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AFME paper answers uncertainties around OTC market data
7 Jul 2020
A diverse and competitive market structure has ensured European equity markets remain robust, according to a study published today (7 July) by the Association for Financial Markets in Europe (AFME). The study analysed the liquidity landscape of European markets using data provided by independent analytics firm Big XYT and revealed that for the first six months of 2020, 81% of addressable liquidity was executed on-venue, 13% on systematic internalisers and 6% over the counter (OTC). Other key findings include: 81% of total addressable liquidity is found on-venue, with 13% being traded on systematic internalisers and 6% pure OTC. The share between lit and dark markets remained stable after the application of MIFID II, with the quality of price formation remaining strong. The current range of execution venues serve different functions and market needs. Continuous lit order book trading is not interchangeable with the service provided by systematic internalisers, which play a critical role for pension and investment funds. Pensioners and savers would be worse-off if diversity of trading was curtailed. Better data reporting is needed to benefit investors, including increased identification and flagging of the different trade categories. AFME’s CEO Adam Farkas said: “A diverse set of competitive execution venues for equities trading better supports the needs of investors, allowing them to efficiently allocate investments according to their specific needs. A robust market structure fosters financial stability by providing a reliable cushion during distressed market conditions. “We believe financial markets regulatory policy should not value the commercial interests of any one type of market participant, including exchanges, dealers and other types of intermediaries, over end users. Instead it should be data-driven and focus on bringing benefits to end investors and issuers. This study provides a factual analysis of the share of liquidity between different types of execution venue and we hope that it will be used to understand EU equities market structure in a more substantive and detailed manner.” Better data collection AFME supports the substantial improvement of the identification of different trade categories, which should help ensure that regulators and policy makers are able to develop a greater understanding of the status of European equity markets. The European industry body commended ESMA, the National Competent Authorities and policy makers for their continued work to improve the quality and completeness of data. Sean Barwick, AFME’s Associate Director, Equities, added: “We remain committed to help in this difficult, yet critical task, and this report is part of our effort to support ESMA’s data strategy. We believe a formalised, more inclusive public industry wide forum would be invaluable to leverage market participants’ experience and contribution to improve data quality and availability. Furthermore, we believe improving data should be prioritised before considering more substantial changes to the EU transparency framework so soon after MiFID II implementation.” This analysis was produced using data provided by Big XYT, an independent analytics firm, and can be found here. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
AFME calls for further progress on the future EU-UK relationship for financial services
6 Jul 2020
With less than six months remaining before the end of the transition period, the Association for Financial Markets in Europe (AFME) urges the EU and UK to make progress on the negotiations and put in place equivalence decisions and the necessary arrangements to ensure a stable long-term relationship for financial services and minimise potential disruption. In a paper published today (6 July) setting out priorities for the future EU-UK relationship, AFME highlights that continuing uncertainty on Brexit, combined with the adverse macroeconomic situation arising from COVID-19, has the potential to aggravate existing risks at the end of the transition period and significantly increase disruption to clients and markets. AFME is calling on the EU and UK to: ensure that equivalence determinations are in place well in advance of the end of the transition period; establish arrangements for close supervisory cooperation to ensure effective and efficient oversight of firms and cross-border activities; and establish a formalised framework for regulatory cooperation to build trust and ensure as much transparency and certainty as possible over the processes for the assessment and withdrawal of equivalence. Michael Cole-Fontayn, AFME Chairman said: “We hope the EU and the UK will establish a successful long-term relationship for financial services, but time is running out. That’s why we are urging the EU and UK to put in place equivalence determinations and address regulatory challenges as soon as possible to minimise disruption to markets and businesses which will need time to adapt their processes and technology. We hope that the foundations can be laid for a cooperative and stable long-term relationship, minimising fragmentation, including formal arrangements for supervisory and regulatory cooperation to build trust and ensure as much transparency and certainty as possible over equivalence processes. “This is even more important in the current economic environment, where firms and their clients are facing the ongoing effects of COVID-19. While European wholesale banks have undertaken very extensive preparations to ensure that they can continue to serve their clients in any scenario, businesses across Europe are facing the consequences of the COVID-19 pandemic. This combination has the potential to aggravate risks at the end of the transition period. A clear position from the EU and the UK will ensure that businesses and markets can have certainty and time to adapt to minimise potential disruption for clients and markets.” The paper also highlights outstanding regulatory challenges for financial services that should be addressed ahead of the end of the transition period to minimise disruption to markets and clients. These include ensuring continued access for EU firms to UK CCPs, addressing the implications of the MiFID share trading obligation (STO) and the derivatives trading obligation (DTO), and ensuring the continued servicing of existing clients and contracts. The paper can be downloaded from the AFME website – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
Traders call for an end to outdated market hours in Europe
30 Jun 2020
Traders in the investment management and banking industries have continued their call for a reduction to market trading hours, making the case to the pan-European exchange, Euronext. Responding to the Euronext consultation which closes today, the Association for Financial Markets in Europe (AFME) and the Investment Association (IA) have called for market trading hours to be shortened by 90-minutes to seven hours, from either 10:00-17:00 or 10:30-17:30 (CET). This latest consultation follows from that of the London Stock Exchange (LSE), which published its results at the beginning of June, and found that a ‘significant majority’ respondents supported the arguments for a shorter trading day. AFME and IA have now made the case to Euronext that a reduction of 90 minutes in European markets would concentrate liquidity creating more efficient markets - a move which would ultimately benefit savers and investors. Currently, 54% of trading on Euronext markets takes place within the last two and a half hours of trading (16.30-17.35), nearly a quarter of which is trading in the final five-minute closing auction. The present long hours culture also impacts on traders’ mental health and wellbeing and has been identified as a key obstacle in recruiting and retaining more diverse talent. It is hoped the proposed shortened day would have an impact on workplace culture and provide a necessary step towards creating more diverse and inclusive trading floors across Europe. April Day, Managing Director, Head of Equities at AFME, said: “The Covid-19 crisis has shown us that different work patterns can be effective, and the case for reduced market hours has never been stronger. I am pleased to see Euronext taking part in this debate, and I hope Europe will take the lead in reducing market hours to create more efficient markets and improve culture and diversity in our industry.” Galina Dimitrova, Director of Capital Markets at the IA, said: “We need to call time on Europe’s outdated trading hours, which no longer reflect the reality of how markets function and hold back the creation of more inclusive workplaces. The results from the London Stock Exchange consultation were clear; the case for shorter hours has been made and traders want to see change. We will look forward to the outcome of the Euronext consultation and hope that this will lead to the reduction in market trading hours.” Notes to Editors: To view the consultation response click AFME Patricia Gondim, Interim Head of Media Relations: [email protected] T: +44 (0)20 3828 2747
AFME and Simmons & Simmons publish white paper on conduct risks and client communications during LIBOR transition
23 Jun 2020
Today, the Association for Financial Markets in Europe (AFME), together with international law firm, Simmons & Simmons, has published the second in a series of papers, entitled ‘LIBOR Transition: Managing the Conduct and Compliance Risks – Client Communications’. The latest paper in the series provides practical guidance to Senior Managers and Legal and Compliance teams on managing conduct risks related to client communications posed to firms engaged in the transition away from the London Interbank Offered Rate (LIBOR) to alternative rates. The paper focuses on considerations for client communications – from establishing an effective strategy through to monitoring and record-keeping. The first paper, published in December 2019, identified ways in which firms can seek to mitigate the key conduct risks posed by LIBOR transition when establishing their governance structure. Rather than offering a prescriptive checklist that may only apply to a handful of firms, the paper takes a broader view, basing the guidance on the fundamental understanding that different firms will be impacted by the LIBOR transition in different ways. Richard Middleton, Managing Director, Head of Policy at AFME, said: “Client communications and awareness are key to delivery of firms’ LIBOR transition plans. Firms will need to focus on the broad range of client needs and the end-to-end user experience, as well as considering how the current COVID situation may have impacted their transition timeline.” LIBOR Leads Penny Miller and Caroline Hunter-Yeats at Simmons & Simmons, commented: “Client engagement on the LIBOR transition will differ for every firm and this paper provides practical guidance for firms on their approach to client communications and, with the help of the AFME committee members, we have provided questions that firms should consider when planning their client communications .” Download the paper here – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] Direct +44 (0)20 3828 2747
AFME welcomes two new Board members
12 Jun 2020
At its June Board meeting yesterday, the Association for Financial Markets in Europe (AFME) approved the application of Santander and Standard Chartered Bank to join its Board. Both banks have been members of AFME since its creation in 2009. They join 22 other leading European wholesale banking groups on AFME’s governing body. Adam Farkas, Chief Executive Officer, at AFME, said: “I am delighted to welcome two major global banks, Santander and Standard Chartered Bank, to the AFME Board. They each bring a deep and diverse range of experience drawn from different parts of the banking sector and across different countries, which will provide valuable input to AFME. In particular, their knowledge and expertise of European markets will contribute to further strengthening AFME’s pan-European focus. We look forward to working with them as AFME continues its work advocating for stable, competitive and sustainable European financial markets that support economic growth and benefit society.” Jose Manuel Colina, Head of Global Markets, Europe and Asia, at Santander, said: “As a leading player in the European banking sector, Santander is committed to developing an effective Banking and Capital Markets Union in Europe. Our approach to banking is to help people and businesses prosper. We have extensive experience working with AFME and would like to contribute to its expertise in wholesale banking and other key areas, such as prudential regulation, digital transformation and sustainable banking. Santander is very pleased to become a member of AFME’s Board, which will enable us to further support the development of the European Capital Markets Union.” Clare Francis, Regional Head of Global Banking, Europe and CEO at Standard Chartered UK, said: “We are proud to be joining the AFME board. As a leading international banking group, being part of an association which advocates for integrated European capital markets, aligns with our ambition to facilitate business, linking clients, markets and products to enable trade and investment. I look forward to working with the other members of the board.” -ENDS-
High-Level Forum report on CMU comes at key moment for EU capital markets
10 Jun 2020
Following the publication of the final report today by the High-Level Forum on Capital Markets Union, Pablo Portugal, Managing Director for Advocacy, said: “The economic shock generated by the Covid-19 pandemic has amplified the need for deep and well-integrated capital markets in the EU in virtually every area. As Europe faces its deepest ever economic recession, it is clear that a robust post-pandemic recovery and sustainable long-term growth cannot solely be funded through government support programmes and the provision of bank loans. The High-Level Forum’s report therefore comes at a key moment and identifiesmany of the measuresthat need to be implemented to ensure the full potential of the Capital Markets Union can be fulfilled for the benefit of Europe’s businesses and citizens. “The question now is whether policymakers will seize this opportunity and generate the momentum to undertake the reforms needed to overcome deep-seated inefficiencies and legal impediments to capital markets integration. The hope is that all parties will see the vast potential of a fully-fledged CMU in aiding economic recovery and supporting sustainable growth across the EU. The report’s 17 sets of measures and detailed recommendations provide a rich and valuable contribution to the next phase of the CMU.” AFME strongly supports the following policy recommendations contained in the report: Placing equity markets and retail investors at the heart of the CMU: the report rightly emphasises the importance of equity in corporates’ funding mix. Well-designed measures to make equity risk-capital and public listings more attractive to businesses, in particular to SMEs, will be vital to this aim. Another vital aim must be to support a wide diversity of trading mechanisms and well-calibrated rules that support market liquidity and improve outcomes for end-investors. While the report did not make recommendations in this area, it will be important to address key inefficiencies in equities trading regulation in a future review of MiFID II/MiFIR. Recommendations to grow retail investor participation, such as introducing auto-enrolment into employee pensions, have the potential significantly to grow the pool of investable capital in several Member States. Reviewing the EU securitisation regulatory framework, to improve the functioning of this vital mechanism for Europe’s capital markets. Policymakers must now prioritise the adjustments recommended by the HLF to ensure that Europe can benefit from well-functioning securitisation markets and the possibilities offered by the “best in class” Simple, Transparent and Standardised (“STS”) securitisation label. Improving efficiency and connectivity in EU securities markets: we strongly support recommendations to address fragmentation and inefficiencies in withholding tax collection procedures, insolvency frameworks and divergent legaldefinitions as these issues stand in the way of cross-border investment. However, we regret that the HLF was not able to reach a consensus on delaying the implementation of the mandatory buy-in requirement under CSDR and making it optional. A blog post outlining AFME’s full response to the HLF Report can be found on the AFME website. -ENDS-
AFME welcomes agreement on CRR but encourages ongoing review of requirements
9 Jun 2020
Following the vote in the ECON Committee today, Michael Lever, Head of Prudential Regulation at AFME, said: “AFME welcomes the changes to the Capital Requirements Regulation in response to the Covid-19 crisis. This was achieved in record time and should allow banks to take advantage of the proposed changes in their Q2 figures, if formally adopted as planned during the 19 June plenary session. “Together with other previously announced measures of supervisory flexibility, these changes free up significant amounts of banks’ capital, helping them to fulfil their vital role of speedily channelling funding to where it is most needed. “With Europe facing an unprecedented economic challenge, the exact funding needs of the economy are very difficult to estimate at this stage. It is crucial therefore that the prudential framework is closely monitored to ensure sufficient capital headroom for banks and to maximise the opportunities for both lending and market-based refinancing solutions to support the recovery. “In time there will also be lessons to be learnt from how regulators and other bodies responded to this crisis. For example, the differences between the scale and nature of the assistance that has been provided to the economy in different jurisdictions, and the variations in the regulatory treatment applied to such assistance should be reflected on. This will be necessary to ensure that such differences do not exacerbate market fragmentation or otherwise lead to an unlevel playing field among European and global banks.” -ENDS-
Rebecca Hansford
AFME welcomes Commission legislative proposal on CRR but more is needed
28 Apr 2020
In response to the Commission’s proposal today to make targeted amendments to the Capital Requirements Regulation (CRR) to provide temporary relief to banks in the context of the Covid-19 crisis, Michael Lever, Head of Prudential Regulation at AFME, said: “The banking industry has a key role to play alongside and in partnership with governments in helping to mitigate the negative economic consequences arising from Covid-19. It is therefore essential that banks are equipped to fulfil this role so that funding quickly gets where it is needed and markets continue to function without major disruption. “We strongly support the measures contained in today’s fast-track proposal, which should help towards achieving this goal and should be concluded as rapidly as possible. However, more needs to be done to mitigate the impact of Covid-19 on businesses and the economy. “In particular, some assessments of the capacity that has been freed up may be overestimated because they do not consider the reality of market pressures, or the full range of prudential constraints banks have to respect. It is therefore important that co-legislators now consider further targeted and time limited changes to the framework. These are likely to be needed to assist borrowers, markets and the economy. In particular, full capital relief for Covid-related state guarantees must be provided across all metrics of the framework and further, strictly temporary, exclusions from the leverage ratio exposure measure may well be necessary. “Co-legislators should also not forget the impact of the additional bank lending on MREL requirements. Finally, small changes to market risk regulations are needed to ensure EU supervisors have the flexibility allowed under the current Basel Agreement. “Many of these proposed changes have already been adopted by other jurisdictions in recognition of the benefits that they bring through enhancing the capacity of their banks to support their customers and market functioning through this crisis. Europe should not delay in following suit.” -ENDS-