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Julio Suarez
Initial Impact of COVID-19 on European Capital Markets
21 Apr 2020
AFME has published a new research note on the “Initial impact of COVID-19 on Europe’s capital markets”. The report analyses the significant impact that Covid-19 has had across all major capital markets sectors including: equities (IPOs and secondary), fixed income primary and secondary (sovereigns, corporates, securitisation, high yield, leveraged finance), FX, derivatives, and banks. The report also highlights AFME’s initiatives to support markets during the COVID-19 crisis. Key findings: European capital markets have continued to operate well following the outbreak of COVID-19, with liquidity ranging from very good to mixed, depending on the sector. In fact, there have been record volumes of new issuance in certain sectors. Issuance of investment grade corporate bonds surpassed EUR 50bn in the first week of April; this amount was also the highest weekly amount ever issued in Europe. French companies have been particularly active in this respect. This is remarkable, given that many, if not most, financial market participants are working remotely. Markets are more volatile than a few months ago, which has made it costly for some companies to list through IPOs. IPO issuance on European exchanges has declined 83% compared to a year ago. Markets have been playing their role in providing liquidity, price formation, and timely clearing and settlement procedures, contributing to capital allocation and helping investors manage their portfolios. Equity average daily trading has surged 94% year on year in March-20, corporate bond trading increased 31% year on year in Q1 2020, and FX trading rose 61% year on year in March-20. The rapid increase in securities trading and post-trade activity has been carried out without any major disruption from a business continuity perspective. Securitisation secondary markets have suffered disproportionate reductions in liquidity due to central bank support which is more limited in scope and slower and more difficult to access than for other fixed income sectors. Banks operating in Europe are well-positioned from a solvency and liquidity perspective to support households and businesses during this period of abnormal economic pressure.
LIBOR Transition: Managing the Conduct and Compliance Risks
18 Dec 2019
SinceAndrew Bailey’s speech in 2017banks have had to prepare for the reality that after 2021, the London Interbank Offered Rate (LIBOR) – one of the world’s most important reference rates - might cease to exist. As part of industry preparation, regulatory authorities have been working with market participants to transition away from the use of LIBOR to risk-free rates; however, this transition also poses significant conduct risk. The term “conduct risk” can be broadly defined to mean the risk that actions taken by a firm could be detrimental to a client or have an adverse effect on market stability or effective competition. As a result, AFME and Simmons & Simmons have together highlighted questions which compliance teams should ask themselves concerning their LIBOR transition preparations in order to mitigate conduct risk. Read the paper forall the details Overview Firms should review theirstructure and governance frameworksas this will define how they approach the transition and manage their relationships with external parties and key decision-makers. Given the scale and complexity of the transition, firms should review theirrecord-keepingprocesses to ensure they remain compliant when large volumes of documents are produced. Review whether the organisation issuitably engaging with regulators and working groupsso its responses to consultations are as informed as possible. Firms should review whether their new risk-free-rate products are compliant under regulatoryproduct governance obligationsand access the viability of any new LIBOR-referencing instruments. Determine whethercommunicationsteams are suitably addressing client needs and their varying levels of understanding of the transition. Take steps to ensureoutsourced servicesare compliant with regulation. Ensure allbusiness divisions are suitably trainedand aware of the firm’s regulatory and legal obligations. Reviewpost-transition communications processesto determine if they are prepared for potential questions and complaints from clients regarding new risk-free-rate linked contracts.