Asset managers have warned that policymakers will “bear the responsibility” if EU capital markets “continue to fail” their users, ahead of important negotiations on capital markets infrastructure taking place next week.
Through industry groups, asset managers have urged policymakers not to “concede to pressure which will lead to suboptimal outcomes” in the review of the Markets in Financial Instruments Directive/Regulation (MiFID/R).
The MiFID/R review is important for the success of the Capital Markets Union (CMU), whereby EU capital markets across asset classes are more integrated and competitive globally.
“EU companies continue to take their IPOs outside the EU or to move their listings elsewhere to seek better valuations. EU equity markets cannot continue to lag behind their peers,” said the groups, which include the European Fund and Asset Management Association (Efama) and the fund trade body of Germany, BVI.
“In making rules, policymakers must consider in particular the impact that such rules will have on market liquidity, which is a key consideration for companies seeking better valuations to finance their investments,” they added.
The Association for Financial Markets in Europe (Afme), which has bank and brokerage members, also signed the statement.
The groups said co-legislators must take an “evidence-based, ambitious approach, even if that means that more time will be required to complete the negotiations”.
If policymakers cannot pass legislation to build critical market infrastructure to “stem the investment flows leaving the EU”, this risks putting the EU at a disadvantage to other global markets, the groups said.
In particular, the groups want policymakers to ensure a consolidated tape for equities includes five levels of real-time pre-trade data and must be reasonably priced to succeed, or it will be “useless” for the potential consumers of such data and not commercially viable for its operator.
EU policymakers already “failed” to effectively deliver the consolidated tape in 2018. The groups said co-legislators and the European Commission must not be “complacent” again by “conceding to the loudest voices of established interest parties”.
In fixed income markets, the group said other jurisdictions were also undertaking substantial reviews of their bond market transparency frameworks, and so policymakers must not “undermine” the future viability of EU corporate and sovereign bond markets by enshrining in legislation requirements that “fail to deliver a well-calibrated transparency framework that protects investors and fails to address the challenges arising from future evolutions in the regulatory environment outside the EU”.
The groups highlight the EU framework for bond deferrals – the delayed publication of bond trades – saying new rules could be detrimental to market liquidity.
“The current proposed calibration ignores the fact that price and volume deferrals should be aligned, especially for the larger, less liquid trades,” the statement said.
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