CySec: Risks Associated with Investing in Contingent Convertible Instruments
The Cyprus Securities and Exchange Commission (CySEC) has published an announcement regarding the supervised entities, the stakeholders and the investing public to the statement published by the European Securities Markets Authority (ESMA) titled Potential Risks Associated with Investing in Contingent Convertible Instruments.
Despite the fact that the above mentioned statement by ESMA is addressed to institutional investors, the CySEC, however, considers that it would be good to be read and taken into account by non-institutional private investors (retail investors) as well.
ESMA is issuing this statement to clarify to institutional investors risks from a newly emerging asset class referred to by most market participants as contingent convertibles instruments (CoCos). If they work as intended in a crisis CoCos will play an important role to inhibit risk transfer from debt holders to taxpayers. They, along with standards to improve the quality and quantity of bank capital, reflect a considerate response to the former regulatory capital framework.
However, it is unclear as to whether investors fully consider the risks of CoCos and correctly factor those risks into their valuation. ESMA believes there are specific risks to CoCos and that investors should take those risks into consideration prior to investing in these instruments.
The full text of ESMA’s statement can be accessed at its website.
Source: CySec- CySec: Risks Associated with Investing in Contingent Convertible Instruments
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