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AFME welcomes Commission equivalence decision on UK CCPs
21 Sep 2020
Following the confirmation of the European Commission adoption of a time-limited equivalence decision for UK CCPs, Oliver Moullin, Managing Director at AFME said: “We welcome today’s confirmation that the Commission has adopted a time-limited equivalence decision for UK CCPs. This is a vital step to address an important financial stability risk and ensure continued access for EEA firms to clearing services at the end of the Brexit transition period. It is important that ESMA now proceeds with timely recognition. We hope that progress will be made in the negotiations and completing equivalence assessments in other areas. We continue to encourage EU, the UK and national member states to take action to address remaining risks at the end of the transition period such as the implications of the trading obligations for shares and derivatives, and continued servicing of existing contracts.” Background / note to editors: AFME recently published a paper setting out its position on the future EU-UK relationship for financial services, calling both sides to put in place equivalence determinations and address regulatory challenges as soon as possible to minimise disruption to markets and businesses. The annex of the paper also highlights outstanding regulatory challenges for financial services that should be addressed ahead of the end of the transition period. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
AFME calls for data-led approach on market structure policymaking
18 Sep 2020
AFME is calling on policy makers to use independent data to support their review of equities markets structure with a view of promoting competitive, diverse, well-regulated and innovative European capital markets which are more efficient to attract further investment. The pan-European trade association is launching a data-driven initiative today (18th September) to highlight the threat of inaccurate information and market data, and promote a fact-based approach to policymaking. The initiative is launched with a video highlighting the importance of a diverse equities market structure for the benefit of investors and issuers, and follows the publication of an AFME analysis of the liquidity landscape in Europe, produced using data provided done by independent analytics firm Big XYT that revealed 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). The share between these trading mechanisms remained stable after the application of MIFID II, with the quality of price formation remaining strong. Functions served by different trading mechanisms are not always interchangeable. In particular, trading done in exchanges is not interchangeable with the service provided by systematic internalisers, which play a critical role in the provision of liquidity for pension and investment funds. April Day, Head of Equities at AFME, said: “A diverse and well-regulated capital market, with a range of trading mechanisms and not reliant upon one category of trading venue, better supports the needs of investors and their customers. By promoting competition, a diverse trading landscape lowers costs and promotes the growth of well-regulated capital markets, ultimately benefiting consumers’ pensions and savings. “We believe financial markets policy should prioritise the needs of end users, as the ultimate beneficiaries of capital markets, in maintaining orderly and well-functioning markets. We are launching this campaign to dispel myths on the current share of liquidity between different types of trading mechanism and promote a data-driven approach to policy making. Further competition and well-regulated innovation supports the goals of the Commission’s Capital Markets Union initiative. “We hope that this initiative will be helpful to policymakers and regulators and anyone interested in understanding the true nature of equities market structure. Transparent, reliable data should be a priority in informing changes to legislation and ensuring the principles of MiFID stand strong.” The video can be found here Read more about AFME’s data-driven approach here – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
AFME calls for the EU to unlock innovative, competitive, and resilient European capital markets in the digital age
14 Sep 2020
AFME is calling on the EU to help unlock the potential of new technologies for European capital markets. In a paper published today (14th September), AFME outlines the regulatory framework needed to support banks as they adopt new technologies such as crypto-assets, artificial intelligence and cloud computing, harness the value from data, and address the challenges of cybersecurity and operational resilience. The “European Capital Markets in the Digital Age” paper calls on the European Commission to promote innovation, competitiveness, and resilience across Europe’s capital markets by providing: A competitive and level playing field: Ensuring all firms involved in financial services, including technology firms, adhere to the ‘same risk, same activity, same regulation’ principle Technology neutral legislation: Providing flexibility for firms to adopt new technologies in a risk based and proportionate manner Global consistency: Promoting regulatory harmonisation across the EU, and global cooperation and consistency to reduce the barriers for technology adoption James Kemp, Managing Director, Head of Technology and Operations at AFME, said: “Evolving technologies are enabling innovative financial products and services, improving the resilience of financial markets, and supporting new ways of working. It is important that consistently applied regulation supports these new technologies to unlock a vibrant and competitive Digital Single Market and build stronger, more efficient capital markets infrastructures. The COVID19 pandemic has reinforced this requirement, demonstrating how technology and has underpinned the continued functioning and resilience of capital markets.” For more information on AFME’s paper, click here AFME Contacts Patricia Gondim [email protected] +44 (0)20 3828 2747
First industry roadmap helps embed sustainable finance into banks’ strategy and governance
10 Sep 2020
Banks need to embed sustainable governance principles across the whole organisation and adopt a consistent corporate strategy if they are to successfully transition to a sustainable finance model according to guidance issued today, 10th September, by the Association for Financial Markets in Europe (AFME) and global law firm Latham & Watkins. The industry roadmap “Transition to Sustainable Finance” looks at the challenges facing firms as they integrate ESG principles into their business models and addresses issues such as corporate purpose, board governance oversight, shareholder activism and greenwashing. The roadmap is the first to look at how firms are set to deliver on their sustainable finance targets and aims to provide boards and senior leadership with a go-to guide on issues to consider from a governance, compliance and legal perspective. The guidance comes as a new AFME survey highlights that sustainable finance is a priority board issue and banks have made considerable progress to adapt their business model to deliver on sustainable finance targets. Looking into how 13 of the biggest global banks are structured to adopt sustainable finance principles, the survey reveals: 85% of respondents incorporate sustainable finance into their overall business strategy 85% have set sustainability targets 77% have established Board level oversight on sustainable finance 63% have started integrating sustainable finance considerations across risk management and business development but more work lies ahead for other functions Richard Middleton, AFME’s Managing Director, Head of Policy Division, said: “Sustainable finance is a fast-moving area and the regulatory environment is evolving rapidly. As all areas of firms’ businesses are affected in the transition to sustainable finance, it is important that firms establish and develop their corporate strategy, governance, purpose and objectives. “Our White Paper is intended as a roadmap to help senior management and the board to embed sustainable finance in a holistic and systematic manner across the business.” Judson Berkey, Managing Director, Sustainability Strategy, UBS said: "The sustainability journey for a bank involves more than just creating new products. A transformation is needed to embed new thinking into all aspects of the firm including governance, risk management and compliance. This thought leadership paper highlights key considerations in that crucial effort." Nicola Higgs, partner at Latham & Watkins, added: “We are delighted to have worked with AFME and its members to create a practical framework for the financial services industry looking to navigate the transition to sustainable finance. Financial services firms are seen as key players in driving the sustainability agenda of global regulators, presenting both opportunities and risks for those firms. The Paper provides a framework to navigate those risks and remain competitive in an increasingly significant global market.” Note to editors: The roadmap “Transition to Sustainable Finance” sets out 15 key principles in the areas of governance, conduct and compliance that banks should consider, including: Objectives and governance: Ensuring that a central corporate purpose is set and that there is collective understanding, oversight and accountability in relation to sustainable finance-related risk amongst internal and external stakeholders. Risk management: Whether sustainable finance create new risks for an organisation, and if so, how to integrate them into current risk management. Compliance & Monitoring: How to measure, monitor and mitigate the key risks arising from the transition to sustainable finance, including the tools and metrics that may be necessary to achieve this. Impact measurement: How to assess the progress and effectiveness of existing strategies deployed against established sustainable finance goals and determining what adjustments, if any, are required and identifying opportunities for further development and innovation. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
AFME reaction to the European Commission’s proposals on post-COVID-19 recovery
24 Jul 2020
Following the publication of the European Commission’s proposals regarding financial markets regulations to facilitate the economic recovery post-COVID-19 crisis, Rick Watson, AFME’s Managing Director, Capital Markets, said: “We welcome the Commission’s initiative to improve market conditions to allow capital markets to manage the challenges and support the recovery from the Covid-19 pandemic. “Today’s proposals are a step in the right direction. We welcome the proposed exclusion of corporate bonds with “make-whole” clauses from MiFID 2 product governance rules. Such clauses protect investors from losses that would flow from an issuer’s early repayment of a bond by compensating them for the amount of interest they would have received if the bond had been paid at maturity. This exclusion is expected to increase the flow of capital to the real economy. “We also welcome the proposed temporary suspension of requirements to publish best execution reports. Proposals to move towards digital disclosure of information will contribute to reducing costs and advancing the sustainability agenda. “However, some proposals will require further consideration. We look forward to considering the proposals regarding the regime for research on small and mid-cap issuers and fixed income instruments, with a view to providing the best support to businesses, investors and providers of research while maintaining regulatory standards.” “While we very much welcome the inclusion of proposals on MiFID 2 costs and charges disclosure in this package, we support a full disapplication of requirements in relation to professional clients and eligible counterparties.” “Synthetic securitisation is particularly helpful to securitisation of large/midcap corporate, consumer and SME loans. A prudent, well-designed STS framework for synthetic securitisation should be supported as it will provide opportunities for banks to manage their credit risk and capital requirements so as to support lending to small businesses.” “A broader review of MiFID 2/R and the securitisation framework, together with the general advancement of the Capital Markets Union, remain essential to improve the efficiency of Europe’s financial markets.” – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
AFME publishes first ESG guidelines for European high yield market
22 Jul 2020
AFME has today published the first ever set of ESG guidelines for the European high yield market. The guidelines are intended to provide guidance on sustainable finance considerations for issuers and investors when leading or otherwise participating in offerings of non-investment grade notes (known as “high yield bonds”). The guidelines make recommendations for considerations and practices to encourage transparency and consistency in disclosure, as well as recommendations for due diligence practices related to such transactions. They are intended to assist the market by providing a framework for assessing relevant ESG factors, including: Disclosure and Diligence considerations; Impact of ESG factors on an issuer’s strategy and business model; and Exposure of an issuer to ESG risks, both at issuer and stakeholder level including sponsors and shareholders. ​ Gary Simmons, Managing Director of AFME’s High Yield Division, said: “ESG finance is a fast-evolving market. While both market practitioners and policymakers are placing increased emphasis and importance on ESG financing, the market is still lacking in overall consistency, with many decisions being made on a deal-by-deal basis. “We want to make sure that European high yield markets are able to run as efficiently and effectively as possible, especially as they support recovery from the COVID-19 crisis. These guidelines aim to provide structure and consistency to the market, balancing issuers’ ability to provide information with investors’ needs for clear, transparent information to support their investment decisions.” Anna-Marie Slot, Ashurst’s head of High Yield and Global Sustainability/ESG Partner, said: "The markets operate best with transparency and disclosure. This AFME ESG framework, which reflects the work of many, is a key tool for market participants in the increasingly critical area of climate change and the risks assessment that the markets need to be making around ESG considerations." Dominic Ashcroft, Chair of the AFME High Yield Division and Co-head of EMEA Leveraged Capital Markets at Goldman Sachs, added: “We continue to see from both investors and issuers increasing focus on ESG topics. These guidelines are an important first step in helping companies navigate the subject and ensuring appropriate disclosure is produced to greater empower investors in their investment decision making.” The Guidelines are available here. – Ends –
Banks call for more clarity over roadmap to 2050 decarbonisation targets
16 Jul 2020
The Association for Financial Markets in Europe (AFME) has outlined the industry’s priorities that should underpin the Renewed Sustainable Finance Strategy, the EU plan for channelling private capital towards sustainable investments. Responding to the European Commission consultation, AFME has called on the Commission to provide more clarity to corporates, banks and investors over the roadmap to the decarbonisation targets set out in the Paris Agreement. AFME highlighted that only a holistic approach, supported by a strong public-private partnership and a globally coordinated policy will achieve the deep structural change required to transition into a more sustainable EU economy. AFME is calling on the Commission to: Provide a clear roadmap for the transition of the real economy, including industry specific milestones and frameworks such as the appropriate pace of phasing out stranded assets. Deliver a strong partnership of the public and private sector, with actions including market-based carbon pricing mechanisms, a plan to gradually phase out blanket government subsidies to high carbon emitting industries, and fiscal policy incentives to green issuers/borrowers and investors/lenders. Promote the collection of better ESG data to support good investment and lending decisions and more alignment in reporting requirements between corporates, banks and investors at the international level. Encourage carbon-emitting companies to lower their carbon emissions through appropriate transition pathways rather than applying penalising capital charges to banks that will have a knock on impact to these companies and overall ability to transform. Encourage the development of climate/environmental risk assessment methodologies that include a forward-looking perspective in addition to existing backward-looking analyses to enable a more accurate calibration of regulatory capital requirements reflecting the long term asset risk profile. Rick Watson, Managing Director, Capital Markets at AFME said: “The transition to a more sustainable economy is of vital interest and importance to everyone. Investors, corporations and banks all stand ready to play key roles in achieving this including through harnessing the power of capital markets to make it happen. But in order to do so all participants need to understand more about what is expected of them at this crucial stage. For lenders, this includes clarity around disclosure requirements and the development of risk analysis and management processes which are essential to underpin future incorporation of ESG into the prudential framework. Broader progress towards delivering a comprehensive and coherent sustainable finance programme must be a shared endeavour between the public and private sectors to provide consistent sustainable finance regulations for corporates, banks and investors”. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747 James Thursfield Digital Content Manager [email protected] +44 (0)7557921379 Notes: AFME (Association for Financial Markets in Europe) promotes fair, orderly, and efficient European wholesale capital markets and provides leadership in advancing the interests of all market participants. AFME represents a broad array of European and global participants in the wholesale financial markets. Its members comprise pan-EU and global banks as well as key regional banks, brokers, law firms, investors and other financial market participants. AFME participates in a global alliance with the Securities Industry and Financial Markets Association (SIFMA) in the US, and the Asia Securities Industry and Financial Markets Association (ASIFMA) through the GFMA (Global Financial Markets Association). For more information please visit the AFME website: www.afme.eu. Follow us on Twitter @AFME_EU
Capital markets provide record funding to help European COVID-19 recovery
14 Jul 2020
European economies have benefited from an unprecedented amount of funding from capital markets to support the economic recovery after COVID-19, according to the latest research by the Association for Financial Markets in Europe (AFME). The paper published today (14 July) revealed the recovery is being led by record issuance levels of investment grade securities and ESG bonds. The report analysed the impact of COVID-19 on European capital markets during the four months since the World Health Organisation declared COVID-19 a global pandemic. Commenting on the report, Julio Suarez, Director of Research at AFME, said: “During these exceptional times, European capital markets have demonstrated their ability to support economic recovery and future growth. Europe has seen a record amount of funding from capital markets instruments, predominantly fixed income securities. Our research also shows that Europe has the potential to lead an ESG recovery, with European social bond issuance reaching their highest quarterly volume to date. Listed SMEs across the continent have also benefited from access to equity capital and from record volumes of bank lending.” AFME CEO Adam Farkas added: “AFME has been working with its members and regulators across Europe to ensure that markets remain well-functioning and liquid in light of the market impact of COVID-19 while at the same time acknowledging the extraordinary support measures extended by central banks and fiscal authorities. “Our report shows that banks and capital markets are playing a key role in supporting the economy during this challenging period. To ensure a robust post-pandemic recovery it is important to advance the Capital Markets Union project in the EU and promote regulatory measures that improve the efficiency and functioning of European financial markets. We are keen to maintain dialogue with policy makers to ensure the industry is well placed to continue supporting European growth.” Key findings: Issuance levels of investment grade (IG) securities have reached record weekly, monthly and quarterly volumes. Q2 2020 was the highest ever quarterly value of IG bond issuance for Non-financial corporates in Europe accumulating a total of EUR 225bn in proceeds. The increase in IG bond issuance has been largely driven by Central Bank support. Between March and May, the ECB has purchased 19.5% of the new flow of euro area bond issuance with purchases of EUR 39bn of corporate bonds compared with EUR 179bn of euro area IG bond issuance. Firms headquartered in France, the United Kingdom and Germany have led IG bond issuance in Europe. European social, sustainable, and green (ESG) bond issuance reached EUR 55.2 bn in Q2 2020, the highest quarterly issuance volume to date. The increase was driven predominantly by Social bond issuance which reached a record issued amount during the quarter of EUR19.1 bn. France accounted for EUR 12.3bn (64%) of total European social bond issuance, followed by The Netherlands (EUR 2 bn, 10% of the European total) and Spain (EUR 1.5 bn, 8% of the European total). European listed SMEs have also benefited from access to equity capital, predominantly from secondary offerings on Junior exchanges which totalled EUR 2.7bn between March and June of 2020. This amount, however, continues to represent a minor portion of SME funding compared to bank lending. In the United Kingdom, new gross bank lending to SMEs between March and May of 2020 totalled £35bn vs £13.7bn in the same period of 2019 In France, new gross bank lending to SMEs between March and May of 2020 totalled €69.6bn vs €29.3bn in the same period of 2019 In Germany, new gross bank lending to SMEs between March and May of 2020 totalled €43bn vs €40bn in the same period of 2019 In Spain, new gross bank lending to SMEs between March and May of 2020 totalled €64n vs €49bn in the same period of 2019 In Italy, new gross bank lending to SMEs between March and May of 2020 totalled €42bn vs €44bn in the same period of 2019 Record volumes of bank lending. Euro area statistics have shown a marked increase in net lending to Non-financial corporations and in gross lending to SMEs, as underpinned by EUR 2.6trn in state loan guarantees issued by European governments. Further increases in bank balance sheets are also to be expected as corporates continue to draw down on their existing borrowing facilities and banks channel government support programmes to clients. Net lending to French non-financial corporates between March and May of 2020 totalled €92.2bn vs €24bn in the same period of 2019 and €52.6 bn in 2019FY Net lending to Spanish non-financial corporates between March and May of 2020 totalled €51bn vs €4.8bn in the same period of 2019 and €0.5 bn in 2019FY Net lending to German non-financial corporates between March and May of 2020 totalled €47bn vs €22bn in the same period of 2019 and €67 bn in 2019FY Net lending to Italian non-financial corporates between March and May of 2020 totalled €24bn vs a net lending contraction of -€7bn in the same period of 2019 and -€36 bn in 2019FY European market liquidity has deteriorated over the last few months. In most asset classes, bid ask spreads remain above pre-COVID levels with equity and corporate bond market bid-ask spreads respectively remaining elevated at about 30% and 40% higher than pre-crisis levels as of late June. Government bond bid-ask spreads also continue above pre-COVID levels, particularly for Italian and French sovereign bonds. Price volatility in equity and in fixed income markets also remain elevated and above pre-COVID levels. Follow on equity offerings have continued to support the recovery as companies seek to recapitalise and improve their balance sheet capacity. European secondary equity offerings totalled EUR 28bn in 2Q 2020, the largest quarterly volume since Q1 2017. Most equity offerings have been raised on UK and NASDAQ OMX exchanges, followed by Swiss and German exchanges accounting for 80% of the total European proceeds between March and June of 2020. After two months of a virtually inactive IPO market, the European primary equity market reopened in May with EUR 3.6bn in proceeds on 24 deals. Issuance volumes continue subdued compared to pre-COVID levels. The report follows from AFME’s research on the initial impact of COVID-19 on Europe’s capital markets and summarises AFME’s approach to COVID-19 and the areas the association has been focusing on to ensure that markets remain well-functioning and liquid in light of the recent impact of the coronavirus. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747 Notes: AFME (Association for Financial Markets in Europe) promotes fair, orderly, and efficient European wholesale capital markets and provides leadership in advancing the interests of all market participants. AFME represents a broad array of European and global participants in the wholesale financial markets. Its members comprise pan-EU and global banks as well as key regional banks, brokers, law firms, investors and other financial market participants. AFME participates in a global alliance with the Securities Industry and Financial Markets Association (SIFMA) in the US, and the Asia Securities Industry and Financial Markets Association (ASIFMA) through the GFMA (Global Financial Markets Association). For more information please visit the AFME website: www.afme.eu. Follow us on Twitter @AFME_EU
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
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