ISLA: CMU is needed to act as hub for issuers and investors
19 June 2019 Madrid
Image: Shutterstock
The industry lacks a place, whether it be physical or virtual, where issuers meet investors and have a hub on the continent that is comparable to London or New York, according to a panel at the International Securities Lending Association conference in Madrid.
The panel suggested that a Capital Markets Union (CMU) provides a reasonable basis to achieve that “hub”, but market participants need to take action.
One speaker suggested that it will not happen from one day to another but if there is a political will, then this needs to be encouraged by the players in the market as well.
A panellist suggested that the CMU is a framework that has an objective to “tear down some barriers to do more across national waters and align regulation”.
However, the panellist explained that the industry has to “overcome national interest and preferences”.
Another panellist said putting aside the political situation markets cannot deal with, or struggle to deal with, is the massive differences in the industry.
The panellist said: “If you look at the US market, it is very efficient, it is a one-stop-shop, it has regulation. I would push for the CMU and I would hope that it brings a one-stop-shop when it comes to the various regulations, the various challenges, the various reporting and various information that the politicians and regulators need.”
“In terms of opportunity, I’m not sure it creates a revenue perspective in terms of trading but it puts us all in the industry in place. We know what to do, we know what the regulations are, we know how to report, there will be one process and one chosen path.”
Another panellist explained that Brexit has forced Europe to do more on the CMU and move ahead given that the largest capital market is leaving the EU.
The speaker commented: “We have also seen Paris competing against Frankfurt to be the next hub, which is positive. However we also need some fundamental regulatory change as well because there are still issues around insolvency laws on the regulatory side because they are very different across jurisdictions making some business models very complicated.”
They added: “If you look at where firms in Europe go to get there funding, a lot of them go to the US to access the market there for funding rather than Europe, so we need to look at what can be done there to improve.”
“We also need to look to see how we can incentivise asset owners in Europe to hold more long term debt rather than just government debt, so there is a lot that can be done.”
At the end of the panel, the audience was asked what they thought the single biggest impact would be on their business model over the next 24 months.
The majority of attendees, 48 percent, thought new regulations such as the Securities Financing Transaction Regulation, Central Securities Depositories Regulation and the Capital Requirements Regulation would have the biggest impact.
Just under a quarter, 24 percent, thought that geopolitical tensions and uncertainty would have the biggest impact, while 14 percent thought that Brexit would. Fintech received 7 percent of the vote, as did environmental, social and governance.
The panel suggested that a Capital Markets Union (CMU) provides a reasonable basis to achieve that “hub”, but market participants need to take action.
One speaker suggested that it will not happen from one day to another but if there is a political will, then this needs to be encouraged by the players in the market as well.
A panellist suggested that the CMU is a framework that has an objective to “tear down some barriers to do more across national waters and align regulation”.
However, the panellist explained that the industry has to “overcome national interest and preferences”.
Another panellist said putting aside the political situation markets cannot deal with, or struggle to deal with, is the massive differences in the industry.
The panellist said: “If you look at the US market, it is very efficient, it is a one-stop-shop, it has regulation. I would push for the CMU and I would hope that it brings a one-stop-shop when it comes to the various regulations, the various challenges, the various reporting and various information that the politicians and regulators need.”
“In terms of opportunity, I’m not sure it creates a revenue perspective in terms of trading but it puts us all in the industry in place. We know what to do, we know what the regulations are, we know how to report, there will be one process and one chosen path.”
Another panellist explained that Brexit has forced Europe to do more on the CMU and move ahead given that the largest capital market is leaving the EU.
The speaker commented: “We have also seen Paris competing against Frankfurt to be the next hub, which is positive. However we also need some fundamental regulatory change as well because there are still issues around insolvency laws on the regulatory side because they are very different across jurisdictions making some business models very complicated.”
They added: “If you look at where firms in Europe go to get there funding, a lot of them go to the US to access the market there for funding rather than Europe, so we need to look at what can be done there to improve.”
“We also need to look to see how we can incentivise asset owners in Europe to hold more long term debt rather than just government debt, so there is a lot that can be done.”
At the end of the panel, the audience was asked what they thought the single biggest impact would be on their business model over the next 24 months.
The majority of attendees, 48 percent, thought new regulations such as the Securities Financing Transaction Regulation, Central Securities Depositories Regulation and the Capital Requirements Regulation would have the biggest impact.
Just under a quarter, 24 percent, thought that geopolitical tensions and uncertainty would have the biggest impact, while 14 percent thought that Brexit would. Fintech received 7 percent of the vote, as did environmental, social and governance.
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