Euroclear France has adapted its service offering to comply with the new fungibility rules applying to the stripping and reconstitution of fixed-rate OATs.
The new rules stipulate that any fixed-rate OAT should be strippable into fungible “zero coupon” securities or “STRIPs”, representing a principal and interest percentage. Therefore, stripping will no longer result in the creation of principal and interest certificates. Current interest and principal certificates will be retained by their holders or, if applicable, converted into STRIPs through solutions developed by Euroclear France.
Euroclear France, as central securities depository, ensures efficient settlement and custody services for stripping and reconstitution operations initiated by primary dealers through its ESES (Euroclear Settlement of Euronext-zone Securities) platform.
As member of the unit in charge of this project, Raoul Salomon, Managing Director at Barclays Capital, states: “The implementation of the STRIPs fungibility is an important evolution to increase the OATs market’s liquidity.”
According to Valérie Urbain, Chief Executive Officer of Euroclear France, “Euroclear France has been following the evolution of the stripped OATs market since its creation. This new service offering meets the needs of the primary dealers to benefit from an increased fungibility while maintaining an automated and secured processing of their stripping and reconstitution operations.”
Philippe Mills, Chief Executive of Agence France Trésor, concludes that: “Primary dealers and Euroclear France have shown great flexibility to adapt existing mechanisms to the implementation of these new stripping and reconstitution rules.”