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

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

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LONDON, Nov. 25 (Reuters) – The European Union has moved one step closer to its vision of creating a single bloc-wide capital market, a slow process that further degrades Britain’s status as a European investment banker.

The bloc first embarked on an ambitious – but arduous – process to eventually create a single EU securities market by 2015.

Creating a single market should make it easier for companies to issue bonds and equities, allowing them to spread risk and become less dependent on bank loans alone for funding – the risks of which were highlighted during the eurozone crisis.

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On Thursday, the EU made proposals to introduce a single ‘consolidated’ set of prices for stocks and bonds listed across the EU and a single corporate information portal – akin to Wall Street’s Edgar system – analysts say the view will gain more traction. read more

“Those two for me are key to building the whole CMU (Capital Markets Union) effort and when it’s there, you’re going to see a real push to take it further. Forward and higher,” said Mairead McGuinness, head of financial services of the EU.

Initial plans for a capital markets union were made with much fanfare in 2015 by McGuinness’s then British predecessor, Jonathan Hill, with the promise that the building blocks would be there in 2019.

Follow-up measures two years later raised further expectations, but an EU official acknowledged that the perception persists that CMU is an ‘elusive’ target.

“Perhaps the mistake of the original version of the capital markets union was that it gave the impression that the CMU was a legislative project that could be ‘completed’ by passing lots of new regulations,” said William Wright, head of New Financial, a London think tank. who conducts research on European capital markets.

“The current version may look less ambitious, but it has a more practical and tangible approach,” Wright said.

The EU’s capital market is still just over a quarter as deep as the United States’ relative to GDP, with Britain’s twice as deep as the bloc, according to figures from New Financial.

Sander Schol, a former banker and head of EU public affairs at consultants Hanbury Strategy, said the less controversial CMU measures have been approved earlier and Brussels’ latest proposals address more difficult issues, although rules on even more difficult issues are crucial. such as harmonization of insolvency rules are still lacking.

This time, the EU executive, the European Commission, has proposed more thorny steps to tie national markets together by creating an EU tape of record of stock and bond trading by 2024.

It is also proposed to create a single EU entry point for information on publicly traded companies that mirrors the ‘Edgar’ filing system on Wall Street.

But much tougher reforms such as harmonizing settlement, investment taxes and accounting will need to be tackled to create a truly seamless EU securities market like in the United States, Schol and others said.

“Market participants have asked for harmonization of resolution and insolvency laws, but member states, for example, don’t want to change insolvency rules because if you start tinkering with that, you have to change the legal bases of each country,” Schol said.


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

Britain’s departure has shown Brussels that the bloc’s markets can largely stand on their own two feet after billions of euros worth of daily trading in equities, interest rate swaps and EU allowances left London for Amsterdam without market disruption.

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

There have been 108 exchanges on the London Stock Exchange that raised £16.1 billion ($21.47 billion), though London knows how to chase New York, which has raised $128 billion this year.

London is expected to remain the main financial center of Europe in the coming years and the EU still relies on London to settle interest rate swaps worth trillions of euros, but here too Brussels is determined to reduce dependence in the coming years.

“One way to think about CMU is as a multi-decade process where the important foundations are laid in five to 10 years and then built over the next 10 to 20 years: The United States has a 150-year lead. years and still don’t have a full ‘CMU’,” Wright said.

In reality, CMU would never happen overnight and the work remains in progress, McGuinness said, marking all of its next set of measures expected next year, including simplifying listing rules, making cross-border payments more efficient. and finally, the pursuit of harmonization of aspects of insolvency laws.

New Financial Global CMU Image

($1 = 0.8928 euros)

($1 = 0.7497 pounds)

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Reporting by Huw Jones; Editing by Susan Fenton

Our Standards: The Thomson Reuters Trust Principles.


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