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04 November 2010

CESR releases notes on Market Participants Consultative Panel meeting


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At the last MPCP meeting, issues such as general overview of financial markets, Transparency Directive, retailisation and market infrastructure were discussed.


 The following issues were discussed:

• General overview of financial markets: Market Participants Consultative Panel (MPCP) members continue to be concerned about the situation in credit markets and consider that financial markets will need to compensate for the reduced lending activity in the banking system. In contrast to large corporates which have access to direct finance, SMEs, which have a key role in economic growth, are likely to be constrained in their funding. It was highlighted that, concerning the corporate bond market, there is a range of practices across Europe and that regulatory initiatives enhancing transparency would be welcome in this area to support the increased need for direct finance. Concerning CDS markets, it was stressed that, had fully fledged sovereign CDS markets existed before the debt crisis in Europe, the crisis would probably not have taken place because of the early warning function of CDS spreads. It was moreover pointed out that the role of high frequency trading (HFT) in the flash crash of 6 May 2010 is yet unclear and that regulators in Europe should have tools in place in order to enable them to know the nature of supervised entities.
• Concerning the European Commission’s review of the Transparency Directive (TD), five issues were highlighted: 1) the extension to MTFs, whereas some MPCP members were in favor of such a measure in order to ensure a level playing field, while others argued that this would not solve the problem, and still others favored a threshold solution; 2) the dissemination of regulated information, where there was no agreement about the extent to which the absence of transmission by supervisors does or does not generate a “black hole problem” (as small companies have difficulties to convey their information to the market in a visible way) – an additional transmission channel through supervisors was nevertheless generally considered to be positive; 3) the modification of the notification thresholds, where some MPCP members favored harmonization, which should, however, take account of specificities by prescribing thresholds in terms of percentages rather than an absolute figure; 4) the trading book exemption, where MPCP members agreed with the position of CESR and asked for further clarification of the Directive; 5) empty voting, where some MPCP members stressed the serious nature of this problem and rejected any complacent attitude regarding this issue.
• “Retailisation”, i.e. the marketing of complex products to retail investors, was considered inevitable by MPCP members, but it was also clearly recognised that the products often are not fully understood (either by retail investors or sellers), conflicts of interests are real, and the potential for mis-selling is a key problem in this respect. The PRIPS initiative (Packaged Retail Investor Products), which has the aim of producing a template on product information for a wide range of products, is considered as promising. Transparency of fees should moreover be substantially increased. It was also proposed that the ability to sell complex products could be made conditional on the proven proper understanding of the nature of this kind of product. An alternative suggested would be product regulation with minimum standards. Also, a more harmonised approach focusing on best practices in terms of sanctioning regimes across Europe is needed.
• Market infrastructure issues were discussed on the basis of the White Paper published by the ICMA’s European Repo Council, which stressed that there is no evidence of abusive behavior with respect to short selling, there are unresolved clearing and settlement issues in a number of markets which continue to create difficulties in the settlement of bilateral trades and also for electronically originated as well as centrally cleared trades in certain jurisdictions, there is an urgent need for action to remove the barriers to the efficient cross-border transfer of securities posed by the settlement infrastructure, and further progress in the clearing and settlement area is needed through regulatory initiatives like EMIR, as proposed by the EU Commission. Furthermore, it was indicated that ERC’s last survey of the European repo market has shown that the market is back to pre-crisis levels. Ten firms accounted for over 68% of the total repo business and there is a broad underlying shift towards greater use of CCPs. The MPCP stressed the need to address CSD issues in a common framework across the EU, keeping in mind that there is a risk that mandatory CCP clearing which is too strict will diminish financial innovation, and that the right balance between an OTC market and CCPs needs to be achieved. Still open questions refer, for instance, to ownership, governance, risk concentration, and the nature of the platform. The debate in the U.S. on CCPs was presented as being very much driven by business opportunity considerations.
• Concerning the CESR/ESMA Work Programme 2011, comments made concerned the AIFMD, which was considered as a missed opportunity to build a single market for alternative investments.

The next MPCP meeting is scheduled for the afternoon of the 15th December 2010.

Press release




© CESR - Committee of European Securities Regulators


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