Commercial paper markets: a survey

Introduction

Commercial paper is a type of fixed-maturity unsecured short-term negotiable debt issued generally in bearer form and primarily by non-banks. At the beginning of the 1980s issuance of commercial paper was confined to the United States, Canada and Australia. The years which followed saw the opening of commercial paper markets in several countries and the establishment of a market for Euro-commercial paper. Although the US market has been the model for several of these new markets, there are many significant differences in the way in which each is organised, the characteristics of the instruments traded, the type of issuer and the nature of the regulations applicable.

This study has three objectives. The first is to consider the role of commercial paper as a source of funding and form of investment relative to other financial instruments. The second is to provide a better understanding of the features common to the various markets and the major differences between them. The third is to examine their pattern of development.

This survey is divided into six sections.2 The first describes the growth of the major commercial paper markets and compares their size to that of markets for closely substitutable instruments and other sources of financing. The second section provides a broad overview of the main characteristics of the instrument and the organisation of the markets while the third concentrates on the markets participants, ie issuers, intermediaries and investors. The fourth section focuses on the restrictions imposed by the legislative and regulatory frameworks, including taxation. The fifth discusses the pricing of commercial paper and default experience. The sixth section examines the development of the markets, focusing on the factors underlying their growth, the common features of their evolution and the process of convergence.