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EU-created capital markets union ushered in 'defining moment'
2022-02-08
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The importance of the EU's establishment of a capital market union is growing day by day, ushering in a "defining moment".
To this end, the European Commission launched the third round of reforms in six years last week and formally accepted four legislative agendas aimed at promoting the interconnection of financial data in countries in the region and further integrating the fragmented European capital markets. If the EU builds a capital market alliance that is ultimately effective, it will be able to compete more effectively with cities such as London and New York, and gain an advantage in the "Battle for Financial Center Hegemony".
EU Financial Services Executive Mairead McGuinness said: "It is important that we develop our own capital markets. Once implemented, securities price records and a single point of information system will be a 'defining moment' for the creation of the Capital Markets Union."
"Difficult to give birth" capital market alliance
In order to allow the capital market union to proceed as planned, the European Commission proposed on the 25th to establish a system to record stock and bond prices and provide investors with corporate information free of charge. The Executive Committee also recommended adjustments to long-term investment funds and plans to better coordinate the regulation of these funds.
Specifically, the four reform legislation proposed by the EU are:
The establishment of the "European Single Access Point" (ESAP) aims to provide European companies and investment products with a unified access point for public financial data and sustainable development-related information, so that investors can understand the company at a lower cost, and also provide The company provides more financing opportunities;
Adjust the European long-term investment funds (ELTIFs) regulatory rules to lower the threshold for setting up and selling products to encourage long-term investment. The legislation will remove the minimum investment threshold of 10,000 euros, which will help attract retail investors. Due to the product characteristics, such funds are suitable for investments in green energy and digital transformation;
Adjustments to the Alternative Investment Fund Managers Directive, which, while continuing to allow fund managers to manage European funds across borders, also add some restrictions aimed at protecting fund investors;
Adjust the "Financial Instruments Market Directive" to establish a unified quotation information flow across Europe, and will also prohibit brokers from selling order flow.
The BVI, the German investment fund association, said the proposed "single point of access to Europe" for corporate information systems would help asset managers complete the increasing amount of report writing in a more cost-effective way.
It should be noted that these proposals still need to be approved by the European Parliament and EU member states before they become law, and some concessions are expected to be made.
Ding Chun, director of the Center for European Studies at Fudan University, told the 21st Century Business Herald reporter that in the context of the European debt crisis, the European Union set out to establish a banking union and a capital market union. Slowly, Brexit has also delayed the construction of a capital markets union.
Looking back at history, as early as September 30, 2015, before the UK had decided to leave the EU, the then EU Commissioner Jonathan Hill announced the launch of a motion called a "capital markets union". The European Union pointed out in the "Building a Capital Markets Union Green Paper" (Building a Capital Markets Union) released in 2015: "Expanding corporate financing channels and strengthening investment in infrastructure are the key elements to revive the European economy and achieve European development."
As for the reasons for the EU to create a capital market alliance, Ding Chun told reporters that firstly, financing in the European continent is too dependent on the banking industry, and the capital market plays a low role in corporate financing; secondly, the financial system is severely fragmented, and EU member states manage Different institutions and the lack of overall coordination of the financial system; in addition, insufficient capital flexibility is also the reason for the EU to promote the capital market union.
The EU builds a single capital market through the capital market alliance, which can not only serve as an important supplement to bank financing channels, but also expand financing channels for small and medium-sized enterprises, attract foreign investment, and maintain the stability of the European financial market.
Is the "Battle for Financial Center Hegemony" imminent?
It should be noted that Brexit has made the UK a financial competitor on the doorstep of the EU.
EU Financial Services Commissioner Mairead McGuinness said Brexit has had an impact on the entire European financial system, as London was once the financial centre of Europe and now it has become a third party outside the EU. McGuinness also said that the EU's capital market union was not designed to challenge the UK after Brexit, but more to build the resilience of its own financial system.
But in any case, after Brexit, the EU is bound to pay more attention to the construction of capital market union, and the competition between EU cities and London is inevitable.
In January, Amsterdam knocked London down as Europe's largest stock exchange. In January 2021, the daily trading volume of various trading platforms in the Amsterdam financial market in the Netherlands was 9.2 billion euros, an increase of more than 4 times compared to December 2020. In contrast, London, UK, saw a sharp drop in daily transactions in January 2021, at €8.6 billion.
In addition, data from accounting firm Ernst & Young shows that banks and asset managers have moved £1.2 trillion in assets from the UK to the EU following the 2016 Brexit referendum, while more than 7,500 jobs have been relocated out of the country. UK. Since the Brexit referendum, 44 companies have announced plans to recruit locally in the EU, involving a total of 2,850 existing or newly created jobs, according to Ernst & Young. Dublin, Luxembourg, Frankfurt, Paris and Amsterdam are the main beneficiaries of the departure of jobs and assets from London.
In the face of challenges, the UK has so far identified a number of reforms, easing rules for stock listing and transaction reporting, tweaking insurance regulations and removing restrictions on anonymous stock trading favored by big investors. The UK Treasury said it had drawn up a comprehensive roadmap and was already building a more open, greener and technologically advanced financial sector. "Coordination will be key to driving reforms and helping businesses plan for the future, and the upcoming regulatory framework will help achieve this."
The series of measures taken by the United Kingdom undoubtedly reflect a strong "desire to survive". "It's amazing how ambitious the agenda is. They've understood that London and the UK will need to fight for their global status," said Jonathan Herbst, head of global financial regulation at law firm Norton Rose Fulbright.
Overall, London will remain the dominant financial center in Europe for the foreseeable future. Ding Chun analyzed to reporters that the formation of a financial center requires a large number of financial practitioners, institutions, and supporting excellent systems to gather together many advantages. Human factors can create certain conditions, but it mainly depends on long-term accumulation. Judging from the current situation, London's status will not be replaced soon. It will take time for cities like Dublin, Paris, Frankfurt and Luxembourg to stand out and stand out like London.
The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.
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