French short-term investors will soon have more reason to look beyond the Asset Backed Billet de Tresorie (ABBT) market, as regulatory constraints that were previously an issue for investors in the ECP market are set to be lifted.

In the next two years, the French Regulation for Undertakings for Collective Investments In Transferable Securities (UCITS) must reflect the recent European Union directive that treats European commercial paper as a regulated instrument.

Until now, the ABBT market has benefited from an advantage presented under French legislation, which currently views it as a regulated instrument. The instrument is regulated under the law governing negotiable securities and is under the control of Banque de France and the Commision des Operations de Bourse, the French version of the Securities & Exchange Commission.

European commercial paper, on the other hand, is not considered a regulated instrument, and as a result short-term investors are limited to investing a maximum of 10% of their assets in financial instruments not traded on the regulated market. With the new legislation such a limit would no longer exist. "It would ensure more fair treatment between the two instruments," said one market source.

But market analysts said the near-term impact will be minimal for investments in French Billets de Tresorie. In a recent report, Fitch Ratings said that the difference between the instruments did not influence the agency's determination of credit risk.

While the new legislation meant that going forward there would be no reason to prefer BT to ECP, the migration to the ECP market would be gradual because the French domestic short-term market was largely defined by the proximity to the issuer.

"The ABBT are mainly bought by French domestic investors, which makes name recognition an important investment criteria and creates some inertia," reported Fitch. "Some sponsors of ABBT programs may also be tempted to issue ABCP in the future, given the less restrictive regulation."

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