Negotiable Debt Securities

Definition

In the minds of many, French negotiable debt securities (in French, TCN for "Titres de Créance Négotiables") are associated with the money market and therefore represent all securities issued to meet a short or medium term financing need, as opposed to bonds. In fact, despite their rather vague designation (after all, bonds are also “negotiable debt securities”!), negotiable debt securities have a much more precise definition.

In fact, Negotiable debt securities as defined by French law include only two categories of securities:

  1. Negotiable Euro Commercial Papers (NEU CP)
  2. Negotiable Euro Medium Term Notes (NEU MTN)

Negotiable Treasury Bonds are also frequently added to these two categories of securities, but these are issued by the French State, unlike negotiable debt securities which are reserved for private issuers, and are not regulated by the same laws. We will therefore leave them aside in this presentation. Short- and medium-term debt securities issued by private issuers also include ECPs (Euro Commercial Papers, governed by English law) and EMTNs (Euro Medium Term Notes).

Characteristics

The table below presents the main characteristics of negotiable debt securities:

Characteristics NEU CP NEU MTN
Issuers
  1. Credit institutions, investment firms and French Caisse des Dépôts et Consignations
  2. Financing companies
  3. Other businesses (corporations, agricultural cooperatives, joint stock cooperative societies)
  4. Public sector companies
  5. Economic interest groups and partnerships
  6. European Union institutions and international organisations
  7. French Social Debt Reduction Fund)
  8. Local authorities and their groupings
  9. Associations
  10. States
  11. Securitization organisations
  12. French Central Agency of Social Security Bodies
  13. Regional hospitals
Duration From 1 day to 1 year At least 1 year and 1 day
Minimum amount 150,000 € or 200,000 € if the financial documentation is written in a language other than French
Issue price Price equal to or different from par (redemption premium)
Currency of issue Euro or any foreign currency
Remuneration Free (fixed or indexed rate); if a reference rate other than a standard money market rate is used, the issuer must inform the Banque de France
Guarantee The issue may be guaranteed by a credit institution or an authorised investment firm.
Domiciliation Mandatory with a credit institution or an approved institution for the service of custody account keeping on French territory.
Placement and trading All investment service providers approved for this purpose
Supervision Banque de France
Information The Banque de France publishes statistics as well as the financial documentations of issuers
Redemption by the issuer Possible, subject to notification to the Banque de France
Early redemption Possible, subject to notification to the Banque de France
Rating Mandatory for issuers not falling into one of these categories:
  1. Credit institutions established in the European Economic Area
  2. Caisse des dépôts et consignations
  3. Issuers whose securities are admitted to trading on a regulated market in the European Economic Area
Duty of disclosure
  • Disclosure requirements supervised by the AMF  (French financial market authority)
  • Submission of a financial documentation file to the Banque de France

As can be seen, very few constraints are imposed on the characteristics of negotiable debt securities. The Banque de France oversees the market and an important feature is the need to domicile the issue with a specialised institution.

The issuance program defines a maximum amount outstanding. Once this programme has been filed and approved by the Banque de France, the issuer may issue securities as required. 

Regulation

The negotiable debt security market is regulated by a number of texts which are available on the Banque de France website.

Prior to issuance, issuers of negotiable debt securities complete financial documentation describing their activity, their economic and financial situation and the characteristics of their issuance programme. This documentation is submitted to the Banque de France, which is responsible for ensuring compliance with regulations.

Issuers must make public a rating by an approved agency or have a guarantor. Issuers who have already made a public offer of financial securities, or that are supervised by regulatory authorities by virtue of their status as a credit institution (see above), are exempt from this obligation. Such issuers ultimately account for the bulk of negotiable debt security issuers.

The issuers of negotiable debt securities must use a domiciliary institution. This institution is in particular responsible for ensuring the accuracy of the amount of the issue in accordance with the conditions laid down in the program. It is also the financial agent of the issue, responsible for paying the holders of the securities at the time of interest payments and redemptions. Finally, it fulfills the statistical obligations vis-à-vis the Banque de France.

When the negotiable debt security is registered with a central depository (Euroclear France for example), the latter is responsible for ensuring that the number of securities issued equals the sum of the securities held by all holders. If the negotiable debt security is not registered with a central depository, the domiciliation agent is responsible for this.

Organisation of the market

negotiable debt securities can be traded on a regulated market, but to do so they must be listed with the Euronext market operator, which requires a (chargeable) procedure from the issuer, as well as the production of a "prospectus" (in accordance with EU Regulation 2017/1129) if the securities can be acquired by non-professional investors. For securities with a very short life span, this is of little interest. negotiable debt securities are therefore mainly traded over-the-counter. Moreover, the characteristics of the issue are often defined with a view to meeting the requirements of the investor, usually an institutional investor, due to the high nominal value of the securities.

However, negotiable debt securities can be issued and settled in T2S (Target 2 Securities) via Euroclear France, which is of great interest to participants because of the reliability of this settlement-delivery system. In fact, most negotiable debt securities are settled in T2S.

The Banque de France exercises a prudential mission to supervise issuers. It also ensures market transparency by making financial documentation and statistics collected from domiciliary institutions public on its website.

The market for negotiable debt securities

En cours des TCN à fin février 2020
Ongoing negotiable debt securities at the end of February 2020 (ST = short term, LT = long term)

Due to the prior registration of financial documentation, which then allows the issuer to borrow as needed, negotiable debt securities look like Euro Medium Term Notes. This flexibility also makes them attractive vehicles for securitisation transactions. Finally, the fact that they allow corporate issuers to access the money market brings them closer to US commercial paper or Euro Commercial Paper. Even though financial issuers are still in the vast majority, there has been an increase in issues by non-financial companies.

Ultimately, what makes negotiable debt securities special is the role of the Banque de France as a supervisory authority and guarantor of market transparency.

On the Web

All relevant information is available on this dedicated page of the Banque de France website.

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