EU asset managers, banks and brokers are urging policy markets not to succumb to pressure that could potentially lead to suboptimal outcomes in the Markets in Financial Instruments Directive (Mifid/r) review.
Ahead of the next set of Trilogue negotiations which are set to take place next week, the Association for Financial Markets in Europe (AFME), the European Fund and Asset Management Association (EFAMA) and the German Investment Funds Association (BVI) have released a joint statement urging co-legislators to take an evidence-based, ambitious approach, even if ultimately it results in a longer time frame to complete the negotiations.
The Mifid/r review forms a key base for the completion of a Capital Markets Union (CMU) that works for investors and issuers, a necessary element to ensure that EU capital markets across asset classes are more integrated and competitive globally.
With respect to equity markets, AFME, EFAMA and BVI highlight that EU companies are continuing to take their initial public offerings (IPOs) outside of the EU or move their listings elsewhere to seek better valuations – emphasising that EU equity markets cannot continue to lag behind their peers.
“In making rules, policy makers 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,” said the three trade associations in a joint statement.
Investors, banks and additional market participants have already been clear that a consolidated tape for equities should include five levels of real-time pre-trade data, while also being priced reasonable in order to succeed – otherwise, it would not be beneficial for consumers of such data and not commercially viable for its operator.
“EU policy makers already failed to effectively deliver the consolidated tape once, in 2018,” noted the trade associations.
“We therefore urge the co-legislators and the Commission not to be complacent by conceding to the loudest voices of established interest parties, and to rise to the challenge of delivering efficient, more integrated, and globally competitive EU equity markets.”
The trade associations also emphasised that fixed income markets that are liquid and attractive globally are a key component of establishing a successful CMU.
Read more: Ongoing Mifir Review and regulatory complexity is harming liquidity in Europe, says AFME
“We urge policy makers not to 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,” added the three trade associations.
When reviewing the EU framework for bond deferrals, the trade associations urge policy makers to consider the detrimental impact that new rule could potentially have on market liquidity, which they claim have not been discussed or demonstrated. The trade associations stated that the current calibration ignores the fact that price and volume deferrals should be aligned, especially for the larger, less liquid trades.
Elsewhere, the trade associations welcomed efforts to strengthen the protection of data users through making it clear that prices of market data should be based on cost of production and through the recognition that market data is a by-product of trading.
“We, [however], note that the proposed compromise still allows for the practice of charging for data based on the value it brings to the user (so called value-based pricing). Value-based pricing should be disallowed to achieve better outcomes for investors and the general public,” concluded the trio.