Potential Bifurcation of the EU and US Securtization Markets

According to a recent Financial Times article, the European Commission’s plan to boost Europe’s securitization market through regulatory changes is causing concern over market fragmentation. The EU is in the process of introducing measures for simple, transparent and standardized (“STS”) securitizations that must be originated in the EU. This has raised the question of whether European investors will be discouraged from buying deals originated elsewhere, in particular those created in the US, according to the article.

Market participants believe investor demand may be affected from across the Atlantic as prices for EU STS securitizations increase, potentially discouraging outside investment.

“Both are serious problems,’’ said Alexander Batchvarov, Head of International Structured Credit Research at Merrill Lynch. “This is just another brick in the wall of the domestication and fragmentation of global capital markets. Suddenly, anything that Europeans buy outside Europe becomes non-STS.’’

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