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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
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-
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