3 Dec 2014

AFME proposes an agenda for capital markets union

Capital markets union (CMU), a flagship initiative of the new European Commission, should focus on increasing the share of capital markets financing in the EU by creating an open, efficient framework for all types and sizes of corporate issuers and investors, argues AFME in a policy paper published today. To succeed in this task, CMU should examine legislative and regulatory issues, market impediments and business practices in the EU in order to identify a limited number of high impact initiatives to boost Europe’s capital markets, the paper says.

An agenda for capital markets union outlines practical measures and a set of firm targets which AFME suggests should guide the work of the Commission on CMU over the next 5 years. Commenting on the publication, Simon Lewis, Chief Executive of AFME, said: 

“The capital markets union initiative must focus on outcomes by growing markets, reducing costs and offering more financing options for businesses across Europe. We are proposing a set of firm, measurable 5-year targets to guide the project and we would encourage the Commission to adopt a targeted programme with a limited number of new initiatives, each designed to deliver the maximum economic impetus.” 

Proposed five-year goals for capital markets union

AFME proposes that a central goal for CMU should be to increase the overall share of debt financing from the capital markets in Europe from 25% of the total currently to at least 35%. This should be achieved without further reducing the ability of Europe’s banks to provide credit to the real economy.

We also encourage the Commission to consider setting objectives for specific product markets; for example:

  • increasing Europe’s stock market capitalisation from around 75% of GDP currently to 100% of GDP, as the Federation of European Securities Exchanges has proposed;
  • at least doubling European issuance volumes of securitisation and private placement by encouraging greater participation by both bank and non-bank investors; and
  • increasing the share of capital market funding of SMEs, through both equity and debt.

An action plan targeting issuance, investment and market infrastructure

The AFME policy paper outlines have highlighted three complementary objectives to drive action on CMU:

  1. Developing more efficient and liquid markets for equity and debt issuance:Industry initiatives on high quality securitisation and private placement should be complemented by review of applicable regulation, especially capital requirements, as well as the Prospectus and Takeover Directives; and by review of the tax regime for SME equity.
  2. Harnessing long-term savings to promote investment: The priority reforms from an AFME perspective are to: appropriately calibrate the capital framework for institutional investors (particularly Solvency II); to achieve greater harmonisation of EU insolvency rules; to maintain an economically viable model for capital markets research; and to widen product choice for investors.
  3. Promoting open, integrated capital markets infrastructure: The priority reforms from an AFME perspective are to: achieve closer integration of clearing and settlement systems; pass a new securities law to clarify collateral ownership; remove barriers to cross-border collateral use; and ensure broad and affordable access to market data. 

A summary table is provided below, outlining the main measures proposed in the AFME paper and highlighting near-term priorities for CMU and long-term cross-cutting reforms.

An agenda for capital markets union is available here on the AFME website.