Euronext has launched a new suite of environment, social and governance (ESG) focused products, services and initiatives, designed to provide a robust framework of tools for European capital markets to drive sustainable growth.
Euronext has partnered with Vigeo Eiris Moody’s to create a new ESG index, the Euronext Eurozone ESG Large 80, which tracks the eurozone’s 80 best-performing large cap companies that are strong on social and governance criteria and leading the transition to a low carbon economy. The new index is in response to investors’ need for a public climate action benchmark in the eurozone.
In addition, Euronext in conjunction with its partners CDP, Carbone 4 and Vigeo Eiris Moody’s, aligned the Low Carbon 100 index, created in 2008, with the current draft of EU regulation on low carbon benchmarks in accordance with the Paris Agreement objectives. This includes a 7% year-on-year reduction of CO2 emissions, a limit of 1.5°C global temperature rises by 2050 and exclusion of fossil fuel companies.
Earlier in June, Euronext, backed by four market makers – BNP Paribas, DRW, Optiver and Société Générale – introduced its first futures derivatives contracts based on an ESG index. The ESG 80 futures provide effective hedging tools and allow more investors to gain exposure to the sustainable economy in the eurozone.
Stéphane Boujnah, Euronext CEO and chairman of the managing board, said, “Today is an important milestone in executing the ESG roadmap of our three-year strategic plan ‘Let’s Grow Together 2022’. Euronext can significantly advance the European sustainability agenda through its unique role in financing the real economy, connecting local economies with global capital markets.”
He adds, “Our ESG product strategy ensures investors can deploy their capital efficiently and transparently to support high-impact projects and companies. Furthermore, we are proud to be the first stock exchange to endorse the UN Global Compact’s nine Ocean Principles. Protecting our oceans and supporting marine conservation will be vital to repairing our ecosystems and bolstering the Blue Economy.”
A new podcast series, first published by our sister publication, Global Trading.
David Braga, CEO, BNP Paribas Securities Services Australia & New Zealand, and Luc Renard, Head of Financial Intermediaries & Digital Transformation, Asia-Pacific for BNP Paribas Securities Services, discuss the evolution and the future of securities services with Markets Media Editor Terry Flanagan.
With Jon Williams, Head of Fixed Income, Refinitiv
Fixed income data can be a challenge, given disparate sources, a lack of liquidity, and opaque/fragmented markets. Is that changing and how?
Jon Williams, Refinitiv
When we talk about fixed income data, we need to determine what we’re referring to in terms of the underlying instruments. Some areas within fixed income, like U.S. Treasuries, U.S. residential mortgages, and vanilla interest rate derivatives, are liquid markets with fairly broad pricing information available, and tight, orderly bid-offer spreads updating essentially in real time.
But there are fragmented, more opaque markets that lack the same degree of liquidity. With the global move towards more regulatory oversight over the past decade, there have been improvements in price availability and transparency. The continued growth of electronic trading across the entire spectrum of fixed income has also been significant. Hundreds of billions of dollars a day trade electronically, all of which generates data that market participants package, normalize, standardize and distribute.
So technology has been a big driver of change, as has regulation, and there’s a lot more data produced, which is a trend we expect to continue.
As a company with deep roots in data, how is Refinitiv approaching the data challenge?
The challenge used to be a lack of data, but now it’s managing the sheer volume of data. In positioning ourselves technologically to handle the deployment of data to our clients, we have developed a technological and business infrastructure which we call RDP, Refinitiv Data Platform.
When I visualize Refinitiv’s data platform it looks like an hourglass. At the bottom there is a broad array of data from numerous sources, such as trading venues, exchanges, and evaluated pricing providers. We aggregate, curate and enrich the data, and as we move up the hourglass visualization, the data becomes more broadly deployable. We then progress up through the hourglass to authenticate and permission the data for distribution. That can take two paths for us — internally powered analytic functions, i.e. bespoke capabilities within our various desktop offerings, or distribution across different managed services that we operate. At the top of the inverted cone, it’s back to the notion of delivery across the client communities.
The idea of optimizing, normalizing, authenticating, permissioning and distributing data is all done to enhance the usability of the data and improve the client experience.
As pricing improves, even for illiquid securities, what is the impact?
The more illiquid the security, generally speaking, the wider the bid-offer spread, and the higher the cost of execution. So when you consider the by-product of dynamics like TRACE, the European MiFID II regulation, and other mandates around price transparency, the result is more price information available, which makes determining relative value easier. This compresses bid-offer spreads, which increases the number of willing counterparties and results in more transactions and pricing
There’s another consideration. Historically, when we speak about illiquid securities and opaque markets, it’s in the context of a two-tiered market structure, with the buy side as liquidity consumers and banks as liquidity providers. Within that construct, there has been a perception that liquidity providers have an advantaged position concerning price information, so there is informational asymmetry. In reality, it’s the reverse. It’s the buy side who has access to price information from multiple counterparties; liquidity providers only have their own pricing. So when a buy-side client requests a price quote, the sell-side trader is the one working from a position of a relative disadvantage, because they’re seeing only their single view of the market.
How are new technologies like AI and machine learning providing solutions to traders, and how is it changing the way traders interact with counterparties?
AI and machine learning are not new ideas, but they are relatively new phenomena in terms of practice and application, because there were two components missing from the equation to allow the real application of this technology.
One of those was scale. Cloud technology allows for a significant increase in access to computational power, enabling firms to scale essentially in real time computational utilization based on need. The other critical component in delivering solutions around AI and machine learning is a broader pool of data.
AI and machine learning have the capability to change the fundamental way that counterparties interact with each other. Historically these interactions have been reactionary — something happens in the market, and that necessitates a trader response. But AI and machine learning are the inputs and the drivers into newly evolving, continually innovating suites of analytics that one might call predictive analytics. Increasing data is not just the availability of pricing data, it’s also metadata associated with the transactions themselves, that can be used to make predictive analytics calls and construct predictive analytical calculations. How big was the transaction? What type of customer? What else was going on in the market? If a client went out to more than one bank, how many prices came back and what was the range of those prices?
There’s a broad utilization of a much deeper dataset with AI and machine learning.
As market participants navigate the challenges of COVID-19, what is important for traders? Are they using different tools and solutions? What will be the lasting impact?
Whatever the ‘new normal’ ends up being, we will be more reliant on technology. The most critical input into any financial professional’s job is access to information. There’s a presumption that the box, or the collection of boxes on a trader’s or portfolio manager’s desktop, is their sole information source. But when you look at a trading floor, whether buy side or sell side, there’s so much activity going on and the flow of information can be intentional, like two people sharing information, or almost accidental, like a trader on a crowded floor overhearing information and using that to make a decision.
That ‘accidental’ information is gone now that physical proximity has been removed, and collaboration is 100% intentional and entirely technology-driven. The importance of having capabilities on the desktop is critical, as is the ability to then leverage tools around collaboration, whether functionality such as Microsoft Teams, or Refinitiv’s client messaging system, Refinitiv Messenger, to communicate.
When we do come back together, we must presume we’re not going back to exactly the way it was, and it will be that way for a meaningful period of time. It probably will be a blend of where we are today and where we were several months ago, and it will be interesting to see how much need that was filled by technology moves back in favor of physical information flow.
Can a ‘single view’ be created for fixed income traders to give them all the data/tools/analytics in one desktop? Or is another model better suited to the needs of this complex market?
On a trader’s desktop 15 years ago, you saw two fairly ubiquitous boxes. These were essentially ‘contained’ desktop solutions, whether they were a legacy Reuters desktop or another from a competitor. Today, you don’t see recognizable branded boxes, but you see monitors that are essentially a proprietary collection of applications. A Treasury trader’s desktop might be an aggregation of capabilities made up of six or eight or 10 monitors, and that is different from what you see on the desktop of a mortgage trader, or a corporate bond trader, or a swaps trader.
As workflows become more automated, the trader’s desktop will be a single desktop, however that desktop will be a collection of tools that, driven by data, allows that trader to optimize his or her execution and workflow.
With Gary Collier, CTO of Man Group Alpha Technology, and Hinesh Kalian, Director of Data Science, Man Group
What are the main data challenges / pain points for the buy side?
Gary Collier, Man Group Alpha Technology
A big challenge is obtaining and retaining data science talent. It is apparent that there is a growing demand, and therefore competition, for data science talent across all industries, not just in financial services. Another challenge relates to the ability to ingest and curate structured and unstructured data rapidly and in a variety of raw formats. The growth in new data providers has led to a wide variance in the quality of data offered by data providers; some providers are well-established and have appropriate data science and technology teams, whereas others can be as limited as two employees in a start-up.
For data to be useful it needs to be clean, consistent and sourced and processed appropriately. Often data is provided after some processing steps are done, which limits awareness of the raw data and can lead to the risk of false representation and predictability.
How does Man Group leverage data as a competitive advantage?
Hinesh Kalian, Man Group
Data is the raw ingredient that fuels alpha models and investment decisions. In order to avoid the garbage-in/garbage-out conundrum, you need to improve your data collection and organization and create consistent methods to cleanse, process and find insights from data.
Man Group’s data science specialized function utilizes advanced technology for rapidly sourcing and on-boarding new data sources and combines quantitative skill sets to filter out the noise, creating a potential competitive advantage in a fast and evolving landscape. These capabilities lead to the democratization of data, breakdown of silos and access to data at scale. As firms continue to add to this scale, you end up with a data “ecosystem” which creates the ability to combine multiple data sources, in multi-dimensional ways, to build alphas and risk models.
To be competitive, we need to look at the broader landscape to efficiently discover new data sources to test investment hypotheses and invest in building leading edge technology that unveils the true potential of the data. Our continued investment in building our data infrastructure and the usage of advanced technologies has provided us with the scale to source, process, store and evaluate vast amounts of big data.
Another dimension to gaining a competitive advantage relates to talent and close ties to academia. At Man Group, our continued focus on academia, technology and open source communities provides our talent pool with diverse ways to further develop their expertise. For example, the Oxford-Man Institute has focused on machine learning and data science over the last decade, connecting our research teams with renowned academics from around the world. Additionally, our data teams are exposed to a mix of quantitative and discretionary investment management styles.
Gary, you have been with Man Group for almost 20 years, how has data science evolved in asset management over that time?
It’s been a very interesting evolution. For the first 17 years of my time at Man, I worked for Man AHL, our quantitative systematic investment Engine. Man AHL, now with a track record of over 30 years, was one of the original practitioners of computer-driven systematic trading. Throughout this history, the key theme has been the analysis of large data sets in order to scientifically test hypotheses of financial market behaviour, and ultimately build automated models to extract these signals and trade based on them. So in a very real sense, Man Group was “doing data science” in asset management long before the term was in common usage.
But what has certainly changed has been the volume and type of data, and the techniques and technologies needed to analyse them and extract value. The world of 20 years ago typically involved application of statistical techniques using custom technology environments (built in-house using low-level languages such as C (a structured oriented programming language) to fundamental data, or simple time-series data such as asset price or traded volume. Nowadays, elements that contribute to the “objective truth” about the value of an asset exist in a multitude of different data sources, many of which are not necessarily numerical, are large in size and contain high levels of noise. Technology has had to advance on all fronts, from low-level compute, storage and network infrastructure to deal with the increased scale of the problem, to harnessing the huge data science power inherent now in the ecosystem which surrounds the Python programming language.
Analysis techniques have also evolved. Statistical and fundamental analysis are, of course, still key. But these traditional techniques have been augmented with the likes of machine learning, natural language processing and even image analysis.
Organisationally, we also see data science emerging as a first-class concern and department in its own right at many asset managers, and Man Group is no exception. Building a specialised function which draws together a range of quantitative and operational skills, including the ability to scout new sources of data, use advanced technology for rapid on-boarding, perform initial value-add analysis and deal with what is often a “dirty/noisy” space. A combination of all of these skills is necessary if you want to stay at the forefront of a field which is both fast-evolving and constantly producing new data sets.
What kinds of backgrounds do you look for in new hires? Gary has a degree in Theoretical Physics, a STEM background that I imagine was unusual in the industry in the 1990s, but perhaps that’s more the norm today?
There seems to be no specific golden pool, however, recruiting talent that have strong academic backgrounds, Masters or PhDs in various fields like physics, computer science, statistics, finance and machine learning has worked well. Candidates who are likely to have a passion for data, curiosity, enjoy scrutinizing data and have strong academic foundations will likely be in a stronger position. An ideal candidate may wear many hats and must have the ability to communicate insights in the data to the wider audience. We have seen success in employees that are a hybrid of data manipulator, data scientist, engineer and communicator.
Does Man buy and build its data infrastructure? Or just build? What is the rationale for the firm’s approach?
Man Group uses a combination of purchased vendor products, open-source software and in-house software in an attempt to create an overall best-of-breed data platform. For physical infrastructure, whilst we do make use of public cloud, in many ways we favour a contrarian approach, leveraging the performance and end-user experience made possible by our in-house private cloud running on servers, flash storage and networking. We use a very small number of vendor software products, instead leveraging large amounts of open-source software, and combining this with in-house code and “secret sauce” to build high-performance data streaming pipelines, storage and distributed compute and analysis frameworks. Unlike many asset managers, we also contribute extensively to the open-source community in the data space, and have also open-sourced some of our proprietary code including Arctic, a high performance tick and time-series store, and D-Tale, an exploratory data visualisation tool.
What is the future of data science in the buy-side front office? How do businesses stay ahead of the curve?
It is clear that buy-side firms have increased their data spend considerably over the last five years; the number of alternative data full-time employees has grown fourfold over this time period. This directly impacts the demand for superior data acquisition and data science capabilities. The role of data science will become an increasingly prominent function in buy-side firms. Funds will need to build and enhance their infrastructure and data science capabilities to deal efficiently with the vast amounts of data available. Not every new data source will provide value to your portfolio. There is a cost associated with sourcing, testing and evaluating new and alternative data. To stay ahead of the curve, firms need to continue evolving and researching new ideas, invest in data science talent and introduce advanced technologies and solutions to process unstructured data.
With Susan Chan, Head of Asia and Head of iShares and Index Investing & Trading, Lending and Liquidity, APAC, BlackRock
What is the state of women in finance in 2020? What progress is still needed?
Susan Chan, BlackRock
We have made progress. The topic of women in finance has become more front-center in the past 10 years. When I started in the industry in the 90s, the topic of women in finance rarely showed up anywhere. Awareness has significantly improved, which is great to see. We are seeing more females taking on senior leadership roles, more trading positions, and there are more women investors and more women CIOs. We have made good progress globally, but the industry has to do more, especially at the senior level.
What has been your personal experience as a woman in finance?
When I started in this industry, it was very male-dominated. I joined as a derivatives trader, and for the first five, six years of my career, I think I was probably the only female in Hong Kong doing what I was doing. Did it feel awkward? No, because there was a lot of camaraderie — at the junior level in the 90s, I felt very encouraged and supported. When I became a bit more senior as VP and then director, that was when I started feeling the shift. The stakes are higher at those levels and it is an even more male-dominated environment. You have to have a tougher skin and you have to learn not to take things personally in order to demonstrate that you are strong enough to be a trader.
While I felt those challenges during different periods of my career, I have been very fortunate in having great male role models, sponsors and mentors. This is a critical piece of the equation, because no matter what time period you are in, having good sponsorship, mentorship, and role models, be they male or female, is really important. In the finance industry, what we see right now is that more men are sponsors and mentors for women, simply because we do not have enough women in senior leadership positions. We believe this will not be the case for much longer and we will see more women in senior roles and pay it forward.
You are on the Advisory Board of the GlobalTrading Women in Finance Asia Awards program. What do you see as the role of this group?
It is incredibly important to provide the sponsorship and a voice to recognize great women in finance. Not only recognize the women, but also recognize the men and women who support them and create a venue for us to celebrate great women in finance. It is a great initiative and we need to recognize women more.
Discuss BlackRock as an employer in terms of encouraging, recognizing and promoting women in finance?
Gender equality is very important at BlackRock. We have been very successful in terms of engaging at all levels, especially at the Director and MD levels where a lot more attention needs to be. Our graduate population intake is pretty much 50-50 women-
men, and some years we see more women than men. We have early career programs to help women. We look at each level, for example in Asia we have had an early associate-level sponsorship program where we paired young women with senior executives to coach and foster them. We also have global programs like our Women’s Leadership Forum, where we bring senior women together and develop them as future leaders for the firm.
How do you connect individual success with organizational success?
If we deliver as a group, that to me is incredibly fulfilling and that equates to my personal success. I get a lot of pride out of developing young talent and seeing them accelerate through their careers. That is something we focus on here at BlackRock — making sure that the people who are with us, both male and female, have great careers. We are in the people business, and if we manage our people well, our people will deliver.
How do you strike a work-life balance?
The first thing I always tell women is that it is hard. Let’s not kid ourselves that it is easy. The other thing I tell women is that there will be days you wake up and you just know it is going to be a bad day. We have four children and sometimes it is incredibly stressful with the screaming and crying. But that is okay when it is like that — just take a deep breath and know that it is okay. You have to have that perspective when trying to balance work and life.
Another important thing is to be disciplined in ensuring you have some time at work every day to be able to decompress and think about the things you have to get done. I tell people you have to be draconian about that one or two hours blocked in your diary every day. My lunch hours are always blocked, either with clients, or for a walk or a workout, or I stay in the office and have lunch and catch up on reading. You also have to take time for yourself outside work. I block in ‘me time’ every Saturday morning, when I take a few hours by myself and I go do my own things. This helps me maintain my own balance, but what works for me may not work for others — everybody needs to find their own work life balance, and it takes some trial and error. When you achieve this, you are going to know it because it feels natural.
What is your advice for young women just starting out in finance?
I would highlight two things. One, no question is ever a dumb question. You are here to learn, and if you don’t ask, you won’t learn. Two, connections are critical. Everybody you meet in your career might someday be someone you will connect with again. So remember to build connections, because that is your personal equity.
What is the future of women in finance?
We will see more women in senior leadership positions. There is a strong focus on that, both at BlackRock and across the industry. I am very optimistic that we will see a lot more female leaders in the next five to ten years.
A new podcast series, first published by our sister publication, Global Trading.
David Braga, CEO, BNP Paribas Securities Services Australia & New Zealand, and Luc Renard, Head of Financial Intermediaries & Digital Transformation, Asia-Pacific for BNP Paribas Securities Services, discuss the evolution and the future of securities services with Markets Media Editor Terry Flanagan.
Ep. 1: Securities Services: Past, Present and Future
In the current turbulent envrionment, cost control followed closely by risk and compliance issues, and geographical expansion are main areas of concerns for asset managers, according to Northern Trust’s White Paper – Driving Growth in Asset Management: Solutions for the Whole Office in 2020 and Beyond.
Ryan Burns, Northern Trust
The survey of 300 global asset management firms, which was conducted for Northern Trust by WBR Insights, shows asset managers are struggling to balance growth strategies with escalating costs and fee pressures. Around 87% said their key strategic objective for the next two years will be controlling costs, while nearly as many (86%) also expect to focus on risk, compliance and resiliency.
In addition, 49% are planning on entering new markets to drive distribution growth. Continental Europe tops the chart for the greatest opportunities at 31%, closely followed by the US,29% and the UK, 20%. In terms of products, the majority of those canvassed said their investors preferred a regulated funds structure and domicile.
In general, 64% of those polled plan to leverage new technologies to achieve their overall major objectives while 55% expect to change product strategy with 41% citing mergers and acquisition action.
Managers are also exploring the range of outsourcing options to drive efficient growth and strengthen fundamental processes. For example, 85% of respondents have either already outsourced their trading desk or are interested in doing so in the future. Nearly half or 45% are considering it for data management in the next two years while approximately one-third are thinking of doing the same with foreign exchange and middle office functions.
Clive Bellows, Northern Trust
“Driving profitable growth beyond 2020 will require more than finding new streams of revenue or reducing costs,” said Ryan Burns, head of Global Fund Services (GFS), North America. “The most successful asset managers are rethinking their operating models from the perspective of their whole office, seeking holistic changes such as outsourcing that can help them grow their businesses.”
“Asset managers today want true flexibility to choose the best partners for their investment processes,” says Clive Bellows, head of GFS EMEA. “For example, they want to be able to select an order management system, or a foreign exchange provider, or a trading solution that fits the way they work. Decisions that ultimately help drive alpha today are focussed on optionality and interoperability.”
David Braga, CEO, BNP Paribas Securities Services Australia & New Zealand, and Luc Renard, Head of Financial Intermediaries & Digital Transformation, Asia-Pacific for BNP Paribas Securities Services, discuss evolving business models for institutional custodians with Markets Media Editor Terry Flanagan.
Jan Bart de Boer, chief commercial officer at ABN Amro Clearing Bank, said there will be a discussion this year between central counterparties and their clearing members on the redistribution of risk and reward following the increased volatility caused by the Covid-19 pandemic.
He was interviewed during the Eurex Digital Derivatives Forum this morning.
Jan Bart de Boer, ABN Amro Clearing Bank
de Boer continued there has been a slow burning discussion between market participants and CCPs on the distribution of risk and reward which has become more urgent since Covid-19 caused an increase in volatility in March.
“Margins increased over a very short time so maybe they are too low in normal markets ?” he added. “The performance of CCPs has been stellar but clearing members have lost a year of income.”
de Boer said ABN Amro Clearing Bank had performed its role of absorbing risk very well during March.
“We had one failure out of 700 clients, after 20 years of no losses, which shows how extreme the markets were,” he added.
Philip Simons, global head of sales, fixed income derivatives funding & financing at Eurex, said during the forum that the volatility in March led to five days of volumes that are amongst the all-time top 10, with monthly volume 85% higher than in 2019.
In addition, Eurex made 51 intra-day margin calls in March compared to 19 last year.
Simons continued that equity derivatives had the highest increase in margins in March.
“The Eurostoxx 50 margin rose from 7% to 17%,” he said. “The increase could have been more dramatic but we use a longer period for our risk calculations and have a stress floor.”
He agreed that the market should debate margin levels, as some participants want a smaller rise during periods of volatility.
“For our clients margin optimisation is high on their agenda,” Simons added. “The market should move towards the integration of repo trading, securities lending and derivatives.”
Bank of England research
The Bank of England said in a research report that daily variation margin calls by UK CCP in derivatives markets in March were around five times the average daily margin calls for January and February. Variation margin calls also increased for uncleared derivatives.
"Should" is the key word in this statement. Almost like the regulatory focus on capital and liquidity management has not been the same as the market regulatory focus on CCPs and margining… #finreghttps://t.co/vWJyeLq8O7
The UK central bank said margin helped to ensure derivatives markets remained resilient throughout the recent market shock but also resulted in a large movement of liquidity around the financial system.
“This contributed to a ‘dash for cash’ in March 2020, as some market participants appeared to have insufficient buffers of cash-like assets to meet actual or anticipated margin calls,” said the study.
The report said prudent margining is an important part of risk management in the system and is not a trade-off with liquidity risk.
“Participants in derivatives markets should ensure their liquidity management strategies take account of the possibility that margin calls and requirements may rise significantly during periods of market turbulence,” added the Bank of England.
Daiga Auziņa-Melalksne, chief executive of Nasdaq Riga and head of Nasdaq Baltic Markets, said the European Commission should focus on smaller companies as it looks to reform the region’s capital markets.
The European Commission’s High Level Forum on the Capital Markets Union published its final report this week.
A fully fledged capital markets union can be a game changer that will help rebuild the EU’s economy, by providing new funding sources for businesses and investment opportunities for Europeans #CMU Read the report by the high-level forum: https://t.co/HfX7bb0jCNpic.twitter.com/5igDd14JKt
Auziņa-Melalksne told Markets Media that she applied to be one of the 28 members of the forum in October and represent the Baltic and Nordic markets.
“Equity markets are developing in the Baltics and I wanted to provide a smaller company perspective,” she added. “Every unicorn started as a small or medium-sized enterprise so it is important they are attracted to public markets.”
The report includes 17 recommendations that aim to develop a more vibrant and long-term equity market, and noted this is needed more than ever for future recovery after the Covid-19 crisis.
The conclusion said: “Taken together, the measures, which are proposed, will lead to national capital markets that are better integrated, that are larger, more efficient, and better positioned for the future.”
Daiga Auzina-Melalksne, Nasdaq
Auziņa-Melalksne highlighted the recommendation that the European Union create a public-private fund to back initial public offerings to support specialist financial intermediaries targeting pre-IPO and/or public equity market investments as investors usually prefer to fund larger companies.
“Such financial intermediaries can substantially support IPO fundraisings as well as subsequent secondary capital raisings, by acting as an “anchor investor” to take a material allocation of the shares issued, providing a strong signalling effect to other potential investors,” said the report. “An anchor investor can be particularly beneficial where the investment hypothesis includes technology components or life science companies requiring a strong domain knowledge.”
She also pointed to the need to reduce the burden of regulation for SMEs.
“Transparency is important but the prospectuses have too many disclosures which are not relevant for SMEs or retail investors,” added Auziņa-Melalksne. “Regulation increases the cost of coming to market and the number of IPOs is decreasing.”
The report also recommends that SME research should be removed from the MIiFID II unbundling requirements, which prohibits reproach payments being bundled together with trading commissions. Auziņa-Melalksne said: “Research on SMEs is non-existent.”
The European Union launched the plan for the Capital Markets Union in 2015 in order to remove the national barriers that prevent cross-border savings, investments and capital raising, and to reduce the reliance on bank loans, but little has happened
“The report has made concrete recommendations and we need the EU and national governments to commit to creating vibrant European capital markets,” added Auzina-Melalksne.
Reactions
The Association for Financial Markets in Europe:
#CMUlive We must seize the opportunity to develop a fully-fledged Capital Markets Union for the benefit of Europe’s businesses and citizens. Read @AFME_EU’s press statement: https://t.co/c1XqsDGmjW
Pablo Portugal, managing director at AFME, said in a blog:
“The importance of the CMU project has never been more obvious,” he added. “Some topics will require further assessment and discussion. For example, while promoting equity research coverage on SMEs is a very legitimate aim, creating a bespoke treatment for SMEs with exemptions from the MiFID II unbundling rules could lead to further regulatory complexity and other drawbacks.”
Portugal continued that the upcoming reviews of key legislations – MiFID/R, CSDR, Solvency 2, the Securitisation Regulation and the bank prudential framework, among others – must be pursued with a focus on the CMU.
He noted there is long history of European initiatives which have aimed to tackle fragmentation in taxation regimes, insolvency procedures and legal definitions but progress has been slow due to divergent national laws and legal systems.
“Yet such legal frameworks are fundamental in underpinning the functioning of capital markets and building a true CMU,” he added. “One can only hope that member states will find the willingness to implement the HLF’s recommendations to overcome deep-seated inefficiencies and legal impediments to capital market integration.”
European Fund and Asset Management Association:
Europe needs more than ever a well-functioning #CMU to support its economic recovery and provide alternative sources of financing, putting the financial well-being of European citizens at its centre. 📄Press statement https://t.co/RTllbj4ooO#CMUlive#ESG
EFAMA said in a statement: “On a more critical note, we are disappointed to see that the report does not refer, even incidentally, to the increasingly important issue of data costs. This constitutes a clear impediment to the effective functioning of CMU that needs to be addressed head-on through decisive actions from policymakers and supervisors.”
David Howson, president of Cboe Europe:
Cboe Europe President David Howson, a member of the European Commission’s High Level Forum on Capital Markets Union, welcomes the publication of the group’s final report today. Read our thoughts on the importance of a consolidated tape to the CMU here – https://t.co/Mnw8UAY32Rpic.twitter.com/6o1gURpMBi
Howson said in a statement: “We have long advocated a European consolidated tape to encourage a more competitive market for data services, support new trading venues and innovation by giving all platforms a shop window for their services, and making data more accessible to a much wider range of investors, particularly retail.”
Virginie O’Shea, founder of Firebrand Research:
In all seriousness though – there's some interesting stuff in there. They actually mention improved corporate actions processing as a #CMU post-trade goal and #cloud gets a mention too. #fintech#finregpic.twitter.com/HT2DaHHBUA
ICMA said in a statement: “ICMA also notes that the further development of the CMU is an opportunity to re-consider any remaining examples of national rules within the EU which hinder the efficiency of cross-border capital markets.”
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