The FIA European Principal Traders Association (FIA EPTA) appreciates the opportunity to provide feedback to the European Commission Public consultation on a retail investment strategy for Europe. The FIA European Principal Traders Association (FIA EPTA) appreciates the opportunity to provide feedback to the European Commission Public consultation on a retail investment strategy for Europe.
FIA EPTA members believe that the current retail investor protection framework is an important tool to ensure retail participation in capital markets. However, an update is necessary. Over the past years, retail participation on lit markets has gone down, and the ways in which retail investors participate in the markets has changed. New technologies and platforms have emerged and are rapidly changing how retail investors interact with the market. The Platforms are a great way to promote retail participation, however, they also create new challenges concerning investor protection. FIA EPTA members believe that the principles of transparency and the promotion of fair competition should always be at the core of any retail strategy. Keeping these two principles in mind, we suggest that the European Commission focusses on several key issues:
- Best execution – The current best execution framework needs to be updated. The definition and criteria around best execution are overly complex for retail investors. This lack of transparency has allowed certain brokers to abuse PFOF and route orders to singular entities regardless of the quality of execution. Simplification of what constitutes ‘best execution’ for retail order should be centred around price, speed and likelihood of execution. FIA EPTA Members see the recent statement published by ESMA as a step in the right direction.
- Addressing complexity of products – Less complex products suitable for retail investors exist in different areas, such as UCITS and certain Exchange Traded Funds (ETFs) and have been set as the default option of PEPP. However, retail investors can also invest in more complex products. FIA EPTA members believe that the trade-offs when trading these products should be clear. Measures should be introduced to encourage and highlight the benefits of exchange-listed products. FIA EPTA members believe that products that meet these requirements i.e. simpler investment products, that are traded on a regulated market such as equities, futures, and options versus products that are traded bilaterally between the issuer and retail investor without any competition for the order as with CFD’s Turbos and warrants. Furthermore, investor education and a clear distinction between retail investors, semi-professional investors and professional investors are important aspects to address investment risk.
- Sustainability – Retail investors can be an important factor in increasing the demand for sustainable products. However, currently, it is hard to verify if an investment is sustainable or not. This is partly due to the large variety of ESG ratings available. This makes comparing between ratings very difficult, and this might thus lead to greenwashing or retail investors hesitating to enter the market. Standardisation and transparency of financial products are key for citizens to make an informed decision.
- FIA EPTA
- Market Structure
- Position Papers