AFME issues equity market liquidity warning before MiFIR Review
17 April 2023 UK
Image: 88studio/stock.adobe.com
The Association for Financial Markets in Europe (AFME) has advised negotiators at EU trilogues for the Markets in Financial Instruments Regulation (MiFIR) review to consider the impact that MiFID could have on the attractiveness of Europe’s capital markets, expressing concern around equity market liquidity.
Research from the organisation has shown European equity markets to be less dynamic and liquid than those in the US, with the latter’s turnover ratio rising by 40 per cent between 2016 and 2022 and the former’s remaining static.
AFME explains that this is due to nationally fragmented equity markets across the EU, which use complex regulatory frameworks and deter European high-growth companies from listing within the EU.
The association advises that while several trading mechanisms should remain in place to maintain the stability of the markets, policymakers should bring in a real-time, pre-trade consolidated tape (CT) to improve turnover rates.
In December,AFME said that “more ambition” is needed in the European Council’s approach toward a properly constructed CT for real-time pre-trade as well as post-trade.
Adam Farkas, chief executive at AFME, says: “As inter-institutional negotiations begin, AFME is urging policymakers to keep the attractiveness and liquidity of EU markets at the forefront of its considerations.
“To do this, first, we need a meaningful consolidated tape. This means a real-time, pre-trade tape to help overcome the current fragmented picture of the EU’s liquidity and provide a much-needed window where all users of capital markets can have a complete view of that liquidity. This will also help reinvigorate lacklustre European markets, creating further opportunities for both investors as well as companies seeking to list in the EU.
“Second, we must ensure that sufficient choice in trading mechanisms remains to attract investment within and into Europe. Here again, the EU’s geographically fragmented equity markets and its complex regulatory framework risk holding the bloc back from making policy choices that could benefit the EU overall.”
Research from the organisation has shown European equity markets to be less dynamic and liquid than those in the US, with the latter’s turnover ratio rising by 40 per cent between 2016 and 2022 and the former’s remaining static.
AFME explains that this is due to nationally fragmented equity markets across the EU, which use complex regulatory frameworks and deter European high-growth companies from listing within the EU.
The association advises that while several trading mechanisms should remain in place to maintain the stability of the markets, policymakers should bring in a real-time, pre-trade consolidated tape (CT) to improve turnover rates.
In December,AFME said that “more ambition” is needed in the European Council’s approach toward a properly constructed CT for real-time pre-trade as well as post-trade.
Adam Farkas, chief executive at AFME, says: “As inter-institutional negotiations begin, AFME is urging policymakers to keep the attractiveness and liquidity of EU markets at the forefront of its considerations.
“To do this, first, we need a meaningful consolidated tape. This means a real-time, pre-trade tape to help overcome the current fragmented picture of the EU’s liquidity and provide a much-needed window where all users of capital markets can have a complete view of that liquidity. This will also help reinvigorate lacklustre European markets, creating further opportunities for both investors as well as companies seeking to list in the EU.
“Second, we must ensure that sufficient choice in trading mechanisms remains to attract investment within and into Europe. Here again, the EU’s geographically fragmented equity markets and its complex regulatory framework risk holding the bloc back from making policy choices that could benefit the EU overall.”
Next regulation article →
Strong improvement in capital reserves and liquidity risk profiles key to banking resilience, says BCBS
Strong improvement in capital reserves and liquidity risk profiles key to banking resilience, says BCBS
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
.jpg)