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AFME reacts to the Council agreement on the EU’s Directive on Faster and Safer Relief of Excess Withholding Taxes
14 May 2024
Following the general approach reached today by the Council on the EU’s Directive on Faster and Safer Relief of Excess Withholding Taxes (‘FASTER’), Adam Farkas, CEO of the Association for Financial Markets in Europe (AFME), commented: “AFME strongly welcomes the aim to simplify and digitise withholding tax procedures within the EU. The FASTER Directive has been negotiated with remarkable speed, an encouraging sign that Member States recognise the urgency of addressing current inefficiencies in withholding tax reclaim processes. “Subject to formal adoption of the agreed text, AFME welcomes the creation of a common EU digital tax residence certificate as an important step to facilitate investors’ access to the new fast-track procedures relating to withholding tax. On several other operational aspects of the Directive, however, we would have liked to see a greater focus on simplification and harmonisation, for example through a common definition of beneficial ownership, which would enhance FASTER’s contribution to the Capital Markets Union. “The effectiveness of the new measures will depend on their implementation. It is crucial that this is accompanied by sufficient support and guidance for certified financial intermediaries, and we look forward to continuing our dialogue with policymakers during this phase of the process. “Member States and the Commission must remain vigilant to ensure that the new rules are workable on the ground and do not cause excessive administrative burden, which would run counter to the spirit of this Directive. Further steps to unlock cross-border investments should continue to be explored, informed by consultation of industry representatives”. – Ends –
AFME welcomes European Parliament’s position on Crisis Management and Deposit Insurance Framework
24 Apr 2024
AFME welcomes today’s European Parliament vote on its position as progress in the right direction, but needing further clarifications and refinement. These are goals we hope can be achieved as the Council agrees on its general approach and co-legislators begin negotiations. On the text adopted today in the EP’s plenary, Sahir Akbar, Head of Resolution Regulation at AFME said, “AFME continues to support the development of an effective recovery and resolution framework in the EU and the ongoing work to enhance resolvability. AFME has been closely involved in the development and implementation of the BRRD and SRMR, the development of TLAC, and related issues including deposit insurance, and supports the Eurogroup view that a consistent and effective framework for managing banks in distress is a critical part of the Banking Union. While today’s European Parliament vote is another step along the journey, details matter and we need to ensure each step taken does not undermine the progress made to date.” AFME believes that when co-legislators enter into negotiations they should focus, in particular, on the following elements: Enhancing the credibility, predictability and consistency of the CMDI framework, further enhancing financial stability, without adversely impacting for example the progress made by G-SIBs and large banks on their resolution planning and build-up of their minimum requirement for own funds and eligible liabilities (MREL). Not increasing contributions to mutualised funds, but better aligning contributions with the risk that an individual institution poses to the fund. This becomes even more important as the proposed revisions to the CMDI framework are likely to increase the use of Deposit Guarantee Scheme funds through the widening of the public interest assessment and change to the creditor hierarchy. Minimising risk to taxpayers and moral hazard by ensuring a consistent, harmonized and careful approach across EU member states to the use of common or mutualised funds to absorb losses, subject to the Least Cost Test, supporting market discipline and avoiding competitive distortions. In addition, deposit insurance is primarily to protect covered depositors, not to absorb losses that should otherwise be borne by the shareholders and other creditors of a failing bank. Being consistent in the tools and application of the framework at EU level in order to ensure that all banks regardless of their size or country of origin can fail in an orderly manner, have a plan in place to provide for this and have the resources to support it. Supporting strong cross-border cooperation and minimise fragmentation both within the EU and with third countries. As the Council continues to work on its general approach and in anticipation of potential co-legislators negotiations at some later date, AFME would stress the importance of moving ahead with amending the EU’s Recovery and Resolution framework in a timely fashion. This would benefit the deeper integration of the EU banking market and by extension the capital market union. – Ends –
AFME reaction to the European Council’s recommendation for a new EU competitiveness deal and the Letta report on a new Single Market
19 Apr 2024
The Association for Financial Markets in Europe (AFME) welcomes the conclusions of the Special Meeting of the European Council of 17-18 April in which EU leaders recognise the need for a “new European competitiveness deal”. The European Council’s call to deepen the Single Market and advance the Capital Markets Union as part of this new deal is, in AFME’s view, key to securing a globally competitive EU economy as well as the EU’s long-term prosperity. More specifically, its support for relaunching securitisation, developing equity financing and harmonising insolvency laws forms a strong and necessary basis for growing the European capital market. Commenting on the conclusions reached, AFME’s CEO, Adam Farkas, said, “Deep, liquid and integrated capital markets are an essential component for supporting the EU’s competitiveness. There is increasing urgency to transform the EU’s existing capital markets into a globally competitive, scaled-up and single capital market. Without this, the region’s future growth and competitiveness are at stake. “Member States all stand to gain from the scale that a truly integrated EU capital market can offer. Enrico Letta’s report discussed with leaders at this week's Summit highlights clearly these benefits. They include the ability to grow EU companies within the Single Market rather than see them develop outside the EU once they reach a certain size, and to channel the resources necessary to financing strategic priorities, including the twin transition of our economy by leveraging both European private savings as well as capital flows from abroad. We welcome Mr Letta’s focus on highlighting the benefits of a renewed single market project and how increased financial integration is necessary to support the EU’s strategic goals. We look forward to considering his roadmap to build on the existing CMU project to form a Savings and Investments Union in further detail and strongly encourage Member States to take inspiration from his ambitious suggestions when forming their strategic agenda over the coming months”. – Ends –
AFME and UK Finance jointly respond to HM Treasury’s consultation on the Private Intermittent Securities and Capital Exchange System (PISCES)
18 Apr 2024
The Association for Financial Markets in Europe (“AFME”) and UK Finance welcomed the opportunity to respond to the consultation by HM Treasury (“HMT”) on the Private Intermittent Securities and Capital Exchange System (“PISCES”). AFME and UK Finance are supportive of the efforts by HM Treasury to strengthen and deepen capital markets in the UK and to ensure that they continue to meet the evolving needs of all market participants. Private markets play an important role in the wider ecosystem and the PISCES proposal is an important further addition to the market framework. Given the innovative nature of the PISCES model and its novel place within the existing ecosystem, AFME and UK Finance believe that it would be helpful for the overall positioning of PISCES to be clearly expressed and agreed before further granular rules are proposed. Both Associations believe this would greatly aid the process for arriving at a PISCES framework that is both attractive and proportionate. Our members consider that: the financial markets infrastructure “sandbox” environment is appropriate for initially testing PISCES and we also agree with HMT’s proposal not to allow general retail investors access as purchasers on PISCES’ launch; it will be critical to offer companies and their shareholders flexibility on PISCES in respect of auction structure, pricing parameters, settlement procedures, disclosure, confidentiality of disclosures and intermediation; and it would be helpful to establish parameters for the form and content of the platform’s disclosure requirements so that there is broad agreement at the outset (when practice and customs are forming). Gary Simmons, Managing Director, High Yield and Equity Capital Markets at AFME, said: “We are grateful for the opportunity to share our views and recommendations on PISCES and welcome the proposal to establish a platform that is intended to provide liquidity for private capital markets. We have seen this market grow substantially in recent years and we welcome the recognition of its growing role in the capital markets ecosystem and desire to support the needs of private companies.” Julie Shacklady, Director, Primary Markets and Corporate Finance at UK Finance, said: “We welcome the innovative and collaborative approach that the government is taking in making the UK’s capital markets more attractive. Private capital markets are a vital component of the ecosystem, and we support any innovation which gives privately held companies greater access to investment and helps them transition towards the public markets. HM Treasury’s proposals for PISCES are an ambitious blueprint in this regard and we look forward to working together to ensure PISCES supports companies and investors alike.” AFME and UK Finance look forward to engaging with HM Treasury as this project evolves. – Ends –
European T+1 Industry Task Force comments on recent UK report on moving to T+1 and outlines its next steps
9 Apr 2024
“The European T+1 Industry Task Force welcomes the recent publication of a report by the Chair of the UK Accelerated Settlement Task Force, and in particular the statement that the “UK and other European jurisdictions should continue to explore opportunities for close collaboration…to see if they can align their moves to T+1.” The members of the European T+1 Industry Task Force emphasise the need for a coordinated approach between the EU/EEA, Switzerland and the UK. “Our shared ambition is for a low-cost, efficient, safe, resilient and integrated post-trade environment which supports globally competitive European securities markets, with high levels of automation and standardisation. We anticipate that alignment of dates will reduce the complexity of implementation projects for firms active across multiple jurisdictions, and minimise scoping issues related to instruments listed, traded and settled across geographical Europe. “The Task Force intends to conduct further analysis of how Europe might transition to T+1, including development of a roadmap for adoption of T+1 in EU securities markets and a potential timeline that would allow enough time for firms to assess the changes they need to undertake, for the industry to conduct comprehensive testing, and for authorities to make the necessary regulatory changes. This analysis will also incorporate lessons learned from the North American migration to T+1 in May 2024. We intend that, once completed, this analysis will be shared publicly.” “Given the strong support for coordination across jurisdictions, the European T+1 Task Force, and its technical sub-groups, believe there is significant opportunity to work collaboratively with the proposed UK Technical Group and looks forward to doing so.” About the European T+1 Taskforce: The Task Force was established in 2023, to bring together a diverse group of industry stakeholders who would be impacted by a potential move to a default T+1 securities settlement cycle. The Task Force contains representation from industry associations representing all types of market participant, including buy-side, sell-side and market infrastructures. To date, the Task Force has conducted analysis on the potential impacts and challenges for European players from the North American migration to T+1 taking place in May 2024 and some initial factfinding across different subgroups about impacts of a potential EU move to T+1 in anticipation of ESMA’s work. The Task Force also submitted a joint statement in response to the ESMA Call for Evidence on Shortening the Settlement Cycle in December 2023. The Task Force is open to participation from any industry association representing securities market participants who would be impacted by T+1. Interested parties are invited to contact [email protected] -ENDS-
AFME responds to the publication of the Accelerated Settlement Taskforce Report
28 Mar 2024
The Association for Financial Markets in Europe (AFME) welcomes the recent report of the Chair of the UK Accelerated Settlement Taskforce and its conclusion that the UK should adopt a T+1 settlement cycle within a reasonable timeframe. AFME particularly welcomes the recommendations that the UK, EU and other European jurisdictions should continue to explore opportunities for close collaboration in order to ensure alignment on T+1 settlement cycles and to establish a Technical Group comprising operational and market experts. Commenting on the report AFME’s CEO, Adam Farkas, said, “AFME agrees with, and supports, the conclusion of the report that UK securities markets should adopt a T+1 settlement cycle, within a reasonable timeframe. The report recommends a coordinated approach across the UK, EU and other European jurisdictions. AFME fully endorses this conclusion, and we further note that the report does not identify any material advantage for UK capital markets to move to T+1 out of step with regional partners. We therefore call on authorities to adopt a collaborative approach in order to reach a pan-European consensus on timing. We highlight the need for further detailed technical analysis across Europe in order to determine the appropriate implementation date, and the nature and timing of any broader market changes that are necessary to facilitate T+1. This analysis should incorporate lessons learned from the US move to T+1 in May 2024. We therefore welcome the establishment of the Technical Group and we will continue to share our, and our members’ wealth of expertise during the next phase of work.” – Ends –
New AFME & zeb report examines role of capital markets in Germany
20 Mar 2024
Press releaseavailable in German Germany is lagging behind other countries with respect to capital markets financing. German companies rely almost exclusively on bank loans while households still avoid capital markets for investing and retirement provision. There is an annual funding gap of EUR 175 billion needed to achieve the German government’s ambitious climate targets by 2030. There are increasing signs views are changing with respect to the role of the capital markets in the German financial system. In Germany, the proportion of capital market instruments is significantly lower than in other countries, however, an equity culture is growing among young investors in Germany. The German statutory pay-as-you-go pension system is beginning to falter in the face of an ageing society. To address this challenge, a pension scheme, partly based on capital markets funding, will be essential in the future. Capital markets could help to finance future investments in Germany, including via new sources of financing, such as securitisations. The Association for Financial Markets in Europe (AFME) has today published a new report on the role of capital markets in Germany. This study, prepared by zeb Consulting, shows the potential that stronger financing via capital markets offers for Germany. Among the key findings, the report shows that for decarbonisation efforts alone, the bar is set very high in Germany. The German government has committed to reducing greenhouse gas emissions in Germany by at least 65% by 2030, compared to 1990 levels, under the Climate Protection Act. Adam Farkas, CEO of AFME, said: "Germany, Europe’s largest economy, faces the immense challenge of raising approximately EUR 175 billion in financing every year until 2030 just to drive decarbonisation efforts. It is clear that the public sector and banks alone will not be able to finance these massive investment requirements. If the German government wants to fulfil its ambitious goals of transforming its industry, infrastructure and transport in the coming years, it will need to turn towards the huge potential of financing via capital markets. Further integration of Europe's capital markets will support and deepen Germany's competitiveness and prosperity in the future." Dr. Dirk Holländer, Senior Partner at zeb, said: “Our international comparison of pension systems shows that countries with state-dominated pension systems have a less pronounced private equity culture in contrast to systems with capital markets funded elements. In Germany, a trend towards private pensions provision via the capital markets is starting to be seen. Nevertheless, German households continue to invest almost 60% of their financial assets in deposits or life insurance. Without a fundamental change in the current pension system, the development of capital market-related private provision will only progress relatively slowly.” Key findings: Ongoing low use of capital markets financing by German corporates Traditionally, companies in Germany have preferred bank financing to capital markets finance. The high proportion of bank loans as a company's main source of financing is striking: in Germany this is 29%, in France 24%, while only 12% in the USA. The entire corporate client business of banks in Germany is dominated by loans. The securities business, which is the provision of services in connection with the purchase, sale and custody of securities, is significantly smaller across all customer segments. Meanwhile, the market capitalisation of all listed companies in Germany is just under 50% in relation to gross domestic product (GDP). This is not only low compared to the United Kingdom (around 140%) and the USA (around 220%), but also compared to France, where the stock market capitalisation of companies in relation to the country's total economic output is over 100%. The relatively low market capitalisation of German companies compared with German economic output reflects the ongoing low use of capital markets as a source of financing for German companies. This is often attributed to family-run businesses, 94% of which have a turnover of under one million euros. Bank loans alone cannot meet upcoming investment needs At the same time, innovation and modernisation are having a direct impact on the capital ratios of German banks. According to the report’s estimates for the German market as a whole, banks will no longer be able to raise the funds required to decarbonise the economy in the future, even though they currently have a relatively good CET1 ratio (common equity tier 1 ratio) of 15.4%. Moreover, increasing regulatory requirements and investments in digitalisation will mean that banks have less room to manoeuvre in the coming years. Additional sources of financing beyond traditional bank loans will, therefore, be necessary. In order to close the obvious financing gaps to achieve the decarbonisation targets enshrined in the German constitution, capital markets represent an additional source of financing that has been little used in Germany to date, but appears unavoidable in the future. Volume of private equity and public equity in Germany behind peers Furthermore, Germany lags behind as it relates to risk capital and is not maximising the potential of venture capital. In 2022, private equity financing in relation to GDP was 0.4%. In the USA, on the other hand, this stood at 3.6%; representing almost ten times more venture capital. The ratio in the UK is 1.1% - more than twice as high as in Germany. For small and medium-sized enterprises (SMEs), capital market instruments or institutional private equity (outside of investments by family and friends) only play a very minor role. The “Schuldschein” model remains specific to Germany In addition, a special German structure - the Schuldschein – which combines the characteristics of loans and bonds still represents an important financing source. The issuance of “Schuldscheindarlehen” rose to almost EUR 40 billion in 2022, with banks acting as the first lenders and transferring tranches to investors. Although the volume of Schuldscheindarlehen has been increasing for several years and is more than 3-times larger than the classic securitisation market, the fact that they are not publicly traded hinders a wider use by foreign investors Securitisation is an important part of the market Securitisation could free up bank capital, increasing capacity to finance the real economy. Companies could access new sources of funding and become less dependent on their bank. The Federal Ministry of Finance and the German Bundesbank have emphasised the advantages of these structures. In addition, Germany, together with France, have set out a roadmap to strengthen securitisation as a source of financing for the real economy. The revival of the securitisation market (as a successor to the Schuldschein market) could significantly improve the position of larger, capital market-oriented banks. IPOs are shifting abroad Since 2019 there has been a growing trend towards cross-border IPOs by German companies, as the share of IPOs on foreign stock markets has increased significantly, particularly in the US. There is a clear industry pattern emerging: 52% of German companies listing abroad are in the biotechnology sector, while 19% are in IT/e-commerce. Firms with a cross-border IPO not only grow faster after getting public equity, there is also a tendency for these companies to increasingly shift their business away from Germany to other countries. For example, the number of foreign-listed German companies increased by 19.1% after their IPO, while the share of their German business fell by 33%. In comparison, German companies listing in Germany grew by 11.7% after their IPO, with the share of their German business increasing by only 1%. Against this backdrop, a major concern is that if German business activities shift to other regions in the future, then the country’s growth potential will suffer. The German pension system is under pressure to adapt State benefits account for more than three quarters (76%) of retirement income in Germany, with only 8% coming from occupational pensions. As the population ages, increasing pressure is being put on is the statutory, pay-as-you-go pension system to adapt. In the future, a state pension alone will no longer be sufficient to cover the cost of living in old age. The working population is becoming increasingly aware of this issue and is strengthening private efforts to provide for their own retirement. However, the process is a gradual one. In particular, the younger generation is increasingly starting to make private provisions. For example, the number of share owners between the ages of 20 to 29 has tripled in recent years. At around EUR 100 billion a year, the subsidies paid out of the federal budget currently cover 30% of all statutory pension insurance expenditure. By 2040, however, the ratio of contributors (15-64 year olds) to pensioners (over 65 year olds) will fall below 2:1. The pay-as-you-go pension system needs supplementary solutions to ensure that retirement income is adequate, with the German government currently considering the idea of a state pension fund. Could modernising the German pension system be a solution? The German government is currently working on a legislative initiative called “Generationenkapital” which would modernise the pension system by building a capital stock from public funds to use earnings to stabilise pension contributions. Currently, the plan is to finance the pension fund from the state budget and invest in capital markets. With start-up financing of EUR 10-12 billion per year, a fund of around EUR 200 billion is to be created by 2035. However, the implementation of this pension fund remains vague in view of the budgetary situation. However, nearly 60% of German households' financial assets remain invested in bank deposits or life insurance policies. Typical capital market-related investments such as bonds, pension funds, investment funds and equities have a niche existence in Germany. Seizing opportunities through capital markets, particularly by expanding the pay-as-you-go pension system to include capital market-funded components will be vital.​​​​​​​ This study was prepared by zeb Consulting on behalf of and in co-operation with the Association for Financial Markets in Europe (AFME). – Ends –
AFME responds to the adoption of the Eurogroup statement on the future development of the Capital Markets Union
13 Mar 2024
The Association for Financial Markets in Europe (AFME) welcomes the recent adoption of the statement on the future of the Capital Markets Union by the Eurogroup in its inclusive format. This concludes close to a year of sustained discussion between the 27 European Finance Ministers under the leadership of President Donohoe and prior to the presentation of the conclusions to EU leaders at the Euro Summit next week. With this statement, Finance Ministers have sent a strong message that action is needed if the EU does not want to fall behind other jurisdictions in developing its capital markets. Commenting on the statement, AFME’s CEO, Adam Farkas, said, “AFME agrees with, and shares Finance Ministers’ sense of urgency as it relates to the need for transforming the EU’s existing capital markets into a globally competitive, well-functioning single market. This will be key to supporting the region’s growth and competitiveness. With market-based financing levels in the EU fundamentally unchanged over the past decade, and the EU lagging behind other jurisdictions in terms of market capitalisation, liquidity and competitiveness metrics, it is time to take transformative actions to scale the EU’s capital market. The EU market needs to reach a level which is more commensurate with the size of the EU economy, its investment needs and the role it should play on the global stage. The complex structure of EU markets today is difficult for investors to navigate and this results in high trading costs, negatively impacting investor returns. We therefore welcome Finance Ministers’ ambition to increase the attractiveness of market-based funding for corporates through better integrated market infrastructures, together with the recognition that developing tools, such as the consolidated tape for trading data, that can play an important role in improving market integration. Furthermore, we strongly support Finance Ministers’ call for developing the EU securitisation market. Over the last decade, EU securitisation issuance has languished far behind other jurisdictions. Securitisation can make a vital contribution to Europe’s substantial financing needs in the coming years, including those arising from the green and digital transformations. It is the only financial technique which enables financial institutions both to recycle capital and finance additional lending to households and small businesses. It is thus critical that action now be taken to ensure this tool can be fully utilised to finance long-term growth in the EU. We would, however, have liked to see Finance Ministers set out concrete actions to improve market liquidity in the EU. For instance, the EU is the only jurisdiction in the world to impose hard limits on certain trading mechanisms which provide valuable execution choice to investors. Overcoming these types of constraints in our markets would enable a virtuous circle whereby greater liquidity would attract more capital to, and listings of firms with better valuations in the EU. While we welcome references made in the statement to better regulation principles, we would also have liked to have seen the rigidity of our current legislative and regulatory processes identified as a clear target for improvements. For capital markets to grow and thrive in the EU, a rule-making framework which is much more agile and data-driven than the present system will need to be developed. We now look to the Commission and Member States to address the changes identified by Finance Ministers at pace, putting the broader benefits of a truly integrated capital market ahead of national interests.” – Ends –
Buy and sell side unite on joint AFME/IA proposals for a future UK post-trade transparency model for corporate and sovereign bonds
13 Mar 2024
As part of their respective responses to the Financial Conduct Authority’s recent consultation on improving transparency for bond and derivatives markets, the Association for Financial Markets in Europe (AFME) and the Investment Association (IA) have reached a significant agreement on a proposal for future UK post-trade transparency model for corporate and sovereign bonds. AFME and IA members have worked closely together over several months to jointly develop a framework that builds upon current FCA proposals and provides an optimal solution for the structure of the revised post-trade transparency regime in the UK. Each of the two currently proposed FCA models in CP 23/32 have their strengths but the associations believe that neither represents the optimal structure. The AFME/IA proposed model takes the best elements from each of the FCA models and combines them into a hybrid framework. The associations believe this hybrid approach is better suited to the twin objectives of optimising timely transparency, as well as facilitating the adequate protection of investors and liquidity providers from the very real risks associated with overly prompt dissemination of sensitive information for very large trades. The associations’ joint belief is that this hybrid model does not represent a radical departure from the FCA’s options, but will lead to an overall better outcome than either of the FCA models individually. The joint proposal was informed and supported by extensive analysis of existing post-trade data, provided by FINBOURNE Technology, which was instrumental in the process of establishing the proposal. Victoria Webster, Managing Director of Fixed Income at AFME, said: “Establishing the correct balance on a revised framework for the bond transparency regime is a difficult task, particularly given the often opposing views from different parts of the industry. Therefore, achieving alignment between our associations is a significant, and somewhat unique achievement, since it represents a coming together of the buy and sell side and, as such, we hope it will provide valuable input to the FCA’s decision making on the future UK post-trade transparency framework.” Galina Dimitrova, Director for Investment and Capital Markets at the IA, said: "Having worked together with AFME, we're pleased to put forward this joint proposal on a framework for bond post-trade transparency, which balances the needs of the buy and sell side. This hybrid approach will offer timely transparency, while protecting investors and liquidity providers when executing very large trades." AFME and the IA’s proposals on post-trade deferrals in respect of bonds and instrument scoping are fully endorsed by UK Finance members. The hybrid model includes two large in scale (LIS) thresholds and specific caps on the transaction volume that is published after a 4 week deferral (i.e. a mix between the two FCA models), and also replaces FCA Model 1’s middle tier of deferrals (price reported at 15 minutes and volume reported on T+3), with the reporting of price and volume at T+2. AFME and the IA look forward to engaging with the FCA on this important development in the coming weeks. – Ends –
AFME welcomes FCA’s Final Report on Wholesale Data Market Study
29 Feb 2024
The Association for Financial Markets in Europe (AFME) has today welcomed the publication of the final report on the FCA’s Wholesale Data Market Study. This study is a crucial part of the wholesale market data investigation into competition in three key markets: provision of benchmarks, credit ratings data, and market data vendor (MDV) services. The FCA final report is a key piece of analysis which assesses persistent user concerns about how wholesale data markets are working through six lenses: barriers to entry and expansion, network effects, vertical integration, suppliers’ commercial practices, data users’ behaviour and incentives for innovation. Notably, the FCA has found evidence and drivers of market power in all three key markets in the form of market concentration and highly profitable margins, among others. AFME believes it is essential to ensure a competitive, efficient market for wholesale market data which does not result in excessive costs for users. April Day, Managing Director of Equities and Victoria Webster, Managing Director of Fixed Income at AFME, commented:“Our members actively use market data for a wide variety of primary and secondary markets purposes. Many of the FCA’s findings that certain features in the three markets may prevent, restrict or distort competition are consistent with AFME’s concerns, as expressed in our previous analyses. “We note that the FCA has recognised shortcomings in the three markets but has ultimately decided not to make a market investigation reference to the Competition and Markets Authority. We also note that this decision is based on the FCA’s assessment that, as a sector regulator, it is in a strong position to shape remedies and supervise their implementation. “As the FCA continues to develop its framework for the UK consolidated tapes for bonds and equities, we encourage policymakers to ensure holistic market regulation of wholesale market data.” AFME’s concerns surrounding market data include: High market concentration: competition is required to ensure data is priced fairly and efficiently. We note the FCA’s finding in their previous analyses that, while high start-up costs are not insurmountable to overcome, recent entrants have not been able to achieve the growth necessary to acquire significant market share. Certain data providers are extremely embedded in the UK and global financial ecosystem, and further concentration from mergers and consolidations have exacerbated their market power. We also note the previous findings from the FCA study on Trade Data which reflects our concerns regarding the significant market share exchanges hold as data providers, particularly as most users are forced to buy trading data to satisfy their investor protection obligations (best execution), while others need to obtain ‘must have’ data from exchanges to remain competitive themselves. Restrictions around usage rights within license terms: long standing practices within licensing and data-use agreements and non-transparent pricing have contributed to the rising cost of data, which is one of the most significant challenges facing the effective functioning of wholesale markets. Users can often be required to pay multiple times for the same data or pay a rate much higher than previously for the same data with no improvement to quality or access. Increased costs eventually have a detrimental impact on end investors. AFME supports the development of a well-constructed consolidated tape as this will contribute to improving the quality of market data, reducing its costs, and decreasing the complexity relating to market data licenses. AFME has provided a detailed response to both FCA CP 23/15 and response to FCA CP 23/33 on this topic. AFME continues to support the FCA’s extensive work evaluating how data and advanced analytics are being accessed and used, as well as their value to market participants, particularly regarding how competitively data within the three markets is sold and priced. We look forward to assessing the FCA’s remedies to address the identified shortcomings and to continuing our engagement with the FCA on this topic going forward. – Ends –

Rebecca O'Neill

Head of Communications and Marketing

+44 (0) 20 3828 2753