Increased regulatory burdens, costs, the size of the pie, and lack of interoperability are some of the key drivers behind the underachieving equities market, according to experts at this year’s FIX EMEA Trading Conference.
As one of the speakers on the fixing equities panel – held under Chatham House – put it, “it’s time to make Europe great again”.
Addressing the underperformance of European equities, one panellist highlighted the positive correlation between the surge of regulatory burdens and decreased innovation.
“I think regulation fatigue is real and it stifles the innovation […] when you look at things that are firm level, there’s a bit of a disconnect between the sheer volume of regulations that people have to deal with.
“There’s less conversation internally between different departments about how we actually implement those regulations and maybe try and do something slightly different or exciting. Everything’s just about the budgets and cost.”
Another panellist added that the amount of regulation is also affecting Europe’s competitiveness, a word that is coming up more and more amongst policymakers.
“For the first time we are really seeing signs that so much regulation is threatening Europe and in a weird way, maybe that’s one area in which Brexit might help because I think the UK is trying to be lighter touch and that makes European policymakers a little bit more thoughtful and I think that will benefit them.”
This point was backed by the room during a live vote as the audience highlighted regulatory load and divergence as a key driver, closely followed by political scenarios and lack of involvement of the retail market.
Key takeaways from the lively discussion on how to ‘fix’ equities included: innovation, encouraging the growth of small cap businesses, reducing complexity, address rising costs, and of course easing the burden of regulation.
Overall, the experts were in agreement that overall processes need to be easier and in concluding how this may be done empirically, one suggested that working groups could be key.
Another expert added that “we need to extend the successes of other areas in equities, including areas like equity derivatives, ETF listing and trading, and corporate listing […] I think we’ve done very well in the infrastructure there and we need to bring some of those same merits.
“Continue to embrace technology and innovation and use it wisely, and not just because it’s there, but actually find a way that it will help to inspire us to invest in in good quality companies.”
Building upon this idea, one panellist highlighted that the way European regulation is actually created and drafted holds “very little vision,” adding that “it gets diluted” through numerous revisions which neutralise progress, and that more centralisation and different drafting processes could be beneficial.
Finally, concluding the overall recommendations, one panellist highlighted that in the current climate the entire market should, as a whole, be focused on making it easier to trade across European borders.