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EU Revives Capital Markets Union

Daiga Auziņa-Melalksne, chief executive of Nasdaq Riga and head of Nasdaq Baltic Markets, said the European Commission should focus on smaller companies as it looks to reform the region’s capital markets.

The European Commission’s High Level Forum on the Capital Markets Union published its final report this week.

Auziņa-Melalksne told Markets Media that she applied to be one of the 28 members of the forum in October and represent the Baltic and Nordic markets.

“Equity markets are developing in the Baltics and I wanted to provide a smaller company perspective,” she added. “Every unicorn started as a small or medium-sized enterprise so it is important they are attracted to public markets.”

The report includes 17 recommendations that aim to develop a more vibrant and long-term equity market, and noted this is needed more than ever for future recovery after the Covid-19 crisis.

The conclusion said: “Taken together, the measures, which are proposed, will lead to national capital markets that are better integrated, that are larger, more efficient, and better positioned for the future.”

Daiga Auzina-Melalksne, Nasdaq

Auziņa-Melalksne highlighted the recommendation that the European Union create a public-private fund to back initial public offerings to support specialist financial intermediaries targeting pre-IPO and/or public equity market investments as investors usually prefer to fund larger companies.

“Such financial intermediaries can substantially support IPO fundraisings as well as subsequent secondary capital raisings, by acting as an “anchor investor” to take a material allocation of the shares issued, providing a strong signalling effect to other potential investors,” said the report. “An anchor investor can be particularly beneficial where the investment hypothesis includes technology components or life science companies requiring a strong domain knowledge.”

She also pointed to the need to reduce the burden of regulation for SMEs.

“Transparency is important but the prospectuses have too many disclosures which are not relevant for SMEs or retail investors,” added Auziņa-Melalksne. “Regulation increases the cost of coming to market and the number of IPOs is decreasing.”

The report also recommends that SME research should be removed from the MIiFID II unbundling requirements, which prohibits reproach payments being bundled together with trading commissions. Auziņa-Melalksne said: “Research on SMEs is non-existent.”

The European Union launched the plan for the Capital Markets Union in 2015 in order to remove the national barriers that prevent cross-border savings, investments and capital raising, and to reduce the reliance on bank loans, but little has happened

“The report has made concrete recommendations and we need the EU and national governments to commit to creating vibrant European capital markets,” added Auzina-Melalksne.


The Association for Financial Markets in Europe:

Pablo Portugal, managing director at AFME, said in a blog:

“The importance of the CMU project has never been more obvious,” he added. “Some topics will require further assessment and discussion. For example, while promoting equity research coverage on SMEs is a very legitimate aim, creating a bespoke treatment for SMEs with exemptions from the MiFID II unbundling rules could lead to further regulatory complexity and other drawbacks.”

Portugal continued that the upcoming reviews of key legislations – MiFID/R, CSDR, Solvency 2, the Securitisation Regulation and the bank prudential framework, among others – must be pursued with a focus on the CMU.

He noted there is long history of European initiatives which have aimed to tackle fragmentation in taxation regimes, insolvency procedures and legal definitions but progress has been slow due to divergent national laws and legal systems.

“Yet such legal frameworks are fundamental in underpinning the functioning of capital markets and building a true CMU,” he added. “One can only hope that member states will find the willingness to implement the HLF’s recommendations to overcome deep-seated inefficiencies and legal impediments to capital market integration.”

European Fund and Asset Management Association:

EFAMA said in a statement: “On a more critical note, we are disappointed to see that the report does not refer, even incidentally, to the increasingly important issue of data costs. This constitutes a clear impediment to the effective functioning of CMU that needs to be addressed head-on through decisive actions from policymakers and supervisors.”

David Howson, president of Cboe Europe:

Howson said in a statement: “We have long advocated a European consolidated tape to encourage a more competitive market for data services, support new trading venues and innovation by giving all platforms a shop window for their services, and making data more accessible to a much wider range of investors, particularly retail.”

Virginie O’Shea, founder of Firebrand Research:

International Capital Market Association:

ICMA said in a statement: “ICMA also notes that the further development of the CMU is an opportunity to re-consider any remaining examples of national rules within the EU which hinder the efficiency of cross-border capital markets.”

Deutsche Börse Group:

The Investment Association: