Template-Type: ReDIF-Paper 1.0 Author-Name: Thomadakis, Apostolos Title: 2020 ECMI Statistical Package: key findings Abstract: This report provides an overview of the key findings of the ECMI Statistical Package 2020, a comprehensive and annually updated database on the dynamics of European and global capital markets (covering China, Japan, the US and other relevant markets).* The key trends gleaned from the package on equity markets, debt securities, exchange-traded derivatives (ETD), over-the-counter (OTC) derivatives and investment funds are outlined below. The statistical package covers the period up to 2019, which means that the impact of the Covid-19 pandemic is reflected in the figures only to a very limited extent. Highlights Equity market Market capitalisation of listed companies in the EU-27 increased 21.9% in 2019. The capital raised though initial public offerings (IPOs) declined 36.3% in 2019. Debt securities The global amount of outstanding debt securities in 2019 saw an increase, totalling �86.2 trillion. Notional amounts of outstanding debt in the EU-27 rose, both in terms of value (+3.5%) and GDP share (standing at 143.7%). Issuance of securitised products fell 19.6% to �217 billion in the EU-27, while in the US it increased 14.1% to �1.9 trillion. Exchange-traded derivatives The trading of interest rate derivatives (IRD) in Europe slowed (-11.2%) to �420 trillion in 2019. Global trading in commodity derivatives remained stable at �120.5 trillion, while the number of contracts reached 5.7 billion. Over-the-counter derivatives The notional amount of over-the-counter (OTC) traded derivatives increased 4.5% in 2019, and the gross market value 22.0%. Euro-denominated IRD increased 4.7% to �104 trillion, representing 26.1% of all contracts. Central clearing continued to make inroads for IRD contracts and increased 8.6%. At the end of 2019, 76.7% of IRD were cleared with central clearing counterparties (CCPs). Investments funds The number of Undertakings for Collective Investment in Transferable Securities (UCITS) funds increased 2.0% in 2019, and the number of non-UCITS funds 2.2%. Net assets totalled by UCITS funds were �8.9 trillion, while the non-UCITS reached �6.1 trillion. Equity and bond funds represented 30.0% and 24.2% of the total EU-27 investment fund market in terms of net assets. The number of listed exchange-traded funds (ETFs) in the EU-27 rose 7.7%, and the total value of ETF trading shrank 11.9%. *The ECMI Statistical Package retrieves, compiles and analyses data from publicly available sources and reports as follows. Section 1: WFE, FESE and individual trading venues; Section 2: BIS, ECB, ECBC, AFME, WFE, FESE and individual trading venues; Section 3: BIS, WFE, FESE and individual trading venues; Section 4: BIS and WFE; Section 5: EFAMA, OECD, Pensions Europe and Insurance Europe; Section 6 to 8: Eurostat, IMF and World Bank. Length: 17 pages Creation-Date: 2021-02 File-URL: https://cdn.ceps.eu/wp-content/uploads/2021/02/ECMI-Stat-Pack-2020-Key-findings.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:32242 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Author-Name: Thomadakis, Apostolos Title: Derivatives in Sustainable Finance Abstract: In recent years, sustainability has risen in scope and importance on the agenda of policymakers. In Europe, this has translated into the EU Sustainable Finance Action Plan, which aims to: i) reorient capital flows towards sustainable investments; ii) manage financial risks stemming from climate/environmental/social issues; and iii) promote transparency and long-termism in financial and economic activity. A market that could play a significant role towards Europe�s green transition is derivatives. The market has been tightly regulated since the 2007-08 financial crisis, making it safer and more transparent. Derivatives facilitate capital-raising via the hedging of risks related to sustainable investments. Moreover, they enhance the transparency and the price formation process of the underlying securities, and thus foster long-termism. This report highlights how derivatives markets can � through their forward dimension, their global and consolidated nature, and their proper regulation � contribute to: i. enabling the EU to raise and channel the necessary capital towards sustainable investments; ii. helping firms hedge risks related to ESG factors; iii. facilitating transparency, price discovery and market efficiency; and iv. contributing to long-termism. Length: 46 pages Creation-Date: 2020-07 File-URL: https://cdn.ceps.eu/wp-content/uploads/2020/07/Derivatives-in-Sustainable-Finance.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:29791 Template-Type: ReDIF-Paper 1.0 Author-Name: Amariei, Cosmina Title: Asset Allocation in Europe: Reality vs. Expectations Abstract: In Europe, capital markets are expected to play a more prominent role in corporate financing, retail/institutional saving/investment and private risk-sharing altogether. In the current institutional cycle, CMU remains as relevant as ever. However, it needs rethinking at EU level and real commitment from member states. The capacity of capital markets to enhance the resilience of our societies as a whole, especially when confronted with unprecedented shocks, should certainly be given more thorough consideration. In order to contribute to the public debate, CEPS and ECMI invited relevant stakeholders� policymakers, supervisors, consumer associations, industry representatives, and academics � to take part in a dedicated Task Force on �Asset Allocation in Europe: What challenges and opportunities lie ahead?�. A detailed overview of the overall proceedings is available here. The main objective of our initiative was to explore meaningful ways of activating long-term savings and investment channels across the EU, with a focus on households, asset/fund managers, insurers and pension funds, under the overarching theme of sustainability in the real economy. The recent developments related to COVID-19 were also taken into account. To this end, we invite you to read the analytical sections in the final report as well as the accompanying list of policy and market recommendations. Length: 107 pages Creation-Date: 2020-04 File-URL: https://cdn.ceps.eu/wp-content/uploads/2020/04/TFAA_Final-Report_ECMI.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:27304 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Author-Name: Thomadakis, Apostolos Title: Rebranding Capital Markets Union: A market finance action plan Abstract: The European Union needs an action plan to stimulate market finance across EU markets. As the EU is setting its priorities for the next five years, a rigorous assessment of Capital Markets Union (CMU) and a new focus is required. The CMU has been successful in terms of legislation, but much less so in its impact on markets, which remain highly fragmented. Risk capital has barely grown and Europe now finds itself even further behind the United States. This is undermining the competitiveness of the European economies and corporations, as well as the credibility of the project. Set up in December 2018 to examine how to address these failings, this CEPS-ECMI Task Force report stresses the need for political support at the highest level if CMU is to achieve its objectives. It recommends focusing action on the core bond and equity markets, and on promoting the participation of individuals in capital markets while introducing a set of indicators to measure progress towards more market-based finance. Length: 70 pages Creation-Date: 2019-06 File-URL: http://www.eurocapitalmarkets.org/sites/default/files/rebranding_capital_markets_union_2.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:500 Template-Type: ReDIF-Paper 1.0 Author-Name: Abidi, Nordine Author-Name: Falagiarda, Matteo Author-Name: Miquel-Flores, Ixart Title: Credit Rating Dynamics: Evidence from a Natural Experiment Abstract: The paper investigates the behaviour of credit rating agencies (CRAs) using a natural experiment in monetary policy. Specifically, it exploits the corporate QE of the Eurosystem and its rating-based specific design which generates exogenous variation in the probability for a bond of becoming eligible for outright purchases. The authors show that after the launch of the policy, rating upgrades were mostly noticeable for bonds initially located below, but close to, the eligibility frontier. In line with the theory, rating activity is concentrated precisely on the territory where the incentives of market participants are expected to be more sensitive to the policy design. Complementing the evidence on the activeness of non-standard measures, the findings contribute to better assessing the consequences of the explicit (but not exclusive) reliance on CRAs ratings by central banks when designing monetary policy. Length: 83 pages Creation-Date: 2019-06 File-URL: http://www.eurocapitalmarkets.org/sites/default/files/ecmi_wp_09_abidi_falagiarda_miquel-flores.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:498 Template-Type: ReDIF-Paper 1.0 Author-Name: Amariei, Cosmina Title: Sustainability in practice: ratings, research and proprietary models Abstract: While ESG data has come a long way, investors acknowledge multiple challenges related to materiality, reliability, and comparability. This policy brief focuses on the role of credit rating agencies (CRAs) and sustainability ratings providers (SRPs) as an essential part of the financial ecosystem. They pursue different objectives, and are currently at very different stages in terms of market development and regulatory frameworks. Looking at the experience with CRAs, policymakers and stakeholders should reflect in more depth about the optimal market structure for SRPs. There is still quite a significant amount of experimentation in this space. Hence, it might be hazardous to move too quickly on the regulatory side and risk impeding the innovation that is still taking place. Proceeding with caution might be the only �reasonable� way forward in the new legislative cycle. Length: 11 pages Creation-Date: 2019-06 File-URL: http://www.eurocapitalmarkets.org/sites/default/files/ecmi_pb_no_26_cosmina_amariei.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:497 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: MiFID II critics are not seeing the big picture Abstract: The Mifid II rules are leading to broader participation in capital markets by Europe�s savers. This will far outweigh the costs, such as the more reduced investment research on small stocks. Recent criticism appears to overlook the broader picture, where the advantages of this revision are starting to become visible. Earlier versions were fundamental in opening up EU securities markets, and have seen the City of London become the centre of securities trading, with the provisions allowing remote access for traders all over the EU. But some elements had to be further strengthened, above all the rules dealing with the protection of investors. Early data on the effects of Mifid II indicate that market opening and integration is continuing apace, with further electronification or platform trading in products that had not been within the scope, such as government and corporate bonds, derivatives and exchange traded funds. Banks are also confronted with many more requests for information from clients, as a result of the demand for more transparency on fees and charges, which is where Mifid matters for individuals. Length: 3 pages Creation-Date: 2019-05 File-URL: http://www.eurocapitalmarkets.org/sites/default/files/mifid_2_critics_are_not_seeing_the_big_picture.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:496 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Ceci n�est pas un PEPP Abstract: Not much is left of the Personal European Pension Product (PEPP) as intended by the European Commission in June 2017. Proposed as a core element of the Capital Markets Union (CMU), the text as agreed between the European Parliament (EP) and the EU Council has become unclear, unattractive and unsuitable. The EP should not have rushed into signing off on an inadequate measure, or the EU Commission would have done well to withdraw the text. Key elements of the proposal were watered down or replaced in response to heavy pressure from member states and certain organisations. It is a classic example of how not to create the capital markets union: protecting national idiosyncrasies and vested interests, and losing out globally at the same time. Length: 5 pages Creation-Date: 2019-05 File-URL: http://www.eurocapitalmarkets.org/sites/default/files/ceci_nest_pas_un_pepp.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:494 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: MiFID II is working Abstract: One year on, MiFID II is working and firms have adapted to the burdensome new set of rules. Markets have adapted to the new market structure rules, electronification has increased substantially in certain segments but market liquidity remains an issue. Licencing of data providers is in place, but a consolidated tape is still missing and a multitude of data formats makes the job undoable for the buy-side. The unbundling of research from execution continues to lead to rumblings among banks and asset managers, but is irreversible. The impact on SME research seems to be overdone. But the big question remains what Brexit will mean, if and when it happens. Although very detailed, and predating capital markets union, it seems that MiFID II is an important step towards a more integrated capital market. Improved transparency towards non-equity instruments and more electronification should further increase market efficiency and integration, although the share of corporate bonds subject to transparency requirements is very low. As we discussed before, the further complexity of the rules seems so far to have contributed to transparency. Capital markets are composed of many different instruments, which need specific rules. To be followed up. Length: 2 pages Creation-Date: 2019-02 File-URL: http://www.eurocapitalmarkets.org/sites/default/files/no_59_kl_mifid_ii_is_working.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:14066 Template-Type: ReDIF-Paper 1.0 Author-Name: Ringe, Wolf-Georg Author-Name: Ruof, Christopher Title: Keeping up with Innovation: Designing a European Sandbox for Fintech Abstract: In the aftermath of the 2007-09 global financial crisis, regulators in all major jurisdictions introduced significant new requirements for financial firms. Certainly justified in purpose, these regulations have increased market barriers, both directly through specific obligations, and indirectly through the sheer magnitude and complexity they involve. Regulators primarily focused on bolstering financial stability and consumer protection, while frequently disregarding their objective of promoting financial innovation. Ten years after the crisis, it is time to reconsider the appropriate balance between those objectives. In this commentary, the authors show how EU financial regulation may stifle the innovation of financial services. Using the example of automated investment advice, so-called �robo-advisors�, they show how a proper balance between regulatory objectives could be achieved through establishing a �guided� regulatory sandbox. Length: 6 pages Creation-Date: 2019-01 File-URL: https://www.ceps.eu/system/files/Keeping%20up%20with%20Innovation_ECMI_commentary.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:14029 Template-Type: ReDIF-Paper 1.0 Author-Name: Gleisner, Love Author-Name: Thomadakis, Apostolos Title: Recent Developments in European Capital Markets: Key findings from the 2018 ECMI Statistical Package Abstract: This paper provides an overview of the key findings observed in the 2018 ECMI Statistical Package, a comprehensive and annually updated database on the dynamics of European and global capital markets (covering the US, Japan, China and other relevant markets). The key trends obtained from the Package on equity markets, debt securities, exchange-traded derivatives, over-the-counter derivatives and asset management are outlined in this report. Length: 20 pages Creation-Date: 2018-12 File-URL: https://www.ceps.eu/system/files/ECMIRR14_Developments_EUCapital_Markets.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:14015 Template-Type: ReDIF-Paper 1.0 Author-Name: Amariei, Cosmina Author-Name: Thomadakis, Apostolos Title: Sustaining Growth through Innovation in Capital Markets Abstract: Well-functioning, deeper and highly integrated European capital markets are expected to play a greater role in providing alternative corporate funding, better savings/investment opportunities and enhancing private risk-sharing mechanisms. At the Annual Conference organised in Brussels on 10 October 2018, policy makers, industry representatives and academics contributed to the public debate about the capacity of capital markets to enable long-term value creation in the real economy, namely supporting innovative companies and sustainable economic growth. As the end of the five years of the Juncker mandate approaches, European capital markets are at a very important intersection. The Capital Markets Union (CMU) project should aim beyond the actions set for end-2019, towards a revamped strategy for EU-27. However, before setting priorities for the future, it was necessary to take a critical look backwards on what has been promised and what has been achieved. Despite the huge demand for capital, innovative companies and small enterprises are tending to prefer staying private longer or not going public at all. Although the Commission is committed to unlocking the full potential of sustainable finance, current ESG investment represents a very niche part of the total fund market. Last but not least, capital markets across Europe, and particular in the CEE region, remain significantly less developed, both in terms of size and liquidity. For ECMI, pursuing a path traced 25 years ago, this means an even more active and vital role in steering the discussion and engaging in strategic thinking about Europe�s capital markets. Length: 15 pages Creation-Date: 2018-11 File-URL: https://www.ceps.eu/system/files/Final%20Report%20of%20the%202018%20ECMI%20Annual%20Conference.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13971 Template-Type: ReDIF-Paper 1.0 Author-Name: Luitel, Prabesh Author-Name: Vanp�e, Rosanne Title: How do sovereign credit ratings help to financially develop low-developed countries? Abstract: The paper investigates the importance of having a sovereign credit rating for a country�s financial development. After controlling for endogeneity and selection bias, the authors compare different aspects of the financial sector and the capital markets of recently rated countries with otherwise similar, but unrated countries. The findings indicate that obtaining a sovereign credit rating changes the composition of the assets of domestic banks and leads to a growth in bank assets. With a sovereign rating, the government is less dependent on bank financing and it can tap international bond markets. Banks subsequently provide more credit to the private sector, which translates into riskier debt holdings, resulting in an increase in the banks� risk-weighted assets. In addition, an initial sovereign credit rating attracts foreign investors, both FDI and portfolio investments. Hence, the authors conclude that a sovereign credit provision plays a crucial role in enabling the financial development in a country. Length: 46 pages Creation-Date: 2018-11 File-URL: https://www.ceps.eu/system/files/ECMIWPNo8_Luitel%26Vanpee_sovereign_credit_ratings.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13956 Template-Type: ReDIF-Paper 1.0 Author-Name: Bergant, Katharina Author-Name: Fidora, Michael Author-Name: Schmitz, Martin Title: International capital flows at the security level � evidence from the ECB�s asset purchase programme Abstract: The paper analyses euro area investors� portfolio rebalancing during the ECB�s Asset Purchase Programme (APP) at the security level. Based on net transactions of domestic and foreign securities, the authors observe euro area sectors� capital flows into individual securities, cleaned from valuation effects. Their empirical analysis � which accounts for security-level characteristics � shows that euro area investors (in particular investment funds and households) actively rebalanced away from securities targeted under the Public Sector Purchase Programme (PSPP) and other euro-denominated debt securities, towards foreign debt instruments, including �closest substitutes�, i.e. certain sovereign debt securities issued by non-euro area advanced countries. This rebalancing was particularly strong during the first six quarters of the programme. The analysis also reveals marked differences across sectors as well as country groups within the euro area, suggesting that quantitative easing has induced heterogeneous portfolio shifts. Length: 43 pages Creation-Date: 2018-10 File-URL: http://www.eurocapitalmarkets.org/sites/default/files/ECMIWPNo7Bergant_Fidora%26Schmitz_0.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13926 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: The PEPP could become the new UCITS Abstract: The EU is well on its way to agreeing on a new European financial product rule, the Pan-European Pension Product (PEPP). Proposed a year ago, both the Parliament and the Council have finalised their readings, ready to have it adopted before this Parliament steps down. The PEPP is intended to make large-scale portable and cost-efficient savings products available throughout the EU. Over time, this first buy-side financial initiative from the EU under the capital markets union programme could become a significant investment vehicle in support of the EU economy, even overtaking the current UCITS, first adopted in 1985. Length: 2 pages Creation-Date: 2018-09 File-URL:https://www.ceps.eu/system/files/The%20PEPP%20could%20become%20the%20new%20UCITS.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13893 Template-Type: ReDIF-Paper 1.0 Author-Name: Lamandini, Marco Title: Recovery and Resolution of CCPs: Obsessing over regulatory symmetry? Abstract: The reason why an international approach, and not just a national or regional one, is necessary for recovery and resolution is clear: many CCPs are globally systemic, in that they clear derivatives in global markets and their members and clients� members are from across the world. Unfortunately, despite its best efforts with recent legislative initiatives, Europe seems still quite unable to deliver an optimal regional dimension of supervision on EU CCPs. However, out of any obsession for regulatory symmetry, the two-tiered approach in third-country (TC) CCP supervision also carries a lesson for EU CCPs supervision. ESMA could be the key supervisor for all systemically relevant Tier 2 CCPs, EU and TC alike. So far, out of the 16 EU-based CCPs, 10 are located in the euro area. Three � and among them LCH � are based in the United Kingdom and are therefore bound to become third-country CCPs. Of the remaining three, one is Swedish and is the European leg of Nasdaq OMX clearing. The latter two are Tier 1 CCPs based in Poland and Hungary. Among the 10 CCPs located within the euro area, some are licensed as banks and already fall, therefore, within the scope of the BRRD and the Single Resolution Mechanism Regulation (SRMR) Wouldn�t it make sense to bring the 10 CCPs in the euro system under the umbrella of the SRB as a resolution authority and extend to them, as a last resort, the use of the temporary public sector funding mechanism of the Single Resolution Fund (SRF) and its forthcoming final fiscal backstop, the European Monetary Fund? Length: 7 pages Creation-Date: 2018-08 File-URL: https://www.ceps.eu/system/files/ECMI%20Commentary%2056_ML_RecoveryResolutionCCPs.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13808 Template-Type: ReDIF-Paper 1.0 Author-Name: Lamandini, Marco Title: A supervisory architecture fit for CMU: Aiming at a moving target? Abstract: CMU features an extreme heterogeneity of i) market players (issuers, intermediaries, infrastructures, service providers) and ii) products, and a �variable geometry� of their European regulation and national or European supervision. The time has come to accept that, at least where we are confronted with regulated industries as it is the case with financial markets, delegation to an EU agency of the technical task of administering and enforcing Level 1 sectoral regulation (and completing it via regulatory and implementing rules) is sound policy in compliance with the Treaties. Due to the uneven stage of development of the Banking Union and CMU, one institutional model or template cannot fit all. The purpose of the ESAs� reform is two-fold. On the one hand, it is aimed at furthering the parallelism, removing some existing discrepancies in the founding regulations on tasks and powers in Article 8 (extending to ESMA and EIOPA the power to adopt supervisory handbooks and rules on stress testing, already granted in 2010 to EBA). On the other hand, the reform deepens the divide between ESMA on one side, and EBA and EIOPA on the other side, because it envisages the conferral of additional direct supervisory remits to ESMA (alone). Investing more in the ESAs, and in ESMA in the first place, is a necessity in the new and very challenging FinTech context in which the supervisory system is bound to live; the system must rapidly evolve into a data-intensive, new-generation tech-authority (SupTech). Length: 8 pages Creation-Date: 2018-08 File-URL: https://www.ceps.eu/system/files/ECMI%20Commentary55_ML_SupervisoryArchitectureCMU.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13809 Template-Type: ReDIF-Paper 1.0 Author-Name: Amariei, Cosmina Title: Enabling Sustainable Savings and Investment Channels in Europe: Opportunities and Challenges Abstract: Notwithstanding the significant differences between member states, the overexposure to bank deposits as well as the equity underweight in the portfolios of European households represent structural issues in Europe. Both market and regulatory developments should head in the direction of increasing access to suitable retail savings/investment products with comparable cost structures and stable returns in the long run. The onus of financial education should not only be on retail investors, but also on advisers and distributors, i.e. strictly monitored, properly trained professionals, regardless of captive or open distribution models. Multiple stakeholders need to be on board in working towards building and implementing the business-financial-societal case for sustainability. The use of financial regulation as a tool to provide incentives or disincentives for retail/institutional investors should be exercised with great caution and be complemented by other appropriate sectoral policies. This is essential in order to avoid a build-up in asset bubbles and further misallocation of resources. Moving sustainability from a niche segment will require a larger pool of sustainable assets and restoring confidence in the capacity of capital markets to generate long-term value in the real economy. Length: 25 pages Creation-Date: 2018-07 File-URL: https://www.ceps.eu/system/files/TFAA_3rdInterimRpt.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13799 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Funds, fees and performance Abstract: Despite recent advances made in eliminating fragmentation and in standardising fees and performance across the European market for retail investment products, these have produced limited or no effect so far. Further policy initiatives can thus be expected, as investors are the victim and market efficiency is at stake. Length: 7 pages Creation-Date: 2018-07 File-URL: https://www.ceps.eu/system/files/KL_FeesAndFunds.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13767 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: A Proportional Prudential Regime for Investment Firms Abstract: Possibly facilitated by the perspective of Brexit, the European Commission has proposed, for the first time, a truly proportional regime in its new prudential framework for investment firms. The very large firms, which are all headquartered in London today, will be required to obtain a banking license � to the extent they will relocate to the EU � given the possible systemic effects. For mid-sized and smaller firms, a different and lighter regime is proposed. This initiative should be welcomed in the context of capital markets union (CMU) as it not only harmonises, but also recognises that a clearly distinct regime is needed for investment firms with their different risk profile. Vibrant capital markets require specialised intermediaries, but they have been priced out of the market in most countries. Length: 3 pages Creation-Date: 2018-05 File-URL: https://www.ceps.eu/system/files/KL_Regime%20for%20Investment%20Firms.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13631 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomadakis, Apostolos Title: The European ETF Market: What can be done better? Abstract: Growing demand in recent years for low-cost, easily tradeable, liquid and transparent investment products, resulted in the global expansion of the Exchange-Traded Fund (ETF) industry. Since 2007, global assets under management in ETFs skyrocketed from �0.8 trillion to �4.7 trillion � the market climbed 37% just in 2017. However, and despite the fact that US and European markets have each grown at a yearly average rate of approximately 18%, the latter represents only 16% of the global market. The lag in the European ETF market demonstrates that: i) it is highly fragmented with multiple listings across many exchanges, ii) Europe�s capital markets have not been successful in attracting retail investors, iii) more on-exchange ETF trading is necessary, and iv) regulation and innovation can further develop and harmonise the market to move it towards more transparency and cost-efficiency. Length: 9 pages Creation-Date: 2018-04 File-URL: https://www.ceps.eu/system/files/AT_EuropeanETFMarket_1.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13604 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Spotify�s US listing highlights Europe�s failings Abstract: Spotify�s listing, with an estimated market valuation of about $29 billion (�23.6 billion), is one of the largest market listings to have been launched this year. Despite the fact that the company is European (founded in Sweden) with its holding company registered in Luxembourg, it has opted to go public in the US. Karel Lannoo argues in this contribution that Europe missed a golden opportunity to show that it can provide fertile ground for high-performance high-tech firms. European rules for listings need a face-lift, as they are incomplete and complex. An initiative is urgently needed (ahead of Brexit) to enable truly pan-European offerings of securities, and even more to raise the awareness of the importance of fostering vibrant capital markets for financing enterprises. Length: 2 pages Creation-Date: 2018-04 File-URL: https://www.ceps.eu/system/files/ECMICommentaryNo51_KL_Spotify.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13566 Template-Type: ReDIF-Paper 1.0 Author-Name: Amariei, Cosmina Title: Fostering Institutional Investment in Europe�s Capital Markets: Reality vs. Expectations Abstract: The capacity of insurance companies and pension funds to fulfil their financial obligations to policy holders and beneficiaries continues to be under scrutiny, with additional challenges posed by the prolonged low yield environment and the path towards normalisation of monetary policy in the near future. Starting from their specific business model, investment decisions are driven by multiple factors, such as assets and liabilities management, product design and mix, financial and economic conditions, risk-return performance, cost optimisation, prudential requirements, accounting rules, tax regimes and technological developments. Notwithstanding the heterogeneity across companies and/or member states, the portfolios of insurance companies and pension funds remain heavily invested in fixed income, with increasing exposures to higher yielding instruments in recent years. The overall low level of equity must be addressed decisively. Given the specificity of their balance sheets, institutional investors are considered best suited to engage in long-term investment. With the growing importance of sustainability factors, significant changes in their asset allocation and risk-management practices are envisaged. Length: 15 pages Creation-Date: 2018-04 File-URL: https://www.ceps.eu/system/files/TFAA_2ndInterimRpt.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13584 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: The fight over clearing euro derivatives Abstract: The fight over City business has reached dramatic proportions in a very arcane domain, derivatives clearing. The European Commission has proposed to bring all third-country business conducted in euro under the direct supervision of the European Securities and Markets Authority (ESMA), which has infuriated the UK and the US. With Brexit looming, a huge problem is the possible non-recognition of the UK�s clearing infrastructures, and the related derivatives contracts, which would require costly duplication of effort and a massive migration to EU-27 entities. Length: 3 pages Creation-Date: 2018-03 File-URL: https://www.ceps.eu/system/files/KL_EuroDerivativesClearingFight.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13518 Template-Type: ReDIF-Paper 1.0 Author-Name: Demarigny, Fabrice Author-Name: Lannoo, Karel Title: Navigating the minefield of the ESA review Abstract: Following a long, regulatory post-crisis process aiming at restoring confidence and formulating a Single Rulebook, the Commission has, with the ESA review, triggered further supervisory integration to ensure consistent implementation. In their assessment of this process in this ECMI Commentary, Fabrice Demarigny and Karel Lannoo find that it goes in the right direction, particularly in the context of forging a post-Brexit CMU, but that the proposal tries to kill too many birds with one stone. In their view, the governance of the ESAs should be better aligned with the level of integration that will result from more EU-wide supervisory action. This can be achieved by giving a say to permanent executive members in the Board of Supervisors on supervisory issues and by setting an ambitious selection process for the chairperson and executive board members going beyond mere administrative grades and processes. As regards the new areas of direct supervision given to ESMA, apart from the current obvious cases (benchmarks, CCPs, ELTIFs and data providers), Demarigny and Lannoo argue that transfers to the EU level should be the result of a dynamic process following an assessment of the degree of market integration based on objective key indicators (the cross-border nature of the business, number of market players, standardisation of products, contagion risk, etc.) when product- or market-specific legislation is periodically evaluated. Finally, they assert that the ESAs� relationships with third countries should be conceived as one of the components of a wide strategic thinking of what a post-Brexit CMU should be. So far, in their view, such vision is missing. Length: 5 pages Creation-Date: 2018-02 File-URL: https://www.ceps.eu/system/files/KL_ESAReviewMinefield.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13478 Template-Type: ReDIF-Paper 1.0 Author-Name: Amariei, Cosmina Author-Name: Thomadakis, Apostolos Title: Towards Variable Union in Europe's Capital Markets Abstract: In the past seven years, the European Capital Markets Institute (ECMI) has brought together academics, policymakers and industry representatives to take stock of the progress made so far in building a genuine European capital market. At the Annual Conference organised in November 2017, the participants identified the challenges and opportunities that lie ahead but also assessed whether more ambition is required. In particular, they shared their views on long-term investment, supervisory architecture, derivatives markets and fintech. The key message was that the capital markets union (CMU) must go beyond the actions set for end-2019. CMU is a long-term project that requires the support of multiple stakeholders from both the public and private sectors. Capital markets, in particular equity and long-term institutional investors, are best suited to finance real assets in the economy. There are undoubtedly areas that should be brought within the remit of ESMA, but achieving supervisory convergence will be the main objective where this is neither possible nor necessary. Brexit-driven relocation might lead to a more balanced landscape of the euro-denominated clearing activities in Europe. With respect to the potential of distributed ledger technology, it is essential to establish a critical mass of market players and interoperability with the existing infrastructures. Length: 16 pages Creation-Date: 2018-03 File-URL: https://www.ceps.eu/system/files/Final%20Report%20of%20the%202017%20ECMI%20Annual%20Conference.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13466 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: MiFID II will profoundly affect the portfolio management business Abstract: Of all the issues addressed by MiFID II in the EU�s securities markets, its impact will be most pronounced in the portfolio management business. The requirements to unbundle payment for investment research from execution services at the firm level, and sales from investment advice at the retail level, will call upon independent asset managers and asset management units within banks to profoundly rethink their business model and adapt to the new requirements. It will make the brokerage market more competitive and may require banks to separate from their asset management business. It will also change the product mix that is offered to retail investors and hopefully will tackle inducements in sales of investment products once and for all. Length: 3 pages Creation-Date: 2018-01 File-URL: https://www.ceps.eu/system/files/No47_KL_MiFIDII.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13381 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomadakis, Apostolos Title: Over-the-counter interest rate derivatives: The clock is ticking for the UK and the EU Abstract: Over-the-counter (OTC) derivatives markets, in particular interest rate derivatives (IRD), have grown significantly in recent decades and now constitute a systemically important component of financial services activity. The UK plays a central role in clearing derivatives, both at a global and EU level. It is the single biggest venue for OTC derivatives activity and is even larger in terms to euro-denominated IRD contracts clearing. Yet, the fact that a large share of euros is traded, and will be traded after Brexit, in a non-euro area country raises questions about the regulation and supervision of such markets and the sustainability of liquidity provision, particularly during a time of financial turmoil. The burning question is thus whether the clearing of euro-denominated derivatives can remain in London or should be moved to the eurozone. With the aim of shedding light on this issue, this report explores the OTC IRD market and the UK�s role in it, and examines the potential costs of a relocation policy of CCPs after Brexit. It argues that there are aspects of the Commission�s proposal that require further attention and clarification. The easiest approach might be to establish a location policy to require systemically important CCPs to be located within the eurozone, but this would be an error of judgement. The report highlights the urgent need for an impact assessment of the fragmentation, risks and costs of such a move. It concludes that the best hope of addressing the risks of clearing post-Brexit is for heightened supervision, deep cooperation and clear coordination between the EU and the UK, rather than a potentially forced relocation of services currently provided by UK firms to the EU. Length: 25 pages Creation-Date: 2018-02 File-URL: https://www.ceps.eu/publications/over-counter-interest-rate-derivatives-clock-ticking-uk-and-eu File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13483 Template-Type: ReDIF-Paper 1.0 Author-Name: Demarigny, Fabrice Author-Name: Lannoo, Karel Title: Navigating the minefield of the ESA review Abstract: Following a long, regulatory post-crisis process aiming at restoring confidence and formulating a Single Rulebook, the Commission has, with the ESA review, triggered further supervisory integration to ensure consistent implementation. In their assessment of this process in this ECMI Commentary, Fabrice Demarigny and Karel Lannoo find that it goes in the right direction, particularly in the context of forging a post-Brexit CMU, but that the proposal tries to kill too many birds with one stone. In their view, the governance of the ESAs should be better aligned with the level of integration that will result from more EU-wide supervisory action. This can be achieved by giving a say to permanent executive members in the Board of Supervisors on supervisory issues and by setting an ambitious selection process for the chairperson and executive board members going beyond mere administrative grades and processes. As regards the new areas of direct supervision given to ESMA, apart from the current obvious cases (benchmarks, CCPs, ELTIFs and data providers), Demarigny and Lannoo argue that transfers to the EU level should be the result of a dynamic process following an assessment of the degree of market integration based on objective key indicators (the cross-border nature of the business, number of market players, standardisation of products, contagion risk, etc.) when product- or market-specific legislation is periodically evaluated. Finally, they assert that the ESAs� relationships with third countries should be conceived as one of the components of a wide strategic thinking of what a post-Brexit CMU should be. So far, in their view, such vision is missing. Length: 5 pages Creation-Date: 2018-02 File-URL: https://www.ceps.eu/publications/navigating-minefield-esa-review File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13478 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: MiFID II will profoundly affect the portfolio management business Abstract: Of all the issues addressed by MiFID II in the EU�s securities markets, its impact will be most pronounced in the portfolio management business. The requirements to unbundle payment for investment research from execution services at the firm level, and sales from investment advice at the retail level, will call upon independent asset managers and asset management units within banks to profoundly rethink their business model and adapt to the new requirements. It will make the brokerage market more competitive and may require banks to separate from their asset management business. It will also change the product mix that is offered to retail investors and hopefully will tackle inducements in sales of investment products once and for all. Length: 4 pages Creation-Date: 2018-01 File-URL: https://www.ceps.eu/publications/mifid-ii-will-profoundly-affect-portfolio-management-business File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13381 Template-Type: ReDIF-Paper 1.0 Author-Name: Lechtenfeld, Robin Author-Name: Thomadakis, Apostolos Title: Recent Developments in European Capital Markets � Key findings from the 2017 ECMI Statistical Package Abstract: This report presents the key findings of the 2017 ECMI Statistical Package, a comprehensive database, compiled annually, of developments in European and global capital markets (US, Japan, China, etc.). The Package aims to enable users to trace trends and illustrate the ongoing transformation of capital markets, including the structural changes brought about by competitive forces, innovation and regulation. Thie report follows the same structure as applied in the ECMI Statistical Package, and consists of five main sections: equity markets, debt securities, exchange-traded derivatives, over-the-counter derivatives and asset management (mutual funds). Length: 21 pages Creation-Date: 2017-12 File-URL: https://www.ceps.eu/publications/recent-developments-european-capital-markets-key-findings-2017-ecmi-statistical File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13327 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Derivatives Clearing and Brexit: A comment on the proposed EMIR revisions Abstract: No less than three substantive pieces of EU legislation have been proposed over the eight-month period from November 2016 to June 2017, modifying or complementing the original EMIR Regulation of 2012. This contribution analyses the changes that have taken place in EU OTC derivatives markets since the new rules were adopted, and discusses the three drafts. It argues that the European Commission should have assessed risk management with CCPs in more detail and should have proposed a more integrated architecture for the supervision and resolution of CCPs. It further argues that the three proposals should have been part of one single package to facilitate the legislative process of such technical measures. Length: 19 pages Creation-Date: 2017-11 File-URL: https://www.ceps.eu/publications/derivatives-clearing-and-brexit-comment-proposed-emir-revisions File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13150 Template-Type: ReDIF-Paper 1.0 Author-Name: Bavoso, Vincenzo Title: Capital Markets, Debt Finance and the EU Capital Markets Union: A law and finance critique Abstract: Contrary to conventional wisdom, this paper contends that the excessive development of capital market finance has been one of the catalysts behind the crises and scandals that have unfolded over the past 15 years. In particular, innovative debt transactions have proven instrumental to the creation of excessive levels of risk-taking and leverage, which have had catastrophic consequences, both at the firm and systemic level. While much regulation has been enacted in response to these crises, the way in which debt transactions in capital markets are designed and entered into remains largely unregulated. Moreover, regulators have so far neglected the role that leverage and debt creation play in the economy and their consequences for the wider social context. Moreover, the recent policy design in the EU is promoting a renewed implementation of an old design, the Capital Markets Union (CMU). This revolves around disintermediated, market-based forms of financing, which should represent an alternative to the traditionally predominant (in Europe) bank-based financing channel. This paper finds that the European policy design fails to appreciate the dangers associated with capital markets finance and its ensuing debt-creating effects. It argues that, despite some regulatory efforts, a suitable architecture for the regulation of disintermediated capital markets is still missing. Length: 7 pages Creation-Date: 2017-09 File-URL: https://www.ceps.eu/publications/capital-markets-debt-finance-and-eu-capital-markets-union-law-and-finance-critique File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:13050 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomadakis, Apostolos Title: Developing EU Capital Markets for SMEs: Mission impossible? Abstract: Bank lending is the most common source of external finance for SMEs, but it doesn�t suit all of them. Young, innovative and fast-growing SMEs, in particular, do not have the required cash flows and collateral for bank financing and need alternatives to unlock their growth potential. Market-based finance is one alternative to help finance the activities of these SMEs. The European Commission�s renewed activities to develop market-based financing need to be stepped up in order to develop a credible capital market to finance SMEs in the EU. Length: 7 pages Creation-Date: 2017-09 File-URL: https://www.ceps.eu/publications/developing-eu-capital-markets-smes-mission-impossible File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12961 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: At last, a Pan-European Pension Product! Abstract: Discussions are now starting in earnest in the Council and Parliament on a proposal for a Pan-European Pension Product (PEPP), which fills an important gap in the EU regulatory maze and also responds to the call in the CMU Action Plan for a long-term savings instrument for households in Europe. In this ECMI Commentary, Karel Lannoo appeals to legislators to ensure that the PEPP remains an attractive proposition, which he warns will not be easy because of the huge differences in the national administration of pension savings and the acute sensitivity to any changes in this domain. Length: 7 pages Creation-Date: 2017-08 File-URL: https://www.ceps.eu/publications/last-pan-european-pension-product File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12783 Template-Type: ReDIF-Paper 1.0 Author-Name: Timmer, Yannick Title: Cyclical Investment Behaviour across Financial Institutions Abstract: This paper contrasts the investment behavior of different financial institutions in debt securities as a response to price changes. For identification, I use unique security-level data from the German Microdatabase Securities Holdings Statistics. Banks and investment funds respond in a pro-cyclical manner to price changes. In contrast, insurance companies and pension funds act counter-cyclically; they buy after price declines and sell after price increases. The heterogeneous responses can be explained by differences in their balance sheet structure. I exploit within-sector variation in the financial constraint to show that tighter constraints are associated with relatively more pro-cyclical investment behavior. Length: 61 pages Creation-Date: 2017-07 File-URL: https://www.ceps.eu/publications/cyclical-investment-behaviour-across-financial-institutions File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12747 Template-Type: ReDIF-Paper 1.0 Author-Name: Boeckx, Jef Author-Name: De Sola Perea, Maite Author-Name: Peersman, Gert Title: The Transmission Mechanism of Credit Support Policies in the Euro Area Abstract: Using a sample of 131 banks, we find that the Eurosystem's credit support policies have been successful in stimulating bank credit to the private sector: the impact was greater on the loan supply of smaller, less liquid, less capitalized banks and those more dependent on wholesale funding. The role of bank capital is, however, ambiguous. Besides the above favorable direct effect on loan supply, lower levels of bank capitalization at the same time mitigate the size, retail and liquidity effects of these policies. The low capital drag on the other channels has even been dominant during the sample period. Length: 47 pages Creation-Date: 2017-06 File-URL: https://www.ceps.eu/publications/transmission-mechanism-credit-support-policies-euro-area File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12624 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: New market conduct rules for financial intermediaries: Will complexity bring transparency? Abstract: The financial crisis led to a raft of new or updated EU conduct rules to ensure the orderly functioning of markets and market operators. The core measure is known as MiFID II, which is a radical update of the 2004 Markets in Financial Instruments Directive. MiFID II is now in the implementation phase and may bring further structural change to Europe's securities markets. Other measures have also been issued or updated, such as the rules against market manipulation and on short selling, and the formation and use of benchmarks. This ECMI Policy Brief reviews these new measures and discusses their effects. Length: 20 pages Creation-Date: 2017-05 File-URL: https://www.ceps.eu/publications/new-market-conduct-rules-financial-intermediaries-will-complexity-bring-transparency File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12565 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomadakis, Apostolos Title: How close are we to a Capital Markets Union? Abstract: The European Commission�s flagship initiative of the Capital Markets Union (CMU) aims to unlock funding for capital markets and find ways of linking investors and savers with growth. A number of very disparate measures will, it is hoped, have a cumulative but significant impact on the creation of a single market for capital. By the end of 2017, the Commission expects to have finalised and implemented the first phase of CMU measures, which include: an EU framework for simple, transparent and standardised securitisation; prospectus rules that facilitate access to capital markets and generate more, but less costly, financing opportunities; and improvements to the current venture capital and social entrepreneurship regulations. This year will therefore be crucial for the successful implementation of the CMU Action Plan and the delivery of its full potential to support growth in Europe. Nevertheless, notes the author of this ECMI Commentary, the impact of Brexit and the French and German national elections on CMU remains to be seen. The current climate of political instability and uncertainty places the EU at a crossroads, and it appears that the goal of completing the Capital Markets Union by 2019 is an increasingly remote one. This Commentary is a contribution to the public consultation on the Capital Markets Union mid-term review, 2017. Length: 7 pages Creation-Date: 2017-03 File-URL: https://www.ceps.eu/publications/how-close-are-we-capital-markets-union File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12333 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Brexit and the Asset Management Industry Abstract: In this ECMI Policy Brief, Karel Lannoo observes that Brexit will have a big impact on the asset management industry for three reasons: 1) the passport will disappear for UK-licensed companies, which will stop or certainly seriously hinder the trend of concentration towards the UK; 2) the equivalence regime, which serves as the basis for third-country access to the EU, is unevenly developed across the different segments of asset management; and 3) the value chains in asset management will be affected, with implications for supporting firms or infrastructures. Against this prospective scenario, Lannoo first reviews recent trends in the asset management industry and offers an overview of the UK asset management industry from a European perspective. He then discusses the applicable EU rules, the equivalence regime and the impact of Brexit. Given the special status of the UK as a financial centre, the paper concludes that it would be advisable to have a more comprehensive equivalence agreement, covering all the different regulations and directives, rather than taking the current third-country regime as the base. This should be part of a bilateral procedure between the UK and the European Commission. As it looks now, Lannoo anticipates that Brexit will be fairly abrupt, leaving asset managers limited time in which to adapt their value chains, which will be disruptive for the entire European industry. Length: 16 pages Creation-Date: 2017-02 File-URL: https://www.ceps.eu/publications/brexit-and-asset-management-industry File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12269 Template-Type: ReDIF-Paper 1.0 Author-Name: Musmeci, Roberto Author-Name: Thomadakis, Apostolos Title: Recent Developments in European Capital Markets � Key findings from the 2016 ECMI Statistical Package Abstract: This paper presents the key findings reported in the 2016 ECMI Statistical Package, a comprehensive and up-to-date database compiled annually on the dynamics of European and global capital markets (covering the US, Japan, China and all other relevant markets). The Package aims to enable users to trace trends and illustrate the ongoing transformation of capital markets, including the structural changes brought about by competitive forces, innovation and regulation. This paper follows the same structure as applied in the ECMI Statistical Package, and consists of five main sections: equity markets, debt securities, exchange-traded derivatives, over-the-counter derivatives and asset management (mutual funds). Length: 19 pages Creation-Date: 2017-02 File-URL: https://www.ceps.eu/publications/recent-developments-european-capital-markets-%E2%80%93-key-findings-2016-ecmi-statistical File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12247 Template-Type: ReDIF-Paper 1.0 Author-Name: Chan, Stephanie Author-Name: Wijnbergen, Sweder Title: CoCo Design, Risk Shifting Incentives and Financial Fragility Abstract: Contingent convertible capital (CoCo) is a debt instrument that converts to equity or is written off if the issuing bank fails to meet a distress threshold. The conversion increases the issuer�s loss-absorption capacity, but results in wealth transfers between CoCo holders and shareholders, which in turn gives rise to risk-shifting incentives to shareholders. Using the framework of call options, this paper finds that the risk-shifting incentives arising from issuing CoCos relative to subordinated debt have two opposite effects: higher risk increases the probability of CoCo conversion, while lowering the benefit of the wealth transfer relative to the same amount of subordinated debt. For writedown CoCos, the risk-shifting incentive is always positive, while for equity-converting CoCos, it depends on the dilutive power of the CoCo. While recent regulation has deemed CoCos suitable for increasing loss absorption capacity, our results show that some CoCos are potentially riskier than issuing subordinated debt in their place. To sidestep these consequences, their use by banks must be tempered by increasing capital requirements, and as such, they should not be treated as true substitutes for equity. Length: 50 pages Creation-Date: 2017-01 File-URL: https://www.ceps.eu/publications/coco-design-risk-shifting-incentives-and-financial-fragility File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12166 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomadakis, Apostolos Title: Nothing ventured nothing gained: How the EU can boost growth in small businesses and start-ups Abstract: Venture capital can be a lifeline to innovative and growth-oriented start-ups and small businesses in need of external capital. In this ECMI Research Report, the author argues that the recently proposed changes to the Regulation on European Venture Capital Funds (EuVECA) fail to address three important issues that could further boost financing: the extension of the EuVECA Regulation to third-country managers, the reduction of the �100,000 entry ticket, without further compromises on investor protection, and the harmonisation of rules on managing requirements. He proposes a number of measures that could facilitate access to financing for start-ups and SMEs. Length: 19 pages Creation-Date: 2016-11 File-URL: https://www.ceps.eu/publications/nothing-ventured-nothing-gained-how-eu-can-boost-growth-small-businesses-and-start-ups File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12022 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomadakis, Apostolos Title: Towards a better European securitisation market Abstract: The European securitisation market experienced constant growth for almost a decade prior to the financial crisis, but it then plunged precipitously and has never fully recovered. Since 2009, in an effort to revive securitisation and channel funds to the real economy, European authorities have introduced a considerable amount of new regulations/legislation, for example, in the areas of banking, insurance, asset management and credit rating agencies. In this ECMI Commentary, however, Apostolos Thomadakis finds that these measures have not achieved the expected results and calls for more to be done. In concrete terms, he calls upon Europe to: 1) issue securitisation products with transparent and easy-to-understand structures, 2) streamline and consolidate EU financial services legislation and 3) devise smart ways of making cross-border investments easier. Length: 3 pages Creation-Date: 2016-11 File-URL: https://www.ceps.eu/publications/towards-better-european-securitisation-market File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:11941 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Eliminating the cost of non-Europe in capital markets Abstract: Capital markets in Europe currently lack the necessary depth, scale and integration to provide the funds for innovative firms to grow, thereby imposing a high cost on both firms and investors. In response to this grave deficiency, Karel Lannoo calls upon the European Commission to undertake a radical upgrade of the Capital Markets Union (CMU), along the lines of the Single Supervisory Mechanism (SSM), but with a focus on strengthening the role of the European Securities and Markets Authority (ESMA) and the European supervisory authorities (ESAs). Given that much of the rulemaking is complete, he observes that an empowered capital markets supervisor is the only way to deliver the benefits of a single market. Length: 3 pages Creation-Date: 2016-11 File-URL: https://www.ceps.eu/system/files/No32%20KL%20Upgrade%20CMU.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:11938 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: EU Financial Market Access after Brexit Abstract: Karel Lannoo opens his contribution by observing that it is understandable why the UK attaches immense importance to retaining access to the EU�s single market, given that financial services account for about 8% of the country�s GDP. He warns, however, that putting a mutually acceptable regime in place will take years of negotiations, and the final agreement will clearly allow much less access than UK-licensed firms enjoy today. He further finds that the �equivalence� assessment � the basic tool used under current EU financial services legislation to recognise that a third country�s legal, regulatory and/or supervisory regime is equivalent to the corresponding EU framework � offers a fairly bleak basis on which the City might continue to thrive as a global financial centre in Europe. Length: 9 pages Creation-Date: 2016-09 File-URL: https://www.ceps.eu/publications/eu-financial-market-access-after-brexit File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:11876 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: More Union for the EU�s IPO Market Abstract: In his assessment of the latest draft prospectus Regulation, published on 30 November 2015, Karel Lannoo argues in this ECMI Commentary that the text goes somewhat further than the European Commission has previously entertained, but it falls short of creating a European market. In his view, the Commission is hostage to its own (or member states�) unwillingness to expand the powers of the European Securities and Markets Authority (ESMA) to become an EU-wide listing authority. In short, the Union that the EU wants to create for capital markets still seems a distant ambition. Length: 2 pages Creation-Date: 2016-03 File-URL: https://www.ceps.eu/system/files/KL_Prospectus%20Directive%20Review.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:11417 Template-Type: ReDIF-Paper 1.0 Author-Name: Valiante, Diego Title: Light and shadows in Europe�s new Action Plan for Capital Markets Union Abstract: The European Commission�s new Action Plan for Capital Markets Union, unveiled on September 30th, consists in a nutshell of a short list of technical proposals and a longer one of (rather general) potential actions. Overall, the plan indeed proposes to achieve some short-term objectives, such as a reduction of listing costs for SMEs, but it lacks long-term vision. The plan bundles actions under rather generic objectives of long-term finance or cross-border investing. Improving the informational infrastructure (e.g. accounting standards, company data) and cross-border enforcement of rules is left to vaguely defined future actions, but these constitute the core of the capital markets infrastructure. Without a well-defined set of measurable objectives, the whole plan may lose political momentum and become an opportunity for interested parties to cherry pick their pet provisions. Building a single market, i.e. removing cross-border obstacles to capital circulation, is too challenging a task to simply appear as one of many items on a long list of general objectives, which incidentally do not include institutional reform. The ultimate risk is that the Commission may just miss a unique opportunity to revamp and improve the financial integration process in Europe after almost a decade of harmful retrenchment. Length: 4 pages Creation-Date: 2015-10 File-URL: https://www.ceps.eu/system/files/ECMI_CommNo40DV_CMU%20_ActionPlan_0.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:11000 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Detailed CMU Action Plan, but more (ambition) is required Abstract: The concrete outcome of the Commission�s Action Plan for a Capital Markets Union (CMU) consists notably of a call for the removal of constraints to facilitate SME financing and recognition of the need to facilitate infrastructure financing and securitisation through changes to the solvency II Directive and the capital requirements Regulation. However useful these proposals may prove to be, this Commentary finds that they do not address the main problem in Europe�s capital markets, namely that European household savings are not finding their way into more rewarding investments, which is caused by a variety of factors that cannot be easily changed. Length: 3 pages Creation-Date: 2015-10 File-URL: https://www.ceps.eu/system/files/KL_CMU.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:10996 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Author-Name: Pollack, Alan Author-Name: St�hr, Ole Title: Keep capital markets union simple Abstract: The announcement of the creation of a capital markets union has led to a flurry of possible harmonisation proposals that could lead to new Action Plans that could preoccupy legislators for years to come. As underlined by Karel Lannoo and his colleagues in this new ECMI Commentary, however, a first step in any new legislative plan should be to set a clear objective, based on a thorough analysis of the reasons for the persistent differences in markets and a prioritisation of initiatives aimed at reaching more integration. Amongst these, they single out an initiative for an EU-wide, long-term savings product as warranting priority attention. Length: 2 pages Creation-Date: 2015-07 File-URL: https://www.ceps.eu/system/files/No%2038%20KL%20Keep%20CMU%20simple.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:10803 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Which Union for Europe�s Capital Markets? Abstract: The call for a Capital Markets Union has been a useful device to raise awareness about the need for more integration in Europe's capital markets. Despite years of harmonising regulation and a single currency, Europe�s capital markets remain fragmented. This Policy Brief calls for targeted measures to overcome fragmentation, through enhanced enforcement, strengthening of the European supervisory authorities, enhanced disclosure and comparability of financial information and the mobilisation savings in EU-wide investment funds. Length: 10 pages Creation-Date: 2015-02 File-URL: http://www.ceps.eu/system/files/ECMI%20PB22%20KL%20Capital%20Union%20final.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:10035 Template-Type: ReDIF-Paper 1.0 Author-Name: Casey, Jean Pierre Title: Why the regulatory witch-hunt for �closet trackers� is a dead-end Abstract: ESMA, the European watchdog of securities markets, has announced its intention to take a closer look at so-called �closet trackers�, with a view to identify whether there is a potential need for a coordinated pan-European policy response to these particular funds, which are supposedly actively managed but in reality closely track their benchmarks. In this commentary, Jean-Pierre Casey suggests that more work needs to be done to demonstrate that a market failure exists. He also cautions on some of the difficulties associated with a potential regulatory intervention. In his view, the perceived problem is best tackled through transparency and competition. Length: 4 pages Creation-Date: 2014-12 File-URL: http://www.ceps.eu/system/files/No%2037%20Closet%20Trackers.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:9891 Template-Type: ReDIF-Paper 1.0 Author-Name: De Manuel, Mirzha Author-Name: Valiante, Diego Title: A Life Cycle Approach to Investor Protection Abstract: The market for investment products, including both securities and investment funds, is fraught with difficulties for consumers in terms of the ease of comparing products, trust in suppliers and consumer satisfaction. A comprehensive approach to investor protection, developed around the lifecycle of a financial product, may offer the investor greater protection during an investment�s life span. This paper proposes a new approach to investor protection, building on a review of major market failures affecting the origination, distribution and sale of financial products and based on a review of the relevant scientific literature and country experiences. The application of a �know-your-product� principle at origination, a narrower �default rule� for best execution and an ex-ante distinction between advice and �information-only� services are among the options discussed in this paper to enhance the investor protection framework over the lifecycle of a financial product. Length: 36 pages Creation-Date: 2014-09 File-URL: http://www.ceps.be/system/files/ECMI%20WP%20No%201%20De%20Manuel%20and%20Valiante%20Investor%20Protection%20final.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:9619 Template-Type: ReDIF-Paper 1.0 Author-Name: Amariei, Cosmina Author-Name: Valiante, Diego Title: The OTC derivatives markets after financial reforms Abstract: Over the past five years, the OTC derivatives market showed an impressive resilience in levels of market activity, which are now above pre-crisis levels in outstanding notional value. This confirms its systemic importance. Current volatility of the gross market values and gross credit exposures can be attributed to the uncertain market conditions for the global economy. Distribution of derivatives instruments has remained relatively constant over the past decade. Central clearing and portfolio compression is developing fast for interest rate and credit derivatives, while progress in other asset classes is fairly slow. The OTC derivatives market is structured with a highly interconnected system of financial institutions. But composition is changing from a dealer-driven business to a more diversified environment, with other financial institutions (such as CCPs and investment funds) playing a greater role. Uncollateralised exposure is estimated in constant decline as a result of better collateralization of OTC derivatives exposures, either through bilateral collateral agreements or the use of CCPs, and improvement of market conditions. A structural shift of OTC derivatives to organised trading platforms is still not happening. Despite high volumes of on-exchange commodity derivatives and increasing volumes of interest rate derivatives traded on organized platforms, the market for OTC derivatives continues to be bigger than the exchange-traded side of the market, but the situation may rapidly change as the trading obligations gradually enter into force across key jurisdictions. Length: 8 pages Creation-Date: 2014-05 File-URL: http://www.ceps.eu/system/files/OTC%20derivatives%20markets.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:9283 Template-Type: ReDIF-Paper 1.0 Author-Name: Infelise, Federico Title: Supporting Access to Finance by SMEs: Mapping the initiatives in five EU countries Abstract: This paper maps the initiatives to support access to finance for small- and medium-sized enterprises (SMEs) that were available at national level in 2012 in the five biggest European economies (Germany, France, the UK, Italy and Spain). This mapping distinguishes initiatives promoted and financed primarily through public resources from those developed independently by the market. A second breakdown is proposed for those sources of finance with different targets, i.e. whether the target is debt financing (typically bank loans at favourable conditions, public guarantees on loans, etc.) or equity financing (typically venture capital funds, tax incentives on equity investments, etc.). A broad set of initiatives has been implemented to close the funding gap of SMEs in these five countries. The total amount of public spending for SMEs, however, has remained well below 1% of GDP. Public subsidisation of bank loans has been by far the most diffused type of intervention. Despite the fact that this strategy might prove to be effective in the short term, it fails to address long-term sustainability issues via a more diversified set of financing tools. Length: 50 pages Creation-Date: 2014-04 File-URL: http://www.ceps.eu/system/files/ECMI%20RR%20No%209%20Infelise%20SME%20Access%20to%20Finance.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:9188 Template-Type: ReDIF-Paper 1.0 Author-Name: Kopf, Christian Author-Name: Xafa, Miranda Title: A Proper Yield Curve for Greece to Kick-Start Financial Intermediation Abstract: At present, the market is severely mispricing Greece�s sovereign risk relative to the country�s fundamentals. As a result of the mispricing, financial intermediation in Greece has become dysfunctional and the privatisation of state-owned assets has stalled. This mispricing is partially due to an illiquid and fragmented government yield curve. A well-designed public liability management exercise can lead to a more efficient pricing of Greece�s government bonds and thereby help restore stable and affordable financing for the country�s private sector, which is imperative in order to overcome Greece�s deep recession. This paper proposes three measures to enhance the functioning of the Greek government debt market: i) Greece should issue a new five-year bond, ii) it should consolidate the 20 individual series of government bonds into four liquid securities and iii) it should offer investors a swap of these newly created bonds into dollar-denominated securities. Each of these measures would be beneficial to the Hellenic Republic, since the government would be able to reduce the face value and the net present value of its debt stock. Furthermore, this exercise would facilitate the resumption of market access, which is a necessary condition for continuous multilateral disbursements to Greece. Length: 8 pages Creation-Date: 2013-12 File-URL: http://www.ceps.eu/system/files/ECMI%20PB%20No%2021%20Koph_Xafa.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:8737 Template-Type: ReDIF-Paper 1.0 Author-Name: Infelise, Federico Author-Name: Valiante, Diego Title: Why a more accurate EU definition of SMEs matters! Abstract: As part of the European Union�s commitment to deliver greater access to finance for small- and medium-sized enterprises (SMEs), EU policy-makers will have to deal with a fragmented market landscape and responses by individual member states to address failures. On the basis of some early evidence, this Commentary calls for a rethinking on the part of the EU of its definition of an SME, which currently does not take into account the internal market dimension. A more accurate definition, reflecting the internal market and the stages of evolution of a firm and its financing needs, would allow better benchmarking and a comparison of policy responses that often claim to address market failures in SME finance. Length: 5 pages Creation-Date: 2013-11 File-URL: http://www.ceps.eu/system/files/FI%20%2526%20DV%20New%20Definition%20for%20SMEs_0.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:8599 Template-Type: ReDIF-Paper 1.0 Author-Name: De Manuel, Mirzha Title: Implementing the AIFMD: Success or Failure? Abstract: This commentary considers the implementation of the Alternative Investment Fund Managers Directive (AIFMD) by the European Commission. The AIFMD creates an internal market for asset management and, as an endeavour to develop market-based finance, is an important piece of legislation for the European economy. The author, CEPS-ECMI Research Fellow, Mirzha de Manuel Aramend�a, considers the implementation of some of the provisions that raised concern among industry participants. He finds that, on balance, a practical and flexible approach to implementation has been followed that should help secure the success of the framework, which at present is still uncertain. The commentary also considers the remuneration guidelines adopted recently by the European Securities and Markets Authority (ESMA). It encourages EU and national authorities to commit to the success of the AIFMD framework, as part of a broader effort to develop capital markets and reduce the historical reliance of the European economy on bank finance. Length: 6 pages Creation-Date: 2013-03 File-URL: https://www.ceps.eu/system/files/ECMI%20Commentary%20No%2034%20MdM%20AIFMD%20Implementation.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:7906 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Author-Name: Valiante, Diego Title: Prospects and Challenges of a Pan-European Post-Trade Infrastructure Abstract: After more than a decade of indecision, the EU is finally now set to implement a consistent regulatory architecture for clearing and settlement. Following the agreement on a European market infrastructure Regulation (EMIR), the European Commission has proposed harmonised rules for centralised settlement depositaries (CSDs), while the European Central Bank is moving forward with its plans for a central eurozone settlement engine. This paper analyses three components of the new post-trade infrastructure measures: 1) the regulatory framework for and supervision of central counterparties under the new EMIR legislation, 2) the authorisation requirements of trade repositories and 3) the draft CSD Regulation and the progress with the ECB�s Target 2 Securities project. It then discusses the impact of the new rules, and argues that, analogous to the unexpected impact of MiFID on trading infrastructures, a similar EMIR revolution may be on its way. Length: 10 pages Creation-Date: 2012-11 File-URL: http://www.ceps.eu/system/files/book/2012/11/ECMI%20PB%20No%2020%20Post-Trade%20Market%20Infrastructure.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:7444 Template-Type: ReDIF-Paper 1.0 Author-Name: De Manuel, Mirzha Title: Will the PRIPs' KID live up to its promise to protect investors? Abstract: Unveiled by the European Commission on July 3rd, the proposed Regulation on key information documents (KID) for packaged retail investment products (PRIPs) represents a step forward in enhancing the protection of retail investors and advancing the single market for financial services. While acknowledging in this Commentary that the KID is a commendable effort, CEPS-ECMI Research Fellow, Mirzha de Manuel Aramend�a observes that pre-contractual disclosure is just one of the pieces in the jigsaw puzzle of investor protection and regrets that other pieces, such as MiFID and the IMD, are not so ambitiously constructed. Length: 3 pages Creation-Date: 2012-07 File-URL: https://www.ceps.eu/system/files/ECMI%20Commentary%20No%2033%20MdM%20KID.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:7149 Template-Type: ReDIF-Paper 1.0 Author-Name: Valiante, Diego Title: Setting the Institutional and Regulatory Framework for Trading Platforms: Does the MiFID definition of OTF make sense? Abstract: As discussions around the revision of MiFID are heating up, this paper tries to set a new regulatory and institutional framework for multilateral and bilateral execution mechanisms of complex financial instruments, such as OTC derivatives and fixed income products. The author argues that the current MiFID framework is equipped to capture a great deal of multilateral derivatives and fixed income trading, but the Directive fails to provide a complete definition of bilateral execution mechanisms and has narrowed it to mainly own account trading (ex: systematic internalisers). A key proposal of this paper is to consider own account trading, agency trades (discretionary matching) and principal trading as pure bilateral execution services to be classified under a broader definition of systematic internaliser (with revised obligations), subject then to the application of conduct of business rules (e.g. conflicts of interests management procedures) and a best execution regime. MTF would then be adapted to explicitly state that multilateral systems are not just those bringing together multiple interests from third parties, but those systems bringing together interests through �non-discretionary� services, vis-�-vis membership, admission of products to trading, and matching of interests. Finally, despite the claim that OTF and SEF would be equivalent categories, US and EU regulators are defining diverging regulations for these venues. There are at least four important areas in which the SEF definitions do not match the proposed EU rules for OTFs. Length: 16 pages Creation-Date: 2012-04 File-URL: https://www.ceps.eu/system/files/ECMI%20RR8%20DV%20MiFID%20OTF.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:6811 Template-Type: ReDIF-Paper 1.0 Author-Name: Di Noia, Carmine Title: Reviewing the EU�s Market Abuse Rules Abstract: Updated May 2012 and reposted: In 2011, an EU legislative package on market abuse was proposed, which comprises two sets of documents: 1) a draft Regulation that will largely replace the existing Market Abuse Directive (MAD) and the level 2 measures; and a new Directive dealing with criminal sanctions. Market abuse rules are needed to ensure market integrity and investor confidence, and to allow companies to raise capital and contribute to economic growth, thereby increasing employment. This ECMI Policy Brief argues that rules on market abuse should be technically well designed, proportionate and crystal clear, but also subject to more efficient and harmonised supervision than before. The paper focuses particularly on the draft Regulation. The use of a regulation is welcome, as (in integrated financial markets) abuses should be regulated in a harmonised manner by member states, which has not always been the case, as the 2007 report from the European Securities Markets Expert (ESME) Group extensively demonstrated. At the same time, this paper criticises some of the provisions contained in the draft Regulation, notably the new notion of inside information not to abuse (Art. 6(e)) and the unchanged definition of inside information for listed companies to disclose, and it proposes new definitions. The extension of disclosure obligations to issuers whose shares are traded on demand only on �listing� multilateral trading facilities is also widely criticised. Other comments deal with the proposed rules on managers� transactions, insiders� lists and accepted market practices. Length: 5 pages Creation-Date: 2012-02 File-URL: http://www.ceps.eu/system/files/book/2012/06/ECMI%20PB%20No%2019%20MAD%20Rules%20updated%20version%20May%202012.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:7000 Template-Type: ReDIF-Paper 1.0 Author-Name: Valiante, Diego Title: The Euro Prisoner�s Dilemma Abstract: The last intergovernmental agreement among 25 countries and the ESM Treaty will set the ground for greater institutional coordination on fiscal policies among euro area member states. None of these decisions, however, will be able to pull the euro area out of this crisis. The eurozone is trapped in a classic prisoner�s dilemma. The break-up of the euro remains unlikely but the exit strategy will continue to be led by a sequence of rational (but sub-optimal) decisions, which will make the process long and painful. Length: 2 pages Creation-Date: 2012-02 File-URL: https://www.ceps.eu/system/files/book/2012/02/ECMI%20Commentary%20No%2032%20DV%20Euro%20Prisoner%27s%20Dilemma.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:6676 Template-Type: ReDIF-Paper 1.0 Author-Name: Calice, Giovanni Title: The Impact of Collateral Policies on Sovereign CDS Spreads Abstract: Giovanni Calice, a professor at the University of Southampton, builds in this paper a new theoretical model for pricing of credit default swap (CDS) contracts with asymmetric collateralisation agreements. The study, one of the few in the field, represents a timely contribution to the discussion on the financial links between asymmetric collateralisation and the related hedging activities by Credit Value Adjustment (CVA) desks on the market for sovereign CDS. Calice finds that CDS prices are related to collateral costs and so to the operation of CVA desks of financial institutions. It follows that not posting collateral on derivatives transactions, a widespread practice by sovereigns, may increase borrowing costs in particular for countries that have a significant amount of notional outstanding CDSs contracts. This situation means that, in an asymmetric collateralisation transaction, the increase of CDS spreads may affect the cost of debt, exacerbating an already unstable situation. The study also considers why, during the euro area sovereign debt crisis, CVA practices (such as hedging asymmetric collateralisation) have emerged as one of the variables that have influenced the evolution of sovereign CDS markets. The Association for Financial Markets in Europe (AFME), the International Capital Market Association (ICMA) and the International Swaps and Derivatives Association (ISDA) have sponsored this study as part of a paper series drafted by key international experts on financial markets issues. Length: 47 pages Creation-Date: 2011-12 File-URL: https://www.ceps.eu/system/files/ECMI%20RR%20No%207%20Calice%20on%20Collateral%20Policies%20%26%20Sovereign%20Spreads.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:12234 Template-Type: ReDIF-Paper 1.0 Author-Name: Valiante, Diego Title: The Gloomy Scenario of Italy�s Default Abstract: This Commentary explores what will happen if Italy is not able to implement structural reforms and if international institutions, such as the EFSF and the IMF, do not intervene with sufficient resources to prevent Europe�s second-largest economy from defaulting on its debt. It warns that the Italian economic system would certainly embark on a perverse path that would follow three phases: liquidity crisis and insolvency; deflationary pressures; and finally inflationary pressures and economic and political instability. Length: 4 pages Creation-Date: 2011-12 File-URL: https://www.ceps.eu/system/files/book/2011/12/No%2031%20DV%20Gloomy%20scenario%20of%20Italy%27s%20default.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:6517 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: MiFID 2.0 Unveiled Abstract: Although the drafts of MiFID 2.0, published on October 20th, follow largely what had been proposed by the CESR (Committee of European Securities Regulators) and the European Commission, the documents took observers by surprise in both their approach and length. This CEPS Commentary explains how the original legislation has been amended with the principal aim of levelling the playing field and examines its novel features. Coming together at the same time as several other pieces of draft financial regulation that have recently been proposed or announced, the author finds that they portend a very heavy workload for the European Parliament and the EU Council in the coming year. Length: 2 pages Creation-Date: 2011-11 File-URL: https://www.ceps.eu/system/files/book/2011/11/KL%20on%20MiFID%20unveiled.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:6335 Template-Type: ReDIF-Paper 1.0 Author-Name: Valiante, Diego Title: Commodity Prices in Boom-and-Bust Cycles Abstract: The sharp and widespread increase in most commodity prices has alarmed the world and raised questions around the sustainability of our economies. As shown in this ECMI Commentary, the reasons for this dramatic rise are multiple, and engaging in a witch-hunt benefits neither the market as a whole nor our economies. Solutions need to be more differentiated and oriented towards two factors: preventing price manipulation (through controls on net positions and on anti-competitive market structures) and fostering sustainability. Length: 6 pages Creation-Date: 2011-06 File-URL: https://www.ceps.eu/system/files/book/2011/06/No%2029%20Valiante%20on%20Commodity%20Price%20Formation.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:5716 Template-Type: ReDIF-Paper 1.0 Author-Name: Valiante, Diego Title: NYSE Euronext � Deutsche B�rse Merger: Let the dance go on! Abstract: In this new ECMI Policy Brief, Research Fellow Diego Valiante offers his insights into the motivations, potential synergies and implications of the proposed merger between NYSE Euronext and Deutsche B�rse, which he sees as a continuation of the intricate series of dances begun two decades ago between various exchanges worldwide and which now escalates at global level in the non-equity business. The author finds that the liberalization process and regulatory changes brought about by the financial crisis have revived this long-term process. Finally, Valiante points at the importance of following a dynamic approach in the merger test, which would induce the Commission to impose rigorous conditions to clear the deal. In an updated version, the Policy Brief comments on the merits of the competing bid recently launched by NASDAQ OMX and ICE on NYSE Euronext. Length: 10 pages Creation-Date: 2011-03 File-URL: http://www.ceps.eu/system/files/book/2011/03/No%2018%20Valiante%20on%20exchange%20mergers%20updated.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:4360 Template-Type: ReDIF-Paper 1.0 Author-Name: Assi, Bashir Author-Name: Valiante, Diego Title: MiFID Implementation in the midst of the crisis: Results of an ECMI Survey Abstract: This report summarises the main results of a survey conducted by the European Capital Markets Institute (ECMI) during the period December 2009 - July 2010. The survey aims at investigating the actual implementation of the Markets in Financial Instruments Directive (MiFID), two years after it came into force. A general finding of this survey is that MiFID rules have had a positive impact, in particular through a greater competitive environment that promoted most of all cuts in trading fees and massive investment in technologies and infrastructures. The impact of the Directive, however, remains highly controversial in terms of data quality and implementation costs. Length: 29 pages Creation-Date: 2011-02 File-URL: https://www.ceps.eu/system/files/book/2011/02/ECMI%20Survey%20on%20MiFID.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:4154 Template-Type: ReDIF-Paper 1.0 Author-Name: De Manuel, Mirzha Title: Third Country Rules for Alternative Investments: Passport flexibility comes at a price Abstract: In critically examining the rules applicable to third country managers and funds contained in the new EU Directive on Alternative Investment Fund Managers (AIFM), Mirzha de Manuel Aramendia, CEPS-ECMI Research Fellow, finds in an ECMI Commentary that the rules have gained in flexibility but that regulatory certainty and efficiency have suffered. A preview of this commentary was published by the Financial Times on 13 December 2010. On 11 November 2010, the European Parliament approved the Alternative Investment Fund Managers (AIFM) Directive, which enters into force next year. Among the more controversial aspects of this piece of legislation are the rules applicable to third country managers and funds. This Commentary attempts to present the third country rules in an accessible manner for non-specialists and to critically discuss these rules. An Annex is provided to guide the reader through the numerous provisions and the different phases that will follow after the Directive enters into force. The author argues that while the principles outlined initially by the Commission have prevailed, there are two issues that cause concern: On the one hand, there is no fixed date for the entry into force of the passport for non-EU managers, which sends the wrong signal to the industry, part of which still hopes to avoid compliance. On the other hand, the lack of trust among member states has brought unnecessarily complex provisions, which can act as a barrier to investments that would otherwise benefit the European economy. The author concludes that, while the rules have gained in flexibility, regulatory certainty and efficiency have suffered. Length: 11 pages Creation-Date: 2010-12 File-URL: https://www.ceps.eu/system/files/book/2010/12/ECMI%20Commentary%20No%2027.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:4059 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: What reforms for the credit rating industry? A European perspective Abstract: Despite having singled out credit rating agencies (CRAs) early on in the financial crisis as needing more regulation, policy-makers in the EU seem not to be reassured by the measures that have been adopted in the meantime, and want to go further. This paper starts with an overview of the credit rating industry today. The second section analyses the use of credit ratings and shows how the authorities have created a captive or artificial market for CRAs. Section 3 reviews the new EU CRA regulation and its possible impact, and the final section compares proposals for regulatory reform. Length: 8 pages Creation-Date: 2010-10 File-URL: http://www.ceps.eu/system/files/book/2010/10/ECMI%20PB17%20KL%20on%20CRAs.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:3805 Template-Type: ReDIF-Paper 1.0 Author-Name: De Manuel, Mirzha Author-Name: Valiante, Diego Title: Where does Europe stand on regulation of alternative investments? Abstract: A new ECMI Commentary by Mirzha de Manuel and Diego Valiante reports on the latest state of play in the negotiations over the Alternative Investment Fund Managers Directive (AIFMD), an important body of EU legislation aimed at ensuring financial stability and greater transparency in areas that have so far remained mostly unregulated. Length: 9 pages Creation-Date: 2010-09 File-URL: https://www.ceps.eu/system/files/book/2010/09/ECMI%20Commentary%2026%20AIFMD.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:3738 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Author-Name: Valiante, Diego Title: The MiFID Metamorphosis Abstract: In their assessment of the Markets in Financial Instruments Directive (MiFID), adopted in April 2004 and implemented at Member State level by the end of 2007, Karel Lannoo and Diego Valiante find that the legislation has been remarkably successful in terms of improving market structure and efficiency. In their view, the upcoming MiFID review should therefore take a �light touch�, clarifying some definitions and extending the transparency regime to non-equity markets. They argue that easier and cheaper access to consolidated data solutions will also allow end-users to fully participate in the changes brought about by MiFID, ultimately restoring investors� trust and pushing more liquidity in equity markets. The start of ESMA then should allow for better enforcement of the conduct of business rules. Length: 10 pages Creation-Date: 2010-04 File-URL: http://www.ceps.eu/system/files/book/2010/04/The%20MiFID%20Metamorphosis_ECMI%20PB%2016.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:3272 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Regulatory Challenges for the EU Asset Management Industry Abstract: The European asset management industry is feeling squeezed from all sides, as a result of growing prudential, product and conduct regulation. A new Directive, UCITS IV, has only just been enacted, and already new challenges are emerging in the regulation of hedge and venture capital funds, the review of the regulatory regime for depositaries (or financial custodians) and amendments to the MiFID Directive. In addition, a new European supervisory framework is in the making, which implies much stricter controls on enforcement. These changes are taking place in the context of one of the largest declines suffered by the industry in the last two decades, from which many fund managers have not yet recovered. This paper first briefly reviews recent developments in the EU asset management industry, followed by a discussion of the regulatory framework for asset management and the challenges ahead. Its focuses primarily on the UCITS and emerging non-UCITS investment fund regime, and its interaction with the MiFID regime covering investment services. Length: 10 pages Creation-Date: 2010-04 File-URL: http://www.ceps.eu/system/files/book/2010/04/ECMI%20PB%20No%2015%20Lannoo%20on%20Asset%20Management.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:3094 Template-Type: ReDIF-Paper 1.0 Author-Name: Valiante, Diego Title: Shaping Reforms and Business Models for the OTC Derivatives Market: Quo vadis? Abstract: Now that the worst of the financial storm is over, regulators are setting new strategies to deal with the systemic importance of the �427 trillion ($604 trillion) over-the-counter (OTC) derivatives market. This paper explores the three major sources of disruptive effects in OTC derivatives: liquidity, counterparty risk and legal uncertainty. These risks affect the value chain of a typical derivative transaction and weaken the economic and legal rationale behind their widespread use. On the policy side, commitments have been made at G-20 level to draft uniform rules on a global scale �to build a safer financial system�. This paper finds, however, that in practice, the EU and US proposals lay out divergent roads to meet common objectives and the author warns that such divergences may encourage regulatory and supervisory arbitrage. Length: 60 pages Creation-Date: 2010-04 File-URL: https://www.ceps.eu/system/files/book/2010/04/ECMI%20RR5%20Valiante%20on%20Derivatives.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:3093 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Comparing EU and US Responses to the Financial Crisis Abstract: Since 2003, the EU and the US have conducted a vibrant regulatory dialogue on financial regulation, but domestic priorities seem to have taken precedence in response to the financial crisis. This ECMI Policy Brief compares the institutional and regulatory changes occurring on both sides of the Atlantic. On the institutional side, it compares macro- and micro-prudential reforms. On the regulatory side, it compares four key areas: bank capital requirements, reform of the OTC derivative markets, and the regulation of credit ratings agencies and hedge funds. It concludes with some implications for the regulatory dialogue. Length: 7 pages Creation-Date: 2010-01 File-URL: http://www.ceps.eu/system/files/book/2010/01/ECMI%20PB14%20e-version%20final.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:2835 Template-Type: ReDIF-Paper 1.0 Author-Name: Persaud, Avinash Title: Macro-Prudential Regulation Abstract: This is not the first international banking crisis the world has seen. The previous ones occurred without credit default swaps, special investment vehicles, or even credit ratings. If crises keep repeating themselves, it seems reasonable to argue that policy-makers need to carefully consider what they are doing and not just �double-up� by superficially reacting to the specific features of today�s crisis. While we cannot hope to prevent them, we can perhaps make crises fewer and milder, by adopting and implementing better regulation�in particular, more macro-prudential regulation. Length: 10 pages Creation-Date: 2009-08 File-URL: http://aei.pitt.edu/11449/1/1892.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1712 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Bringing hedge funds into the regulatory mainstream Abstract: The global financial crisis has put an end to the cosy environment in which the financial industry had operated up to now. In keeping with their G-20 commitment, the European Commission has published draft rules for hedge funds, which bring all non-harmonised funds under the EU�s regulatory umbrella, largely reproducing the rules of existing directives, and adding some new elements in response to the crisis. This European Capital Markets Institute (ECMI) Commentary by Karel Lannoo considers the European Commission�s draft rules on hedge funds and asks: if the rules are in line with the recent policy consensus on regulation in this area, should we wonder if the finance industry has something to hide in its resistance to them? Length: 2 pages Creation-Date: 2009-06 File-URL: https://www.ceps.eu/system/files/book/1861.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1683 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Author-Name: Valiante, Diego Title: Integrating Europe's Back Office: 10 years of turning in circles Abstract: The financial crisis has sharpened the debate on Europe�s back office architecture. This paper reviews the ECB�s decision to proceed with its Target 2 Securities (T2S) project, which aims to establish a common IT platform for securities settlement, reducing differences between current infrastructures. The apparently solid configuration of the project shakes, however, when we closely examine the impact of this common infrastructure on the competitive landscape. Notably, non-discriminatory access to the platform (low barriers to entry), clearer and independent governance, and full participation by Central Securities Depositories (CSDs and ICSDs) are essential conditions to ensure the initiative�s success. The paper also examines the possibility to build a level playing field for CSDs in Europe and evaluates the ESCB/CESR recommendations, discussing the progress achieved with the industry�s Code of Conduct and evaluating, as follow-up to the financial crisis, the relative merits of multiple vs single Central Counterparty Clearing (CCP) in OTC markets. Length: 11 pages Creation-Date: 2009-06 File-URL: https://www.ceps.eu/system/files/book/1851.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1673 Template-Type: ReDIF-Paper 1.0 Author-Name: Cinquegrana, Piero Title: Short Selling: A known unknown Abstract: Short selling is a technique that allows profiting from falling stock prices. In the autumn of 2008 several countries implemented a partial or complete ban on short selling. In this new commentary, Piero Cinquegrana, Associate Research Fellow at ECMI, reviews those decisions and attempts to answer three questions: 1) Is short selling legitimate? 2) What is the difference between covered and naked short selling? 3) Is short selling consistently defined across jurisdictions? The author argues that short selling should be given more thought before definite decisions are taken and that restricting short selling is costly because of the difficulty in definining precisely the banned transactions and the complexity in enforcing such rules. The author concludes asking whether restrictions on short selling would survive a rigorous cost/benefit analysis. Length: 6 pages Creation-Date: 2009-05 File-URL: https://www.ceps.eu/system/files/book/1849.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1671 Template-Type: ReDIF-Paper 1.0 Author-Name: De Grauwe, Paul Title: Why should we believe the market this time? Abstract: During the decade preceding the eruption of the financial crisis in August 2007, rating agencies and market participants, gripped by euphoria, systematically underestimated the risk inherent in a wide range of financial assets. Today the panic that has gripped them leads to an equally distorted view of the risks involved. Private debt is dumped in favour of government debt of just a few countries. How these countries are selected is unclear. This selection mechanism is the result of an emotional reaction that leads market participants to believe that �it is inconceivable that serious countries like the US, Germany or France would ever default on their debt� while other countries are deemed to be to be capable of doing such a bad thing. These emotional reactions create distortions that affect economic activity in profound ways. Length: 4 pages Creation-Date: 2009-02 File-URL: https://www.ceps.eu/system/files/book/1801.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1623 Template-Type: ReDIF-Paper 1.0 Author-Name: Cinquegrana, Piero Title: The Reform of the Credit Rating Agencies: A Comparative Perspective Abstract: Credit ratings are a quasi-public good, and investors and financial markets regulators need an independent assessment of the credit-worthiness of an issuing entity because of information asymmetries and principal agent problems. In light of the high volatility of market-based measures and the failure of internal risk management, private CRAs are best fit for purpose. However, natural barriers of entry in the rating business and conflicts of interest have led to an inflation of ratings and a deterioration in their quality. It would thus appear that CRAs need closer supervision. While certainly burdensome and likely to raise barriers of entry, the European Commission's proposal seems to be the most sensible solution given the circumstances. Market discipline based on competition and transparency as envisioned in the US will lead to a weak surveillance regime, while leaving the regulatory license intact. Length: 12 pages Creation-Date: 2009-02 File-URL: https://www.ceps.eu/system/files/book/1797.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1619 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Good banks, bad banks and the like Abstract: ECMI Chief Officer Karel Lannoo looks at the large differences that remain in the risk management of European banks and in the way bank regulation is implemented. Drawing on comparisons between Spanish banks and their counterparts elsewhere in Europe, he concludes that more integrated European oversight, if it happens, will need to be elaborated very carefully and accurately. This means a watertight structure, an accountable management and a clear division of responsibilities. Length: 2 pages Creation-Date: 2009-02 File-URL: https://www.ceps.eu/system/files/book/1795.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1617 Template-Type: ReDIF-Paper 1.0 Author-Name: Lobe, Sebasian Author-Name: Schenk, Nils-Christian Title: Fairness Opinions and Capital Markets: Evidence from Germany, Switzerland and Austria Abstract: This paper provides the first empirical evidence of fairness opinions in Europe. Legal requirements concerning the use of fairness opinions in mergers and acquisitions are significantly different in Germany, Switzerland and Austria. We examine the determinants of fairness opinions for target firms in these various regulatory settings, and moreover, investigate the impact of such opinions on the abnormal returns of target firms. While in Germany and Austria market participants do not deem fairness opinions important, they do create value for shareholders in Switzerland. Because conflicts of interest between the target�s board and bidder are a main determinant of fairness opinions in Switzerland, we conclude that when the target�s management faces such conflict, external expert advice replaces the board�s opinion on the offer. Length: 18 pages Creation-Date: 2009-01 File-URL: http://www.ceps.eu/system/files/book/1773.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1596 Template-Type: ReDIF-Paper 1.0 Author-Name: Cinquegrana, Piero Title: The Need for Transparency in Commodity and Commodity Derivatives Markets Abstract: This paper argues that transparency-boosting measures specifically tailored to commodity and commodity derivatives markets are much needed. In particular, encouraging the creation of a clearing infrastructure for OTC commodity and commodity derivatives markets would be desirable. Moreover, EU regulators should consider setting up a new, more effective market abuse regime aimed at preventing manipulation in both the physical and financial commodities markets. Finally, in cooperation with the G20, EU authorities should consider the creation of an International Commodity Agency to increase transparency and restore confidence in international physical markets for commodities. The paper is structured as follows: Section 2 briefly discusses the fundamentals of commodity spot and futures markets. Section 3 presents both physical commodity markets and commodity derivative markets in their usual breakdown categories: agriculture, metals and energy. Section 4 discusses the regulations in the EU and the US concerning commodity derivatives. Section 5 advances certain policy proposals and the last section draws the conclusions. Length: 27 pages Creation-Date: 2008-12 File-URL: http://www.ceps.eu/system/files/book/1766.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1589 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Credit Rating Agencies: Scapegoats or Free-Riders? Abstract: This Commentary by CEPS Chief Executive Karel Lannoo examines the draft directive issued for consultation by Commissioner Charlie McCreevy in July 2008, which proposes very detailed and prescriptive regulation of the activities of rating agencies in the EU. While acknowledging that policy-makers had no choice but to take action, Lannoo asserts that the draft raises fundamental questions about the form of the regulation and its impact on the industry and the markets. Namely: Confronted with a globally concentrated industry, can the EU act alone? Considering the fragmentation of the EU market, how will the regulation be applied? Is functional regulation, as proposed by the European Commission, appropriate, or is more objective-based regulation needed? What side effects may be caused by statutory regulation of CRAs? Length: 3 pages Creation-Date: 2008-10 File-URL: https://www.ceps.eu/system/files/book/1733.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1557 Template-Type: ReDIF-Paper 1.0 Author-Name: Cinquegrana, Piero Title: Commodity Derivatives Markets: Regulators' Leap in the Dark? Abstract: In spite of the growing importance of commodity derivatives markets in the financial services industry, precious little is known about their impact on commodity spot prices and their functioning and structure. This ECMI Commentary by Piero Cinquegrana calls for greater information and transparency on a number of fundamental questions related to these markets. Length: 4 pages Creation-Date: 2008-08 File-URL: https://www.ceps.eu/system/files/book/1699.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1526 Template-Type: ReDIF-Paper 1.0 Author-Name: Cinquegrana, Piero Title: Are Skyrocketing Oil Prices Justified by Fundamentals? Abstract: This ECMI Commentary by Piero Cinquegrana considers the phenomenon of the six-fold increase in oil prices over the last seven years and asks whether this massive increase is justified by fundamentals or is the result of a speculative frenzy in commodities driven by bear markets in bonds and stocks. Piero concludes that the sheer complexity of the oil market does not vouchsafe a simple explanation for the surge in oil prices. In the long-term, reduced spare capacity, increased demand and burgeoning extraction costs suggest that oil prices are bound to remain both high and volatile. In the short-term, however, it is a combination of speculation, changing expectations and general uncertainty that has led to the surge in oil prices. Length: 4 pages Creation-Date: 2008-07 File-URL: https://www.ceps.eu/system/files/book/1687.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1515 Template-Type: ReDIF-Paper 1.0 Author-Name: Casey, Jean Pierre Title: Shedding Light on the UCITS-MiFID Nexus and Potential Impact of MiFID on the Asset Management Sector Abstract: There remains considerable confusion as to how exactly the MiFID and UCITS directives will interact in the long run. This uncertainty reflects the growing pains of a regulatory transformation that represents no less than a tectonic shift from intense and prescriptive product regulation to a more flexible, principles-based regulation of management functions. Unlike UCITS, MiFID is a horizontal directive that cuts across the entire financial services industry (except for insurance). Precisely because the two directives are rooted in diverging regulatory philosophies, they are not natural partners, and the exercise of trying to fit the two together will likely be neither effortless nor seamless. This paper attempts to shed light on the complex interaction between UCITS and MiFID and gives some preliminary indications of how MiFID might impact on the asset management industry. Length: 9 pages Creation-Date: 2008-04 File-URL: https://www.ceps.eu/system/files/book/1634.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1463 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: The Future of Europe's Financial Centres Abstract: The intention of this article by Karel Lannoo is to subject European financial centres to a SWOT analysis, assessing their Strengths, Weaknesses, Opportunities and Threats. We start with a closer definition of the term financial centre and a classification of the different kinds of financial centres found in Europe. A second section analyses the extent to which EU legislation and in particular the Financial Services Action Plan (FSAP) may lead to an intensification of financial centre competition. In a final section, we make some assessments for the future. Length: 8 pages Creation-Date: 2007-12 File-URL: https://www.ceps.eu/system/files/book/1574.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1405 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: MiFID and Reg NMS: A test-case for 'substituted compliance'? Abstract: This paper by Karel Lannoo explores whether MiFID and Reg NMS could be accepted as equivalents by regulators on both sides of the Atlantic. Apart from many similarities, the most important one being that the main purpose of both measures is to enforce best execution in equity trading, there are many differences as well in the definition of best execution, the structures of the markets, and the role and powers of supervisory authorities. It calls upon the European Commission to make a detailed comparison between both measures and to take the opportunity to negotiate a mutual recognition agreement with the US. Length: 8 pages Creation-Date: 2007-07 File-URL: https://www.ceps.eu/system/files/book/1522.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1353 Template-Type: ReDIF-Paper 1.0 Author-Name: Dunne, Peter Title: Transparency Proposals for European Sovereign Bond Markets Abstract: This paper by Peter Dunne explores the reasons why European sovereign bond markets have developed such a high degree of segmentation and considers how this structure could be altered to improve transparency without adversely affecting liquidity, efficiency or the benefits enjoyed by primary dealers and issuers. The author, Peter Dunne, a lecturer in Finance at the School of Management and Economics, Queen's University in Belfast, suggests that the structure of the market could be improved greatly if the largest and most active investors were permitted access to the inter-dealer electronic trading platforms. He argues that this move would solve a number of market imperfections and increase the proportion of market activity that is conducted in a transparent way. Length: 9 pages Creation-Date: 2007-04 File-URL: https://www.ceps.eu/system/files/book/1489.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1320 Template-Type: ReDIF-Paper 1.0 Author-Name: Gottlieb, Charles Title: Hedge Funds: Heading for a regulatory hard landing? Abstract: This policy brief examines the evolution of the hedge fund industry, the industry�s structure and the prospect of regulatory steps looming on the horizon. In the wake of the recent bust of Amaranth and of the increased �retailisation� of the industry, hedge funds have increasingly come under the close scrutiny of regulators. In this ECMI Policy Brief, Charles Gottlieb explores the economic rationale that should be kept in mind for any appropriate policy making in this area. He concludes by outlining the regulatory uncertainties remaining with binding the hedge fund industry together with MiFID and UCITS regulations. Length: 8 pages Creation-Date: 2007-04 File-URL: https://www.ceps.eu/system/files/book/1486.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1318 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: Financial Market Data and MiFID Abstract: The opening-up of the market for equity market data raises the question of whether data will be sufficiently consolidated and of high enough quality post-MiFID, or whether it will become too fragmented, thereby hindering price transparency and the implementation of best execution policies. This policy brief by Karel Lannoo outlines the market for financial market data, the provisions of MiFID and the implementing measures regarding financial data and data consolidation. It also looks at the approaches taken by CESR, the FSA and the US authorities. It concludes that markets should be capable of adapting and that additional licensing requirements, such as those proposed by the FSA, are in fact premature and act as a barrier to the single market. Nor would a US-style monopoly consolidator be needed in this case. Length: 7 pages Creation-Date: 2007-03 File-URL: https://www.ceps.eu/system/files/book/1485.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1317 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: The ECB should not monopolise securities settlement Abstract: This regulatory commentary argues that as the EU is bringing more competition in securities markets with the implementation of the MiFID directive, and the adoption by the settlement industry of a code of conduct, the ECB is going in the other direction with the creation of a monopoly for securities settlement in the EU. Karel Lannoo sketches four reasons why the TARGET 2 initiative shouldn�t be pursued. Length: 2 pages Creation-Date: 2007-01 File-URL: https://www.ceps.eu/system/files/book/1445.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1280 Template-Type: ReDIF-Paper 1.0 Author-Name: Khatchaturyan, Arman Title: Trapped in delusions: democracy, fairness and one-share-one-vote Abstract: This regulatory comment by Arman Khatchaturyan argues that EC policy-makers have tried to make equiproportional representation nearly an aphorism tied to corporate egalitarian sentiments but that the proposal fails to justify the move as a value-enhancing technique for EU corporate governance. Arman Khatchaturyan (PhD) is an associate research fellow at the Centre for European Policy Studies(CEPS) and is author of One-Share-One-Vote Controversy in the EU (2006) awarded Josseph de la Vega Prize 2006 for outstanding research on the securities markets in Europe. Length: 2 pages Creation-Date: 2006-12 File-URL: https://www.ceps.eu/system/files/book/1444.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1279 Template-Type: ReDIF-Paper 1.0 Author-Name: Casey, Jean Pierre Title: Bond market transparency: To regulate or not to regulate Abstract: This ECMI Policy Brief attempts to contribute to the ongoing policy debate on MiFID art. 65.1, which tasks the Commission with conducting a study to report on whether the trade transparency requirements that currently apply to share trading ought to be extended to non-equity markets. It presents the pros and cons of introducing greater transparency into the marketplace, including a model on the possible impact of increasing transparency. The paper also highlights the insufficient level of data available to market participants and regulators on volumes and aggregate bond market activity, as well as the lack of appropriate information made available to retail investors, suggesting that dealers may have little time to come up with a solution, and that an industry code of conduct may be an appropriate avenue � and one preferable to legislative initiatives � for introducing more transparency uniformly (within each fixed income asset class) across the EU. Length: 17 pages Creation-Date: 2006-12 File-URL: https://www.ceps.eu/system/files/book/1420.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1254 Template-Type: ReDIF-Paper 1.0 Author-Name: Casey, Jean Pierre Author-Name: Lannoo, Karel Title: The MiFID Revolution Abstract: Jean-Pierre Casey and Karel Lannoo paint a portrait of the likely EU securities market landscape post-MiFiD. Much of the available analysis on MiFID has focused on short-term adjustment and compliance costs, especially regarding IT investments. Yet MiFID represents a revolution in European securities markets that is likely to lead to deep and long-lasting structural changes. The analysis in this Policy Brief concentrates on ten predictions that the authors make about the likely impact of MiFID on market structures, and the likely strategic responses of financial services firms. Length: 12 pages Creation-Date: 2006-11 File-URL: https://www.ceps.eu/system/files/book/1401.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1235 Template-Type: ReDIF-Paper 1.0 Author-Name: Casey, Jean Pierre Title: Time for a risk-based approach to UCITS Abstract: Jean-Pierre Casey argues that UCITS ought to move to a risk-based approach as opposed to relying on the product approach. Casey concludes that both the product approach, which necessitates defining eligible assets � a laborious exercise � and the investment restrictions which form the other cornerstone of investor protection in UCITS, are outdated and out of sync with the lessons of modern portfolio theory. Length: 2 pages Creation-Date: 2006-10 File-URL: https://www.ceps.eu/system/files/book/1443.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1278 Template-Type: ReDIF-Paper 1.0 Author-Name: Casey, Jean Pierre Title: Eligible assets, investment strategies and investor protection in light of modern portfolio theory: Towards a risk-based approach for UCITS Abstract: As the European Commission is currently in the process of preparing its White Paper on the enhancement of the EU framework for investment funds (scheduled for November 2006), now is a good time to reflect on whether the UCITS framework needs a radical overhaul if the regulatory landscape is going to adapt itself to the reality of market evolutions. European Capital Markets Institute (ECMI) Head of Research Jean-Pierre Casey contributes to this important debate with the second ECMI Policy Brief, in which he argues that UCITS ought to move to a risk-based approach as opposed to a reliance on the product approach. Casey concludes that both the product approach, which necessitates defining eligible assets � a laborious exercise � and the investment restrictions which form the other cornerstone of investor protection in UCITS, are outdated and out of sync with the lessons of modern portfolio theory. Length: 15 pages Creation-Date: 2006-09 File-URL: https://www.ceps.eu/system/files/book/1376.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1214 Template-Type: ReDIF-Paper 1.0 Author-Name: Gajewski, Jean-Fran�ois Author-Name: Gresse, Carole Title: A Survey of the European IPO Market Abstract: Based on a sample of 15 European countries, this survey analyses various features of the European IPO (Initial Public Offering) market over the period from 1995 to 2004: listing requirements, IPO-mechanism choices, performance and secondary market liquidity. First, the comparison of national primary market regulations, in spite of the commonly observed segmentation between Main, Parallel and New Markets, shows a wide diversity in listing requirements and reveals that the primary market�s mechanisms are almost always monitored by investment banks, which then control the initial pricing and allocation of new issues. The examination of issuers� practices looks at the increase in the different types of IPO mechanisms in the late nineties and the widespread use of the book-building mechanism nowadays. Second, our empirical analysis of IPO short-term and long-term performance confirms, with a few exceptions, widely recognised patterns, but also show discrepancies between countries, periods, sector and primary listing mechanisms. The average initial underpricing amounts to 22% over our pan-European sample and is observed at various levels in each of the 15 countries of the sample. Empirical evidence on long-term performance is less clear. Results are not benchmark-dependent but sometimes differ from one measurement method to another. However, in line with previous studies, significant underperformance is found at the 3-year horizon with all methodologies and in all countries, except Greece and Portugal. Finally, using a sample of IPOs launched on Euronext between 1995 and 2004, our study examines the relationship between initial returns and post-listing liquidity in the short and in the long-run. We support the �illiquidity-compensation hypothesis�. Initial underpricing is positively linked to information asymmetry in the after-market. It produces higher turnover immediately after the IPO but has no effect on trading volumes after the first year of trading, so that this liquidity effect cannot be put down to ownership structure but is more likely attributable to the interest underpriced stocks generate. Length: 94 pages Creation-Date: 2006-08 File-URL: http://www.ceps.eu/system/files/book/1367.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1207 Template-Type: ReDIF-Paper 1.0 Author-Name: Lannoo, Karel Title: So no C&S Directive, but an ECB run settlement system? Abstract: In this regulatory commentary ECMI's Chiel Officer Karel Lannoo comments on the Commission�s decision to solely impose a code of conduct for the Clearing and Settlement Industry as well as on the ECB�s proposal to centralize European settlement systems. Lannoo argues that the current situation still leaves 2 issues unsolved, i.e. the minimum prudential rules for and the freedom to provide services by C&S organisations. Length: 2 pages Creation-Date: 2006-08 File-URL: https://www.ceps.eu/system/files/book/1442.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1277 Template-Type: ReDIF-Paper 1.0 Author-Name: Khachaturyan, Arman Title: The One-Share-One-Vote Controversy in the EU Abstract: The proposal by the European Commission (EC) to establish shareholder democracy and mandate the one-share-one-vote (1S1V) rule has drawn much attention and controversy. In the pursuit of enhancing the rule�s popular appeal, EC policy-makers have tried to make equiproportional representation nearly an aphorism tied to corporate egalitarian sentiments underscoring justice, fairness and ethics. Against this background, the question of who could be against or oppose shareholder democracy and the 1S1V principle has both positive and normative implications. Based on a review of law, finance and economics literature, this paper evaluates the economic underpinnings and efficiency of the 1S1V rule and concludes that it is generally a suboptimal corporate voting mechanism that compromises economic efficiency and distorts the incentives of corporate constituencies. Moreover, it is submitted that any attempt to mandate the 1S1V rule in the EU may induce companies to either move to pyramidal structures, or worse yet, to use complex derivative instruments to decompose 1S1V. While pyramidal holdings may further facilitate the expropriation of private benefits of control as compared with the status-quo, the decomposition of 1S1V can i) advance the heterogeneity of shareholders� preferences, ii) create incentives for negative voting arbitrage and iii) encourage the approval of value-reducing transactions, or more detrimentally, become a takeover defence. Hence, even if the EC could hypothetically move corporate Europe from controlled ownership structures to minority ownership ones, the 1S1V rule is clearly worse than the status quo, and paradoxically, instead of advancing the rights of �disadvantaged shareholders�, 1S1V can further demote shareholder rights in the EU. As a result, 1S1V cannot promote a value-enhancing corporate governance regime in the EU in general or meet the policy objectives of the intervention in particular in terms of strengthening the rights of shareholders, enhancing third-party protection or fostering the efficiency and competitiveness of businesses in the EU. On the normative side, the issue is how corporate law can efficiently police the ability of controlling shareholders to expropriate rights from minority shareholders in general and extract private benefits in particular. Generally, it is asserted that if a corporate law regime is adequately structured, there is less need to worry about the voting rule and non-proportionate votes would not be a serious concern. In this light, this paper concludes by outlining some policy alternatives. First, it is proposed that EC policy-makers refrain from taking any measure at the level of the Community and instead strengthen disclosure rules and their enforcement. Furthermore, some standards of review governing significant conflict-of-interest transactions can be introduced. Second, it is submitted that EC policy-makers can also provide for opt-in and opt-out provisions for the member states. Such menus should once again be complemented by rigorous disclosure rules and their enforcement. Length: 26 pages Creation-Date: 2006-08 File-URL: http://www.ceps.eu/system/files/book/1364.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1203 Template-Type: ReDIF-Paper 1.0 Author-Name: Casey, Jean Pierre Author-Name: Gottlieb, Charles Title: Spring market volatility: More than just white noise Abstract: Jean-Pierre Casy and Charles Gottlieb try in this market commentary to give insights onto the concept of market volatility and offers determinants to the surge of volatility which occurred in mid 2006. They conclude that surmising whether the spring volatility surge will prove to be a structural upward shift towards greater fundamental volatility remains a matter of speculation. Length: 5 pages Creation-Date: 2006-06 File-URL: https://www.ceps.eu/system/files/book/1441.pdf File-Format: Application/pdf Handle: RePEc:eps:ecmiwp:1276