London poised for European bond victory.

(From FT Investor (Stories))

London looks set to score an important victory in its fight with rival financial centres over the $2,700bn European bond market by clinching the European Parliament's backing for changes to new rules.

Under proposals to be discussed by the parliament in the next few weeks, companies and venture capitalists issuing bonds in the European Union would be free to choose their regulators.

Freedom of choice for all bond issuers is a key demand of the City of London, which has the lion's share of the European bond market. However, the plan is opposed by some EU regulators and governments, including France, Italy and Spain.

Under pressure from those three, EU governments last year agreed rules requiring companies issuing bonds with denominations of less than [euro]5,000 to be regulated in their home countries.

According to the European Banking Federation, some 60 per cent of all bonds are issued in denominations of less than [euro]5,000 to allow fund managers to spread risk. The rules are aimed at enabling companies to raise money throughout the EU using a single document or prospectus and have to be approved by the parliament.

London fears that if companies are regulated in their home markets, this may drive them away from the City, endangering the dominant position it shares with Luxembourg in the market for euro-denominated bonds.