The European Union set out its third wave of reforms in six years on Thursday (25 November) to try to build a seamless securities market that can compete better with London and New York, a step that will pit stock exchanges against rival platforms.
The EU project to create a capital markets union (CMU) suffered a blow when Britain and its large financial sector left the bloc.
To keep the project on track, the EU’s executive European Commission proposed establishing a “tape” or record of stock and bond prices, and giving investors free information on companies. It also proposed tweaks to long-term investment funds, and plans to better coordinate how they are regulated.
The Commission wants to make it easier to raise money for companies to meet climate goals and recover from the financial blow of the COVID-19 pandemic. Brexit also leaves Brussels with a financial competitor on its doorstep.
“It’s important that we develop our own capital markets,” EU financial services chief Mairead McGuinness said.
The tape of securities prices and single point of information will create a “decisive moment” for CMU when implemented, she said.
“There are a lot of good factors pulling together to make the development of capital market union more likely than if we didn’t have those forces pushing us to sustainability,” she said.
The proposals will need approval from the European Parliament and EU states to become law, with compromises expected.
Markus Ferber, a German centre-right member of the European Parliament, said the proposals make modest progress but fail to match the ambition of the CMU project by leaving out big items like changing taxation rules.
German investment funds association BVI said the proposed European Single Access Point for company information would help asset managers meet increasing reporting obligations in a more cost-effective way.
Lawmakers and EU states will face industry lobbying over the proposed consolidated tape to provide stock transaction prices as “close to real time as technically possible” – and at a low cost or free to retail investors.
Exchanges want a 15-minute delay before the mandatory handing over of their data. Banks and investment funds say a tape will be of no use if not in real time.
The Federation of European Securities Exchanges (FESE) said the CMU package is “one step forward, one step back” as it fails to increase the competitiveness of EU markets.
“Exchanges remain deeply concerned by the risks of such an elaborate and complex experiment,” FESE director general Rainer Riess said of the proposals for a tape.
The Association for Financial Markets in Europe (AFME), which represents investment banks and funds, said a real-time tape was essential for delivering CMU.
Cboe, which owns pan-European exchange Cboe Europe, said the tape proposal discriminated against across-Europe platforms like itself, and lacked ambition by not including pre-trade prices.
Thursday’s proposals make some types of off-exchange or “dark” trading harder, with the aim of funnelling more transactions onto bourses. Industry officials say this could divert business to London, where regulators are taking a more liberal approach since Brexit.
The EU is using its CMU package to make other changes, such as banning payment for order flow or where retail brokers forward clients’ orders to other traders for a fee.