Can the EU abolish supply and demand?
The return of ultra-low yields has also meant the return of enormous order books – Commerzbank’s $11bn of demand for its $1bn AT1 debut this week and Merck’s €11bn for €1.5bn two weeks ago, come to mind.
While there is doubtless a lot of real demand out there, it is hard to look at prints like these without wondering how European regulators’ ban on order inflation is going.
Introduced as part of the Market Abuse Regulation (MAR) in 2016, putting in for more bonds than you really want can technically be considered a “suspicious transaction” and syndicate managers are obliged to report it.
Sales teams have made it abundantly clear that messages from investors hinting that they would not like to be allocated in full will not be tolerated — even winky face emojis are a bad idea. Nobody wants to shop their clients to the authorities though, so only orders which exceed the size of an investor’s funds are likely to trigger a report.
That doesn’t mean, however, that the might of the European regulators has managed to wipe out the more excessive expressions of demand.
While investors can’t put in an order larger than their own fund, for the bigger buy-side shops, an order larger than the entire deal is not out of the question. GlobalCapital understands that although this is not commonplace in certain markets, it is not so even so rare as to be remarkable.
In a hot deal, there is no chance such an order will be fully filled, so who is to say whether that order represents “real demand” or not?
The uncomfortable truth for the guardians of MAR is that markets are not sedate and orderly. Investors chase hot deals, looking to flip them for a quick euro. There’s nothing wrong with that. Sometimes, perish the thought, it seems investors are not entirely transparent with the sales people that cover them. That’s fine too.
In some of its aspects, MAR isn’t targeting market abuse, so much as markets themselves.