WRITTEN QUESTION No. 3608/97 by José GARCÍA-MARGALLO Y MARFIL to the Commission. Commission communication on the impact of the introduction of the euro on capital markets (COM(97)0337)
Date: 1997-11-13
Institutions: European Parliament, Provisional data
Subjects: Economic and Monetary Union, bond, capital market, currency convertibility, exchange transaction, financial transaction, monetary relations

16. 6. 98

EN

Official Journal of the European Communities

C 187/27

(98/C 187/41)

WRITTEN QUESTION E-3608/97

by Jose· Garc(cid:14)·a-Margallo y Marfil (PPE) to the Commission

(13 November 1997)

Subject: Commission  communication  on  the  impact  of  the  introduction  of  the  euro  on  capital  markets

(COM(97) 0337)

On the subject of fixed capital markets, one of the possibilities suggested in this document for redenomination of
existing debt would be to work on the basis of a fixed minimum denomination with cash compensatory payments
(the (cid:145)top-down(cid:146) method).

The  document  states  that  one  drawback  of  compensatory  payment  ›  an  essential  part  of  a  (cid:145)top-down(cid:146)
redenomination › is the variations in the cash flow generated by coupon payments and in the maturity value of
the bond.

Can the Commission explain, in general terms, why it considers such variations would be harmful?

Joint answer
to Written Questions E-3607/97 and E-3608/97
given by Mr de Silguy on behalf of the Commission

(13 February 1998)

In the Commission communication on the impact of the introduction of the euro on capital markets (1), a number
of methods for the redenomination of debt are examined. The two main methods examined are called (cid:145)top-down(cid:146)
and  (cid:145)bottom-up(cid:146).  The  communication  expresses  a  preference  for  the  (cid:145)bottom-up(cid:146)  method.  According  to  this
method,  redenomination  would  not  alter  the  total  volume  of  securities  issued  and  the  potential  for  rounding
differences would be reduced to insignificant amounts.

According to the (cid:145)top down(cid:146) approach the original issue is broken down into a number of (cid:145)pieces(cid:146) with identical
minimum denominations. Each of these minimum denominations is redenominated using the conversion factor
and rounded to the nearest cent. The new total amount of the issue is then calculated by multiplying the minimum
denomination in euro by the number of (cid:145)pieces(cid:146). This new total is likely to be different, because of rounding
differences,  from  the  direct  conversion  of  the  total  amount  of  the  issue.  The  difference  would  have  to  be
accounted for through compensatory payments.

The compensatory payments would be necessary to avoid the possibility of artificially generating or destroying
stock. This cash payment would expose either the issuer or the investor to reinvestment risk. As a consequence of
such compensatory payments, the cash flow generated by coupon payments and in the maturity value of the bond
would be slightly modified. This could have implications for the related derivative instruments since the hedges
set up prior to redenomination are based on the exact expected cash flows generated by coupon payments and in
the maturity value. If such cash flows are modified, even if the amounts are very small, they would no longer
correspond to the related derivatives operations. If a (cid:145)top down(cid:146) approach is chosen, it should be implemented in
a way to avoid the potential problems. However, as mentioned above, the potential disruption would only appear
in case of outstanding derivative contracts related to the denominated bond.

Detailed examples to illustrate the (cid:145)top down(cid:146) method are included in the Commission communication (page 12
of the English version).

(1)  COM(97) 337 final.

(98/C 187/42)

WRITTEN QUESTION P-3616/97

by Alexandros Alavanos (GUE/NGL) to the Commission

(10 November 1997)

Subject: Implementation of Regulation 3577/92

The Commission report to the Council on the implementation of Regulation 3577/92 (1) states in paragraph 5.5
that the Commission is consequently of the opinion that the terms for manning vessels with crews from the state
of registration should apply on a certain date (to be decided later) to the entire EU market in domestic maritime
cabotage. A similar arrangement with some exceptions is advocated for regular ferry lines.