A significant proportion of European investors say that the MiFID II proposal to force all quotes in fixed income instruments to be firm and disclosed to the market, will have a negative impact on trading activity and reduce liquidity, according to new research from the Association for Financial Markets in Europe. In AFME’s Investor Survey of Fixed Income Liquidity, 56% of investors polled said they believe the MiFID II pre-trade transparency regime will have a negative impact on market activity through: a decline in trading volumes; a reduction in transaction size, compromising the execution of large orders; an increase in the cost of trading; or a stop to trading altogether. The fixed income market continues its migration from voice to electronic trading, though more slowly than previously envisaged. More than one third (37%) of respondents said that electronic trading has increased over the past two years and 39% expect it to increase over the next 12 months. However, this growth is evolving from a low base: in 2012, 55% of investors conducted no more than 40% of their trades electronically. The findings also show that the majority (63%) of investors believe a choice of both electronic and voice methods of trading is necessary in order to maintain optimal market liquidity. Compared to the large investors, a significant proportion of small investors¹ (23%) believe that voice is the only method of trading necessary to maintain optimal market liquidity. In addition, the three key reasons highlighted by investors for choosing to trade by voice include ‘to improve liquidity’ (52%), followed by the ‘size of the trade’ (51%) and ‘certainty of execution’ (44%). The Investor Survey of Fixed Income Liquidity findings will be discussed in more detail at AFME’s 8th Annual European Market Liquidity Conference, which takes place in London on 13 February 2013. Christian Krohn, a managing director at the Association for Financial Markets in Europe commented: “The survey findings send out a clear investor message for European policymakers, namely that many investors believe MiFID’s pre-trade transparency proposals² will have damaging effects on trading activity, especially with regard to large trades. The European Council and Parliament amendments tolimit MiFID requirements to trades below a certain size are to be welcomed. However the Council proposal to broaden the scope to illiquid instruments will still hamper trading activity. “The survey also demonstrates the need to maintain the choice of both voice and electronic as methods of execution, which is seen by fixed income investors as essential to maintain optimal market liquidity. “Proposals to force all over-the-counter voice trading to take place under MiFID’s proposed transparency rules will remove this flexibility and will have unintended damaging effects on liquidity.” -ENDS-

Commenting on today’s agreement by European finance ministers on the European Central Bank (ECB) becoming a common bank supervisor, Simon Lewis, chief executive of the Association for Financial Markets in Europe (AFME) said: “ECOFIN’s decision should be welcomed as a major step forward and also an essential element in resolving the Eurozone crisis. “The Single Supervisory Mechanism forms a key component of banking union and the fact that Member States have now reached agreement is a welcome demonstration of the strong political commitment to this important project. It is essential that this momentum is maintained. “Banking Union should enhance the Single Market as a whole and AFME supports the significant efforts to achieve fair and balanced decision‐making for the European Banking Authority (EBA). The EBA should also have authority to develop a supervisory handbook for the Single Market as a whole in order to ensure high quality, consistent supervision for all banks in Europe.” ‐ENDS‐

The US Treasury decision to exempt foreign exchange forwards and swaps transactions from the clearing and exchange trading requirements of the Dodd-Frank Act is a critical step in ensuring the safe functioning of a well performing market and in promoting clarity in the international regulatory regime, according to the Global FX Division¹ of the Global Financial Markets Association2. Subjecting FX transactions to mandatory clearing would have introduced new risks into a stable market that performed well during the crisis with serious negative consequences for corporate and asset manager end-users, who use foreign exchange for international trade and investing and as a key element of their risk management programmes. Research3 shows that the key risk in foreign exchange is settlement risk, comprising 94% of the estimated maximum loss exposure in a trade for FX instruments with a maturity of six months and 89% for instruments with a maturity of two years. Recent consultations from several jurisdictions have consistently focused on settlement risk reduction as being the most appropriate mitigation technique for the FX markets. This settlement risk is already managed effectively through the existing CLS settlement system, which covers 17 currencies and is regulated by the Federal Reserve Bank of New York - who also Chair the joint oversight committee with 21 other Central Banks. The US Treasury decision also recognises the FX industry’s efforts along with DTCC to develop a global trade repository to store FX trade information, thereby providing additional oversight for regulators and transparency for users. The global build out of this repository, already in testing, will increase its effectiveness for regulators and efficiency for participants. James Kemp, managing director of GFMA’s Global FX Division, commented: “We very much welcome the US Treasury ‘final determination’. Moving FX swaps and forwards to centralised clearing would not only have created additional costs for businesses and investors, but also increased systemic risk. After such a detailed consultation period, this final decision from the US Treasury provides the clarity the industry needs to now further develop the infrastructure of the future. “The US Treasury has identified that the key risk in FX is settlement risk and that it is already effectively managed. We urge regulators in other jurisdictions to acknowledge the US Treasury’s key points and follow suit in exempting FX from mandatory clearing and execution requirements. This will ensure that the global FX market is not fragmented into different regimes and remains cost effective for end users”. -ENDS-

Prime Collateralised Securities (PCS) - an industry-led, nonprofit initiative to develop a label for high quality securitisations – today marks its official opening with a series of high-profile Board appointments. PCS has been set up to grant labels for high quality securitisations that meet best practice in terms of quality, transparency, simplicity, and standardisation. It expects to grant the first label in the next month. The new PCS Board comprises: Francesco Papadia, former Director General for Market Operations at the European Central Bank Anneli Peshkoff, former Director of Treasury at the European Investment Bank Prof Jose Campa, former Secretary of State for the Economy in the Spanish Ministry of Economy and Finance Gregor Gruber, Allianz Investment Management, member of the Investment Management Board Gaelle Philippe Viriot, Head of ABS at Axa Investment Managers Richard Bartlett, Head of Corporate Debt Capital Markets and Risk Solutions, RBS Mirco Bianchi, Head of Group Finance, UniCredit Michaela Ulrici, Chair of the Board, NautaDutilh Ian Bell, Head of the PCS Secretariat In addition to the Board appointments, the PCS Secretariat - which will grant and monitor the PCS label - has confirmed the Irish Stock Exchange, True Sale Initiative and KPMG as screening partners to assist it in checking key documentation. Access to securitisation markets for issuers (corporates and banks) is increasingly important to overcome funding shortfalls[1] for the real economy in Europe. Asset Backed Securities can be an important instrument, especially as they do not use up the same credit line capacity as other investments, such as corporate and covered bonds. Yet, despite the very strong underlying performance of European asset-backed securities since 2007, the smaller investor base and the reduced level of issuance are affecting companies reliant on capital markets, as well as Europe’s broader economic recovery. The PCS initiative has been developed by a broad group of leading European finance professionals comprising issuers, investors, arrangers, and other market participants, in collaboration with other European industry associations, as well as observers such as the European Central Bank and the European Investment Bank. PCS is more than just a positive label for eligible securitisations – it provides agreed market standards, as well as an enforcement mechanism of these agreed standards, based on a label which can be granted and withdrawn depending on compliance and as verified by the PCS Secretariat. Ian Bell, PCS’s Head of Secretariat, commented: “We are officially open for business and it’s exciting to be part of such an important initiative, which has seen so much support from investors, issuers and policymakers alike. The PCS initiative has received strong support from Europe’s key institutions, such as the European Central Bank and I am delighted with the level of experience on the PCS Board, which will be led by Francesco Papadia. “Europe’s securitisation market is a necessary component of funding the growth that Europe so badly needs and the PCS label will go some way towards providing investors with the reassurance they need. “We look forward to a constructive dialogue with policy makers on how we can help to support a strong and transparent securitization market in Europe. In this context we felt encouraged by the European Commission’s request to the European Insurance and Occupational Pensions Authority (EIOPA) – the pan-European insurance regulator - to revisit the capital charges imposed by Solvency 2 on insurers for holding securitised assets. For the sake of Europe’s economic recovery, let’s hope this is the beginning of a fruitful interaction.” Newly appointed PCS Chairman Francesco Papadia added: “The PCS label will bring quality, transparency and standardisation to the market, which will deepen the securitisation investor base in Europe and, in turn, improve overall liquidity. Europe needs a healthy securitisation market and we are confident that this initiative, alongside regulatory changes, will revitalise the market as a source of funding for the real economy.” -ENDS- [1] Recent estimates show that €650 billion of senior unsecured and covered bond funding will mature in 2012 for European banks; for sovereigns, funding of over €900 billion will be needed and that an additional €1.5 – €1.9 trillion of funding is needed to power any growth. Sources: Bloomberg and BAML Global Research Dec 2011, Standard & Poor's May 2012.

New requirements for European banks to ring‐fence their significant market‐making activities would increase funding costs for banks and restrict their ability to deliver affordable financing and risk management services to European customers at a time when Europe needs capital markets funding, according to a joint paper issued today by the Association for Financial Markets in Europe (AFME) and the International Securities and Derivatives Association (ISDA). The paper was submitted this week to the European Commission in response to a consultation on the recommendations of the High Level Expert Group on reforming the structure of the EU banking sector, also known as the Liikanen Group. AFME and ISDA caution that the negative impact of the mandatory separation proposals on returns is likely to cause some banks to re‐evaluate the economics of continuing with certain market‐making related business lines, which could reduce their ability to provide liquidity to the capital markets, with a potentially significant detrimental impact on European growth. It could also weaken the structure of the European banking sector, risk fragmenting the single market and reduce competition, adds the joint paper. Furthermore, AFME and ISDA voice their concern that there are already various regulatory initiatives, completed as well as proposed, that seek to address the same issues. If these regulatory measures are not co‐ordinated effectively, it could result in substantial regulatory inconsistencies and would ultimately undermine the primary goal of reducing risk in the banking sector. Simon Lewis, Chief Executive of the Association for Financial Markets in Europe, commented: “AFME agrees with the core objectives of the Liikanen Group’s work, particularly the goal of reducing risk in the banking system, promoting competition and maintaining the integrity of the single market. However, if the Liikanen proposals are implemented as they stand there is a serious risk that the capital markets will be unable to meet Europe’s financing needs at this time of very subdued bank lending. “The impact of these structural separation recommendations needs to be assessed, particularly regarding any potential systemic and operational consequences. We therefore strongly urge the Commission to conduct a thorough impact study to consider the balance of costs and benefits arising from this recommendation.” George Handjinicolaou, Deputy Chief Executive Officer and Head of Europe for the International Swaps and Derivatives Association, said: “ISDA is committed to safe and efficient markets and supports the goals of the Liikanen Group to reduce risk in banks and the banking system. However, we are particularly concerned by the Liikanen proposals to impose a one‐size‐fits‐all business model on banks with significant trading activities. We firmly believe that such an approach is unnecessary and it would risk undermining HLEG’s stated key objective of ensuring a banking sector that is capable of financing the real economy. “We urge the Liikanen Group to conduct a thorough impact study to assess the costs and benefits of their recommendations and strongly encourage efficient co‐ordination of regulatory initiatives to ensure the goal of reducing risk in the banking sector is achieved without harming global financial markets”. Please click here: http://www.afme.eu/AFME‐ISDA‐response‐Liikanen‐HLEGrecommendations to view the joint AFME ISDA response submission to the European Commission consultation on the recommendations of the High Level Expert Group on reforming the structure of the EU banking sector. ‐ENDS‐

(London, UK) The Collateral Initiatives Coordination Forum (a grouping of European trade associations representing a broad range of financial market participants internationally) has called for regulatory authorities to focus on the efficient mobilisation of collateral in financial markets. The CICF makes the case that, as high quality collateral is in increasing demand to support transactions in financial markets, regulatory measures should ensure that it flows efficiently around the market, facilitating the matching of collateral sources and uses. The developments, and their sequencing, that are necessary to improve collateral fluidity are set out in a CICF White Paper published today. The importance of collateral has grown since the advent of the financial crisis in mid-2007, as both market participants and official policy makers have encouraged its use to ensure that risk in financial markets is better managed. This demand for high quality collateral will increase further following the full introduction of regulatory measures including the Basel liquidity requirements and the shift of standardised OTC derivatives to CCP clearing. Given this increasing demand and in the face of limited supply, the CICF argues that it is essential that high-quality collateral be managed as a scarce resource. Calling for an urgent focus on collateral fluidity, the CICF’s independent Chairman, Mr Godfried De Vidts, said: “The CICF is offering a vision for improvements in collateral infrastructure. Too much haste in implementing multiple regulatory changes impacting collateral will lead to adverse consequences, which are already visible through the fear of a collateral squeeze.” The CICF’s White Paper explains that the challenge is to mobilise efficiently the flow of collateral inside and between organisations, by eliminating barriers to collateral flows and the development of an efficient market infrastructure. The CICF proposes that known problems in European financial market infrastructures need to be fixed, alongside the delivery of the major technological developments to realise both T2S and the shift to a standard T+2 settlement period. Furthermore, the CICF considers that without the effective phasing of proposed changes, serious adverse consequences for financial markets, and hence the real economy, can be anticipated as a result of inadequate collateral fluidity; and urges that the industry and policymakers should work together to deliver well thought out, suitably phased measures. CICF is cognisant of the fact that collateral fluidity is one of the many important aspects of collateral. It will therefore endeavour to expand its work in other relevant areas of collateral including proposals for harmonisation and standardisation at European and at international levels. A copy of the CICF White Paper is available from www.icmagroup.org Contact: Allan Malvar, Managing Director, Head of Membership and Communications International Capital Market Association [email protected] +44 20 72130322 / +44 7738 696 451 Notes for editors Collateral Initiatives Coordination Forum The CICF is a joint trade associations’ body set up at the beginning of 2012 to facilitate appropriate coordination across the private sector of all collateral-related initiatives. Through its trade association members it represents a broad range of financial market participants internationally. Current members of the CICF are: Association for Financial Markets in Europe (AFME) Association Française des Marchés Financiers (AMAFI) European Association of CCP Clearing Houses (EACH) European Banking Federation (EBF) European Central Securities Depositories Association (ECSDA) International Capital Market Association (ICMA) International Swaps and Derivatives Association (ISDA) International Securities Lending Association (ISLA) Loan Market Association (LMA) Wholesale Markets Brokers’ Association (WMBA) For further information about the CICF please see its website pages. To aid those interested in the topic of collateral, but new to the associated concepts, the CICF is today also publishing a short primer entitled ‘Collateral Fundamentals’ available at www.icmagroup.org. Looking ahead, the CICF will consider opportunities to supplement this paper with similar papers going into further depth on more specific aspects of the overall collateral topic.

Introducing banking union in Europe will help resolve the euro crisis by strengthening the financial system and enabling it to contribute more effectively towards economic recovery, per a paper published today by the Association for Financial Markets in Europe (AFME). However, key challenges must be addressed to ensure the new banking union framework is effective and strengthens the Single Market across the EU, namely: ‐ The Proposed Single Supervisory Mechanism (SSM) needs to be finalised and implemented quickly, with clear agreement reached on all major aspects of the proposal by the end of 2012. The Paper warns that failure to agree on this timetable would risk reigniting the Eurozone crisis. Potential misalignments and systemic weaknesses could appear unless bank supervision and bank resolution (for failing banks) are developed alongside and complement each other. Under the European Commission’s proposals, bank resolution – at least for the initial phase ‐ would continue to fall within the jurisdiction of each Member State. The inevitable period of transition between establishment of the SSM and implementation of a single resolution mechanism needs to be kept to a minimum, the Paper argues. AFME’s paper on banking union also provides insight on achieving high quality and effective supervision, outlining the need for supervision to be well‐resourced and based on a clear, reliable mandate. In particular, AFME calls for supervision to have a clear focus on the assessment of the governance and culture of any firm. The paper highlights how Europe’s Single Market must not be undermined as a result of banking union and the development of a Single Supervisory Handbook is a key step towards promoting a level playing field and guarding against fragmentation. Simon Lewis, AFME Chief Executive, said: “AFME believes banking union is a vital project for Europe, which should advance market integration, strengthen financial markets and enhance confidence in the EU economy. “It is therefore essential that Europe’s leaders reach agreement as soon as possible on key aspects; that they get the detail right on vital areas like supervisory arrangements; and that they establish a clear roadmap to deal with the other integral components of banking union including the single resolution mechanism.” ‐ENDS‐

Commenting on cross border resolution plans, published today by the US Federal Deposit Insurance Corporation (FDIC) and Bank of England, Simon Lewis, chief executive of the Global Financial Markets Association (GFMA) said: “GFMA strongly supports the joint paper published today by the Bank of England and the FDIC on resolving US or UK-based G-SIFIs. No financial services firm should be ‘too-big-to-fail’ or have to rely on taxpayer support for its survival. “GFMA notes that there can be significant benefits in a whole group, single point of entry, approach where this is effective. However, as acknowledged in the paper, it is important to recognise that a single point of entry strategy may not be appropriate for all institutions - for example, where there is insufficient capital at the holding company level to absorb the required level of losses. “Resolution strategies therefore need to be tailored to the circumstances of each institution and the development of firm-specific cross-border cooperation agreements will be a key component to achieve this. We urge similar cooperation between authorities in other jurisdictions, building upon the framework established by the Financial Stability Board.” -ENDS-

Simon Lewis, Chief Executive of the Association for Financial Markets in Europe, today issued the following comment on the report of European Commission’s High Level Expert Group on banking reform: “We will study with interest the recommendations of the High‐Level Expert Group and we note Commissioner Barnier’s comment today that he will consider their impact on growth and the safety and integrity of financial services. European banking is already undergoing profound change as a result of regulatory reform and of shifts in market fundamentals. It is not at all clear that further structural reform would make the system safer or more efficient. “AFME supports the regulatory reform programme and the authorities’ aim of restoring confidence in the European financial system. But we do not believe that further changes to the structure of the banking industry are necessary or will contribute to Europe’s economic growth.” ‐ENDS‐

The Association for Financial Markets in Europe (AFME) has appointed regulatory expert and academic Eddy Wymeersch as a nonexecutive director and senior advisor. Mr Wymeersch was formerly chair of the Committee of European Securities Regulators (CESR) as well as the Chairman of the Supervisory Board of the Belgian Banking, Finance and Insurance Commission. He will join the AFME Board with immediate effect, following the Association’s Board meeting and Annual General Meeting, which took place on 19 September 2012. He is currently chairman of the Public Interest Oversight Board in Madrid and member of the board of Euroclear. He was a member of the European Corporate Governance Forum, an advisor to the Belgian Government, the European Commission and international institutions. He teaches on company law, banking law and securities regulation. Gaёl de Boissard, AFME’s chairman commented: “Europe’s capital markets are experiencing unprecedented levels of regulatory change and we are delighted to appoint someone with Eddy Wymeersch’s enormous experience of the financial markets to our Board. His expertise and understanding of the role of European policymakers, in particular, will be invaluable to us as an advisor.” Eddy Wymeersch commented: “I hope that my expertise in the financial field will benefit AFME and its members and contribute to the integration of the financial markets in Europe and worldwide. At the present juncture when so many issues are popping up, it will be necessary to develop a long-term view to stabilise the system and contribute to the growth of our economies.” ‐ENDS‐