The trade associations – namely, the Association for Financial Markets in Europe (AFME), BVI (German Investment Funds Association), Bundesverband der Wertpapierfirmen (bwf), the European Fund and Asset Management Association (EFAMA) and the International Capital Markets Association (ICMA) – have released a joint statement on behalf of their members active in the EU bond markets, including the sell-side, buy-side, and financial market infrastructures.

The associations noted that distinguishing between investment grade (IG) and high-yield (HY) corporate bonds is a key component to tap into greater transparency in more liquid bonds, while ensuring protection for those bonds.

Particularly, as overly prompt dissemination of trade information could lead to a negative impact on market liquidity.

“Having a distinction between IG/HY corporate bonds allows for more tailored transparency levels for instruments with different price volatility profiles,” the trade associations said in their joint statement.

The associations highlighted sophisticated bond markets outside of the EU for calibrating transparency for corporate bonds according to the credit rating of the issuer, adding that “not adopting a similar methodology would put EU corporate bond markets at a disadvantage globally.”

As a result, policy makers have been urged to ensure that the European Union will maintain its competitiveness in the global fixed income markets, alongside preserving and potentially expanding existing liquidity in EU bond markets, which in turn will continue to ensure issuers have an effective way to finance their investment needs.

“It is clear that there are precedents for using credit ratings, not just across jurisdictions but also under other EU regulations,” added the trade associations.

Credit ratings, which has been a criterion used by TRACE in the US for years, as well as the more recent UK adoption of credit ratings through the FCA, were noted by AFME as an approach that can “provide sufficient reassurance for regulators in the EU as well […] and can help achieve the goal of competitiveness of EU capital markets with other leading global financial centres.”

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Ahead of the next set of Trilogue negotiations which are set to take place next week, the Association for Financial Markets in Europe (AFME), the European Fund and Asset Management Association (EFAMA) and the German Investment Funds Association (BVI) have released a joint statement urging co-legislators to take an evidence-based, ambitious approach, even if ultimately it results in a longer time frame to complete the negotiations.

The Mifid/r review forms a key base for the completion of a Capital Markets Union (CMU) that works for investors and issuers, a necessary element to ensure that EU capital markets across asset classes are more integrated and competitive globally.

With respect to equity markets, AFME, EFAMA and BVI highlight that EU companies are continuing to take their initial public offerings (IPOs) outside of the EU or move their listings elsewhere to seek better valuations – emphasising that 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,” said the three trade associations in a joint statement.

Investors, banks and additional market participants have already been clear that a consolidated tape for equities should include five levels of real-time pre-trade data, while also being priced reasonable in order to succeed – otherwise, it would not be beneficial for consumers of such data and not commercially viable for its operator.

Read more: A regulatory backtrack on pre-trade data for EU consolidated tape would not be ‘commercially viable’, says EU asset managers

“EU policy makers already failed to effectively deliver the consolidated tape once, in 2018,” noted the trade associations.  

“We therefore urge the co-legislators and the Commission 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.”

The trade associations also emphasised that fixed income markets that are liquid and attractive globally are a key component of establishing a successful CMU.

Read more: Ongoing Mifir Review and regulatory complexity is harming liquidity in Europe, says AFME

“We urge policy makers not to undermine the future viability of EU corporate and sovereign bond markets by enshrining in legislation requirements that fail to deliver a well-calibrated transparency framework that protects investors and fails to address the challenges arising from future evolutions in the regulatory environment outside the EU,” added the three trade associations.

When reviewing the EU framework for bond deferrals, the trade associations urge policy makers to consider the detrimental impact that new rule could potentially have on market liquidity, which they claim have not been discussed or demonstrated. The trade associations stated that the current calibration ignores the fact that price and volume deferrals should be aligned, especially for the larger, less liquid trades.

Elsewhere, the trade associations welcomed efforts to strengthen the protection of data users through making it clear that prices of market data should be based on cost of production and through the recognition that market data is a by-product of trading.

“We, [however], note that the proposed compromise still allows for the practice of charging for data based on the value it brings to the user (so called value-based pricing). Value-based pricing should be disallowed to achieve better outcomes for investors and the general public,” concluded the trio.

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“The education development process of trading staff and supporting functions is essential in today’s marketplace,” said Plato Partnership CEO Mike Bellaro. “This Trading Certification Programme is designed to help participants have a better understanding of the complex trading ecosystem that exists today. This will help in allowing staff to make more informed trading decisions, improving implementation, and raising the bar on the governance process.”

The programme is expected to roll out regionally, with Germany as the first market. Starting in November 2022 and taught by Dr Gomber, the course will be held at the BVI offices in Frankfurt and cover market models in electronic financial markets, algorithmic and high frequency trading, current and upcoming regulatory trends and initiatives, dark pools, the interaction between buy-side and sell-side institutions, liquidity measurement and transaction cost analysis, best execution, trading simulations, empirical market microstructure.

BVI’s 116 members represent €4 trillion and account for 95% of the German market. The association has been working with Plato Partnership since its launch in 2016.

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Following a working group meeting of the Council of Ministers on 24 May, Cboe and industry associations AFME, the European Fund and Asset Management Association (EFAMA) and German funds association BVI have published their position on plans for a tape: including their preference for a single pre-trade real-time tape provider and a recommendation for mandatory contributions.

The firms said the intention was to “demonstrate a consensus” among data consumers.

“There are no technical barriers to the introduction of a real-time pre-trade consolidated tape. There are only commercial ones. The tape poses no threat to the revenue of smaller exchanges. Only a real-time pre-trade tape is going to enhance and strengthen the European markets,” Cboe Europe’s head of European equities Natan Tiefenbrun told The TRADE.

“Implementing either a post-trade or delayed tape first is not a stepping stone to progress as these options would be a commercial failure. The chances that you then get to build on that and create a pre-trade tape is slim because there is no success to build on. Those are not compromises, those are traps.”

The position also sets out that the revenue model should include all contributors as opposed to just the incumbent exchanges, an issue that has been heavily contested by various participants since the original proposal put forward in November.

There has been a renewed push from France in recent weeks to reach a conclusion around consolidated tape proposals under its presidency of the European Council, which is due to finish at the end of June, The TRADE understands. In the meeting of the working group on 24 May, it reportedly put forward plans for a real-time pre-trade tape with a revenue allocation model that rewards all contributors.

However, other nations have relayed their concerns around the implementation of a consolidated data source, in particular the German finance ministry which, according to sources familiar with the matter, led the opposition to a European tape during the most recent working group meeting due to concerns around payment for order flow and in a bid to protect the interests of Deutsche Börse.

Deutsche Börse had not responded to a request for comment at the time of going to press.

As the EU framework allows larger member states to veto plans, if Germany were to oppose plans for a tape it could significantly delay or even throw out the plans all together.

Last week’s meeting was the first of several, and member states are expected to give written feedback to the French proposals discussed on 24 May in the coming weeks. Members of the European parliament are also expected to publish their report on the parliamentary side in the coming months. The council, parliament and the European Commission will then meet for the trialogue period at some point towards the end of this year – in a best-case scenario.

“If the interests of investors and the interests of large exchanges diverge which, appears to be the case around this topic, then surely in these circumstances it’s the responsibility of policy makers to put the investors first – including by strengthening the competition to meet their needs,” Tiefenbrun added.

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