Analysis: EU adds more pieces to its ‘elusive’ capital market puzzle

The DAX chart of the German stock index is pictured on the stock exchange in Frankfurt, Germany on November 9, 2020. REUTERS / Staff / File Photo

LONDON, Nov. 25 (Reuters) – The European Union has moved closer to its vision of creating a single capital market across the bloc, a slow process but one which further undermines Britain’s status as a banker of the investment from Europe.

The bloc first embarked on an ambitious – but torturous – process to finally create a single EU securities market in 2015.

The creation of a single market should facilitate the issuance of bonds and shares by companies, allowing them to spread the risks and to depend less on bank loans alone to finance themselves – the risks of which were highlighted during of the eurozone crisis.

On Thursday, the EU presented proposals to introduce a single set of ‘consolidated’ prices for stocks and bonds listed in the EU and a single portal for company information – similar to Wall Street’s Edgar system – analysts say the vision will gain popularity. Read more

“These two for me are essential to setting up the whole CMU (Capital Markets Union) effort and when that is in place you will see a real push to move it forward. up, “said Mairead McGuinness, EU chief financial officer.

Initial plans for a capital markets union were presented in 2015 by McGuinness’s British predecessor Jonathan Hill with great fanfare, promising that the building blocks would be in place by 2019.

Follow-up actions, two years later, have raised expectations further, but an EU official admitted that there remains a perception that the CMU is an “elusive” goal.

“Perhaps the mistake of the original version of the Capital Markets Union was that it gave the impression that CMU was a legislative project that could be ‘completed’ by passing many new regulations,” he said. said William Wright, director of New Financial, a London agency. think tank based on research on European capital markets.

“The current version may seem less ambitious but takes a more practical and tangible approach,” Wright said.

The EU’s capital market is still just over a quarter as deep as that of the US, relative to GDP, with Britain twice as deep as the bloc, New Financial figures show .

Sander Schol, a former banker who heads EU public affairs at consultants Hanbury Strategy, said the less controversial CMU measures had previously been approved and that the latest proposals from Brussels address more difficult issues, although rules on even more difficult matters that are crucial, such as the harmonization of insolvency rules, are still lacking.

This time around, the EU executive, the European Commission, has proposed more thorny steps to knit national markets together by creating a band or record of EU stock and bond transactions. ‘by 2024, a step that the stock markets will press to mitigate.

A single EU access point for information on listed companies to mirror the “Edgar” filing system on Wall Street is also offered.

But much more stringent reforms like regulatory harmonization, investment taxes and accounting will need to be addressed to create a truly seamless EU securities market like in the US, said Schol and others. .

“Market players have called for harmonization of settlement and insolvency laws, but member states don’t want to change insolvency rules, for example, because if you start changing them, you have to change the fundamentals legal requirements of each country, ”said Schol.

STRATEGIC AUTONOMY

Brexit, the recovery from COVID-19 and the need for massive investments to tackle climate change have added a sense of urgency to the CMU that was lacking six years ago as Brussels seeks to build “strategic autonomy “in sectors like finance.

Britain’s exit showed Brussels that the bloc’s markets can largely stand on their own feet after billions of euros in daily stock exchanges, interest rate swaps and EU emission allowances left London for Amsterdam without market disruption.

Previously a relatively small financial center, the Dutch capital became Europe’s largest equity trading hub immediately after Brexit, although London is now pretty much neck and neck. Amsterdam has also attracted 22 public floats and private placements so far this year, raising € 10.7 billion ($ 11.99 billion).

There have been 108 floats on the London Stock Exchange, which have raised £ 16.1 billion ($ 21.47 billion), although London knows it is behind New York, which has raised $ 128 billion this year.

London is expected to remain Europe’s leading financial center for years to come and the EU still relies on London for clearing trillions of euros worth of interest rate swaps, but here too Brussels is determined to reduce her addiction in the years to come.

“One way of thinking about CMU is like a decades-long process of laying the important foundation over five to 10 years, then building it over the next 10 to 20 years: the United States is ahead of the game. 150 years old and still don’t have a full “CMU”, said Wright.

In reality, CMU was never going to happen overnight and remains a work in progress, said McGuinness, already signaling his next batch of measures planned for next year to include simplifying listing rules, making payments cross-border more efficient and finally seek to harmonize aspects of insolvency laws.

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Reporting by Huw Jones; Editing by Susan Fenton

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