. market is dominated by U.S. firms, anincreasing of U.S. company bond financing is taking place inthe European bond markets.
Nature of the Global Bond Market
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T
rends in Debt Markets
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The worlds bond market can be divided into two broadgroups:
(1) the domestic bond market and(2) the international bond market.
(1) The domestic bond market is comprised of all securitiesissued in each country by domestic governmententities and corporates.
In this case, issuers are domiciled (i.e., headquartered) in thecountry where those bonds are traded.
(2) The international bond market is comprised of non-residents borrowing in another countrys bond markets
The international bond market consists of two groups: (i) Foreign Bonds and (ii) Eurobonds.
C
lassifying the Worlds Bond Markets
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Domestic Versus International Bond Market by
C
ountry; % of GDP
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Foreign Bonds are bonds issued by a non-resident anddenominated in the currency of the country in which it isbeing placed (i.e., issued).
Example: Ford Motor Corporation issuing a yen denominated
bond in Japan Foreign bonds are subject to the regulations of the country
in which the bond is being offered. The SEC regulates foreign bond offerings in the U.S.
Historically, the most important foreign bond markets
have been in Zurich, New York, and Tokyo. Zurich and Tokyo because of low market interest rates; the U.S.because of its large market.
Foreign bonds are often swapped out for another currency.
F
oreign Bonds:C
haracteristics
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Eurobonds are bonds issued by a non-resident anddenominated in other than the currency of thecountry in which it is being placed.
The bonds currency of denomination is referred to as anoffshore currency.
Example: Coca Cola issuing a U.S. dollar denominated bond inEurope. They are generally issued and sold simultaneously in
more than one market and thus the advantage of theEurobond market is that issuers can raise large sums of capital from investors all around the world.
Issuers include national governments, supranational organizations (such as the World Bank),AAAcorporations and global banks.
The U.S. dollar is the dominant currency of denomination for Eurobonds.
E
urobonds
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Eurobonds are not regulated by the country of the currency inwhich they are denominated.
Eurobonds are bearer bonds, i.e., they are not registeredanywhere centrally, so whomever holds (or bears) the bond isconsidered the owner. Bearer status also enables Eurobonds to be
held anonymously. The Eurobond market is largely a wholesale (i.e., institutional
market) with bonds held by large institutions. Pension funds, insurance companies, mutual funds
Since they are denominated in an offshore currency, investors ineuro-bonds assume both credit and foreign exchange risks (if the
currency if denomination is other than their home currency). Some publically offered eurobonds trade on stock exchanges,normally in London or Luxembourg. Others are placed directlywith institutional investors without a listing (private placement).
T
he MainF
eatures of aE
urobond
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Relative Growth of F oreign Bonds and E uro
Bonds
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E
uro-Bond Market vs
U.S. Bond Markets Eurobonds: 1964 - 1969 Eurobonds; 1995 - 2006
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Equity turnover in theUS rose by a further22% in 2008 to $70.7trillion in 2008, whilefalling by a quarter inEurope to $23.2trillion (Chart 8).Equity trading in
Europe therefore fell
back from 53% of theUS in 2007 to 33% in2008.
Equity Market
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More international equity assets under
management
0
1000
2000
3000
4000
5000
6000
7000
L o n d
o n
N e w Y o
r k
B o s t o n
L o s A n
g e l e s
P a r i s
S a n F r a n
c i s c
F r a n
k f u r t
C h i c a
g o
M u n
i c h
International
Domestic
London has a far bigger international presence and weight. 45% of equity assets undermanagement are invested in international markets.
New York is a larger but mainly domestic market.
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C
omparing UK and US asl
istingl
ocations London and New York exchanges offer optimal profile London has worlds highest reputation for regulation and governance Principles-based (UK) versus rule-based (US) approach
London has the most liquid equity market in Europe London has the worlds most successful growth market (AIM) London Stock Exchange offers worlds only location for liquid and
transparent trading of GDRs
London combines simple, f lexible disclosure with high reputation of regulators
US disclosure regime more prescriptive, exacerbated by need to protectagainst opportunistic securities litigation
London offers rapid turnaround by regulators, and limits the time regulatorscan take to approve offer documents
US: SEC review periods longer, with no certainty on turnaround time AIM offers potentially shorter transaction timetable
Timing
Disclosure
Trading
Cost-benefit analysis favours London
Profile
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Comparison of international
l
istingl
ocations
Optimal Least suitable
High profile Rapid timing Simplified
disclosure
Trading /
liquidity
London Stock Exchange
NYSE / Nasdaq
Bovespa
Strategic financings from global companies will converge on London or New York
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