With a few days to go before crucial EU talks that could lead to major reforms of the Markets in Financial Instruments Directive, known as Mifid, EU asset managers, banks, and brokers are urging policymakers not to succumb to pressure that could lead to “suboptimal outcomes” in the review.
The Association for Financial Markets in Europe (Afme), the European Fund and Asset Management Association (Efama), and the German Investment Funds Association (BVI) on Friday called on co-legislators to take a “comprehensive and ambitious approach”, even if it requires more time to complete negotiations.
“If policy makers cannot pass legislation to build critical market infrastructure to stem the investment flows leaving the EU, this risks putting the EU at a disadvantage to other global markets,” Afme, Efama and BVI said in a joint press release.
Trilogue negotiations between the EU parliament, commission and Council are scheduled for next Monday and Tuesday. The EU’s Swedish presidency, whose terms runs out on 30 June, has stated that it wants to achieve an agreement before July. The negotiations also will discuss the review of the AIFMD rules that govern alternative investments.
AIFMD review
The AIFMD review is also considered somewhat contentious, given that it wants to change the rules for loan originating funds. Alternative investment funds will be able to originate loans across the border, but the council and parliament still diverge on certain definitions for leverage caps and exclusions, Deloitte partner Andreas Meier told the Alfi roadshow in Frankfurt on Wednesday.
The AIFMD review generally seeks to increase transparency around delegation and outsourcing of services, preserving the ability for asset managers to access the best expertise available “wherever it may be located.”
Reshaping EU financial markets
Talks on the Mifid review can reshape the way financial markets in Europe will operate in the coming years. The industry believes the objective of these discussions should contribute to efficient, integrated, and globally competitive EU financial markets.
The industry concerns focus on three particular areas. When it comes to equity markets, it fears that companies may decide to continue taking their initial public offerings outside the EU, or to move their listings elsewhere, in order to seek better valuations.
“EU equity markets cannot continue to lag behind their peers. In making rules, policy makers must consider in particular the impact that such rules will have on market liquidity, which is a key consideration for companies seeking better valuations to finance their investments,” they said.
Consolidated tape
They also warned that the Mifid review needs to make sure that a consolidated tape can succeed by including “5 levels of real-time pre-trade data” and that it needs to be “reasonably” priced. “Or it will be useless for the potential consumers of such data, and not commercially viable for its operator. EU policy makers already failed to effectively deliver the consolidated tape once, in 2018.”
Afme, Efama and BVI urged the co-legislators “not to be complacent by conceding to the loudest voices of established interest parties, and to rise to the challenge of delivering efficient, more integrated, and globally competitive EU equity markets”.
Regarding fixed income markets the industry asked the policymakers “not to undermine the future viability” of bond markets by adding legislation that will fail to deliver a well-calibrated transparency framework and that will disregard the evolution of regulation outside the EU.
The industry groups also insisted that data pricing should not be based on a value-based pricing model, something that is still enabled by the current version of teh compromise between the co-legislators.