The EU urgently needs to bolster its capital markets to achieve its strategic objectives for a safe, green and prosperous future for its citizens.
This is the view from the EU Principal Traders Association (FIA EPTA), which released its policy recommendations for the incoming European Commission, arguing that the Union’s capital markets “are not yet fully positioned to fulfil their essential function”.
Piebe Teeboom, Secretary General of the FIA EPTA, says: “Rightly, the focus for building a Savings and Investment Union is on invigorating the capital-raising function of the financial system. To do so, the EU must become a more attractive destination for companies to grow.”
He continues: “A more dynamic primary listing market, where innovative, world-class companies can secure private capital through Initial Public Offerings (IPOs) and bond issuance, will be key.”
But he adds that thriving EU primary markets require “vibrant EU secondary markets” which provide suitable liquidity; something Teeboom argues is lacking in the European capital markets.
To enhance the flow of capital into the European economy, it is crucial to have markets with deep and diverse liquidity.
He says: “The EU faces a significant liquidity shortfall compared to other regions, with reported average daily volumes stagnating. Notably, the EU is underperforming relative to the US and is increasingly falling behind other global markets. This perception contributes to declining capital allocation towards European markets and the migration of share listings elsewhere.”
Teeboom argues that “bold and comprehensive policy action is needed” if the EU is to “grasp the clear opportunities” the Association envisages for EU capital markets to take on a leading global position.
He says: “European capital markets must be built out on a foundation of strong liquidity provision. As the industry association representing Europe’s independent market makers who provide liquidity to European end-investors and markets, FIA EPTA is strongly committed to reversing this liquidity shortfall.”
The Association makes three policy recommendations which it believes will foster greater economic security in Europe.
First, strengthening the single market for capital by advancing supervisory convergence and making progress toward more centralised supervision.
Second, enhance the attractiveness and global competitiveness of EU markets by setting clear competitiveness objectives, fostering greater competition, streamlining regulatory processes and simplifying regulatory regimes.
Finally, unlock additional liquidity by implementing targeted regulatory reforms to ensure proportionate prudential requirements for investment firms and apply robust transparency regimes to support competition and healthy price formation. Additionally, more incoming global investment should be encouraged by strengthening regulatory coordination and cooperation across the entire European trading region.
Teeboom also calls for greater regulatory coordination across the entire European trading region.
He says since global investors view the EU/EEA, the UK and Switzerland as a single capital market and trading destination, it makes sense to align regulatory frameworks.
“Given their shared values and common strategic interests, including the need for resilient capital markets in the face of geopolitical risks, increased coordination and cooperation is essential. By enhancing coordination and cooperation, the European region as a whole can become a more attractive and successful destination for global capital, leading to deeper and more vibrant markets,” Teeboom says.
