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Issuers Free to Apply for European STEP Label

Issuers of European short-term papers are now free to apply for a STEP (Short-Term European Paper) label, following the signing of the STEP Market Convention on June 9 2006. The Market Convention is the cornerstone of the STEP initiative, which was set up in 2001 and is being led by ACI, The Financial Markets Association and supported by the Fédération Bancaire de l’Union Européenne (FBE).

The initiative aims to foster the integration of the European market for short-term paper through the convergence of market standards and practices. While the US market is integrated, the European commercial paper markets are segmented into several market places. As a result, issuers and investors in the European short-term paper markets are confronted with reduced depth and liquidity, and have less diversification opportunities than in the US. The STEP inititiative aims to promote a pan-European short term paper market through market players voluntary compliance with the standards set out in the STEP Market Convention. “Integration of the European markets will enhance market depth and liquidity and increase the diversification opportunities for issuers; both financial and non-financial institutions, and investors,” says Euribor ACI and Euribor-Fédération Bancaire Européenne, the two associations responsible for implementing the STEP initiative.

“STEP is a normalisation of the short-term paper programmes in Europe. It is about transparency and harmonisation,” added Franck Hebeisen, chairman of the Euribor ACI STEP task force at an ACI meeting last month. For issuers who are STEP-compliant and apply to the STEP secretariat, a label will be granted. When short-term commercial paper or certificates of deposits earn the STEP label, they become ’regulated’, which provides greater opportunities for European investors. Currently, European funds are restricted in the amount of unregulated paper they can buy. A STEP label lifts the 10% limit and allows European investors to increase their investment in short-term securities.

Brussels Signing

The STEP Market Convention, which is managed by the STEP Market Committee (comprised of 10 industry professionals appointed by the FBE and ACI) was signed on Friday June 9 2006 in Brussels by Guido Ravoet, secretary general of Euribor FBE and Thierry Cazaux, president of Euribor ACI. It sets forth the criteria and requirements that short-term paper programmes must fulfil to be STEP-compliant, covering aspects such as information disclosure, the format for documentation, settlement, and the provision of data for the production of STEP statistics.

To earn the label, issuers must apply to the STEP Secretariat, which has been created under the joint responsibility of Euribor FBE and Euribor ACI. Although the Secretariat is the only party that can award or rescind a STEP label, it has the support of the European System of Central Banks, which has expressed a willingness to contribute to the management of the label for two years after launch and to promote market transparency by permanently publishing statistics on yields and volumes on the website of the European Central Bank. This, it says, will foster integration and reduce issuers’ costs through greater market transparency.

For programmes that have been granted the STEP label, the details will be made publicly available on the STEP Market website ( A list of all the programmes that have been granted a STEP label will be displayed on the website and updated in accordance with the Market Convention. The STEP secretariat can withdraw the STEP label granted to a programme at any time, however, if it contravenes any of the articles of the Market Convention. Information on the procedure to apply is described on the website of ACI, as is the Market Convention. Both are also available from the STEP website,

Issuers Feedback

The signing of the convention follows a consultation period where, at the end of March 2006, Euribor ACI and Euribor FBE asked for feedback from large European issuers on the convention and procedures to obtain the STEP label. ACI says feedback from testers has been crucial in acting as the basis on which criteria of eligibility for programmes and issuers have been adapted. In addition the STEP label is now more user-friendly for some types of short term papers such as ECPs/ECDs without deteriorating the level of transparency and normalisation that this project aims to promote, the association adds.

Last month Jean-Claude Trichet, president of the European Central Bank, gave a ringing endorsement to the STEP initiative during a presentation at the Cass Business School in London on European financial integration. “I expect that the market-led Short-Term European Paper initiative, the STEP initiative, will advance European integration,” he said. “The success of the STEP initiative will be proof that market-led initiatives are essential for the benefits of integrated financial markets in Europe to be reaped.”

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