Economic growth and security require a true EU Single Capital Market, underpinned by strong liquidity provision: FIA EPTA’s input to the European Commission Call for Evidence on the Savings and Investment Union
FIA EPTA strongly supports the European Commission’s objectives for the Savings and Investment Union as a critical foundation for a safe, prosperous and green future for EU citizens.
The need for mobilising private capital is crystal clear: securing Europe’s defence capacity, digitis-ing the economy, and transitioning to a climate-neutral continent will all require significant capital investment. Vibrant, resilient and competitive capital markets will be essential for the EU to se-cure the necessary growth and economic security for its citizens.
In this regard, we strongly agree with the Commission’s key message in its recent Communication on A Competitiveness Compass for the EU, that “The EU must integrate and have deeper and more liquid capital markets as a necessary step to mobilise private sector resources and direct them towards future oriented growth sectors.” A critical component for achieving these objectives will be for the Com-mission’s SIU action plan to take into account the critical role of liquidity provision by Principal Trading Firms for the success of EU capital markets.
It is from this standpoint that FIA EPTA – representing the leading firms providing liquidity to Eu-ropean end-investors and markets – suggests three main areas of reform to invigorate EU capital markets:
1. Strengthening the single market for capital by advancing supervisory convergence and making targeted progress toward a more integrated and interoperable market structure supported by more efficient supervisory arrangements, including targeted and realistic steps toward more centralised supervision;
2. Enhancing the attractiveness and global competitiveness of EU markets by setting clear competitiveness objectives, fostering greater competition, streamlining regulatory pro-cesses, and simplifying regulatory regimes;
3. Unlocking additional liquidity by implementing targeted regulatory reforms to ensure proportionate prudential requirements for investment firms and apply robust transparen-cy regimes to support competition and healthy price formation. Additionally, more incom-ing global investment should be encouraged by strengthening regulatory coordination and cooperation across the entire European trading region.
Currently, European markets face a significant liquidity shortfall compared to other regions. No-tably, the EU is underperforming relative to the US and is increasingly falling behind other global markets. As the industry association representing Europe’s independent market makers who pro-
vide liquidity to European end-investors and markets, FIA EPTA is strongly committed to reversing this trend. Principal Trading Firms play a crucial role in strong and resilient capital markets by providing liquidity, facilitating price discovery and enabling risk management for investors.
As the most urgent action to unlock additional liquidity provision in EU capital markets, targeted improvements are needed to the prudential rules for investment firms (IFR/IFD). Currently, the EU uniquely imposes comprehensive, bank-like prudential requirements on investment firms, putting itself at a competitive disadvantage compared to other major global capital markets centers. IFR/IFD unduly limit the ability of Principal Trading Firms to provide optimal liquidity, not least during periods of market volatility. Consequently, the IFR/IFD framework impedes the develop-ment of EU capital markets. For this reason, FIA EPTA strongly advocates for a targeted, but meaningful, legislative Review of IFR/IFD as a key building block for the Commission’s SIU action plan.
We provide our further recommendations for competitive EU capital markets underpinned by strong liquidity provision in FIA EPTA’s Manifesto: Tide of Change: Enhancing Liquidity Provision to the European Economy