The Association for Financial Markets in Europe’s (AFME) Equity Capital Markets Division and the European Association for Independent Research Providers (Euro IRP) have today published guidance for unconnected analysts (i.e. those not employed by the underwriting syndicate) seeking to access information about prospective issuers under the UK Financial Conduct Authority’s (FCA) new rules governing initial public offerings (IPOs), which came into force on 1 July 2018. The AFME/Euro IRP guidance sets out a process by which syndicate banks can facilitate access for unconnected analysts to prospective issuers and contains guidelines which those unconnected analysts gaining access to companies undertaking an IPO are expected to sign. Under the new rules (as set out in FCA policy statement PS 17/23) relating to the UK IPO process, unconnected analysts must now be provided with access to company information and to the management team of the share issuer (if such access has been provided to connected analysts) before connected analysts (i.e. those employed by or connected to the underwriting bank syndicate) publish their own research. In line with the FCA’s aim, the AFME/Euro IRP guidance therefore seeks to ensure that assistance is given to market participants following the introduction of the new rules. Andrew Brooke, Director of AFME’s Equity Capital Markets Division, said: “This guidance should provide potential investors, prospective issuers, banks and analysts with clarity regarding the process by which research on prospective issuers is made available in UK IPO transactions. This will help to facilitate the efficient and coordinated execution of UK IPOs.” Chris Deavin, Chairman of Euro IRP, said “These are important FCA reforms to the UK IPO process, which ensure for the first time, independent IPO research can be produced without barriers, and provide essential quality analysis at the right time to potential investors. This guidance defines the clear practical steps by which this will happen and should help market participants work in a UK IPO process that serves both investors and issuers.” Benefits of the AFME/Euro IRP guidance: Private companies, unconnected analysts and investors all stand to benefit from the clarity provided by the guidance. It should help provide clear and coordinated implementation of the new rules regarding unconnected analysts’ access to prospective issuers. Private companies will benefit from better prepared and well-executed IPOs. Investors/market participants will be provided with information about prospective issuers/IPOs from more sources and at an earlier point in the process. Unconnected analysts will have clarity on how to access private companies/prospective issuers. The full guidance can be found here.

Following the publication of the UK Government’s White Paper on the future relationship between the United Kingdom and the European Union, Simon Lewis, Chief Executive of AFME, said: "We welcome today’s publication of the White Paper providing further clarity and detail on the UK government’s position. We hope that this will form the basis for negotiations to progress, recognising the importance of minimising fragmentation, maintaining financial stability and close supervisory cooperation. “It is now crucial that the progress is made as quickly as possible. Businesses require certainty of a transition period and direction on the future trading relationship to minimise disruption to clients." – Ends –

Following the UK government’s announcement yesterday on its proposed approach to Brexit, Simon Lewis, Chief Executive of AFME, said: “We welcome yesterday’s announcement and look forward to seeing the detail in the White Paper, including in relation to services. Businesses continue to face considerable uncertainty about the framework that will apply less than 8 months away. It is now vital for the negotiations to make progress to provide certainty of a transition period and direction on the future trading relationship. Banks are continuing to implement their contingency plans to minimise disruption to clients, but It is crucial that the concerns voiced by the industry around contractual continuity, access to market infrastructure and transfers of data are addressed, to ensure an orderly withdrawal process whatever the outcome of the negotiations.” Ends

Following the European Council meeting today and discussions on the Banking Union, Simon Lewis, Chief Executive of AFME, said:“As a strong supporter of Banking Union, AFME welcomes the good progress made towards completing this important project. We are encouraged by the European Council agreement today to create a common backstop to the Single Resolution Fund and the commitment to further work in support of political negotiations on the European Deposit Insurance Scheme.”AFME feels a great deal has already been achieved towards the reduction of risk which is a prerequisite for the completion of Banking Union. And by the end of this year we hope to see the Risk Reduction package finalised and progress made on the proposals for a European Deposit Insurance Scheme. It is important that this package helps remove the significant impediments to the efficient internal capital, MREL and liquidity allocation within cross-border banks in order to counteract the trend towards market fragmentation and brittle markets in the Union.In addition, AFME hopes to see good progress made on the NPL action plan, as well as the Commission’s Directive on a preventive restructuring framework, second chance and insolvency procedures. We also encourage further consideration of the framework for the provision of liquidity to firms in resolution. Taken together, the effective implementation of all the above measures should help deliver lower risk and well-functioning capital markets which need to go hand in hand with risk-sharing measures in Europe, if we are to achieve a fully-fledged Banking Union.– Ends –

AFME, ICMA, ISDA, SIFMA and SIFMA AMGPublish Global Benchmark Report Download report here. 25 June 2018 – The Association of Financial Markets in Europe (AFME), International Capital Market Association (ICMA), International Swaps and Derivatives Association, Inc. (ISDA), and the Securities Industry and Financial Markets Association (SIFMA) and its asset management group (SIFMA AMG) have published a new report that assesses the issues involved with benchmark reform, and makes recommendations on steps firms can take to prepare for the transition from interbank offered rates (IBORs) to alternative risk-free rates (RFRs). The report, which was based on a survey of 150 banks, end users, infrastructures and law firms in 24 countries, shows that: There is a gap between high levels of awareness of benchmark reform and concrete steps being taken to transition from the IBORs to alternative RFRs. Several key issues are identified as being important for a successful and orderly transition, including the need for market participants to develop new cash products and liquidity in derivatives and futures referencing the RFRs. Corporate and financial end users believe a forward-looking term structure for the RFRs is necessary. There is an appetite for regular, globally coordinated information from the RFR public-/private-sector working groups, as well as further clarity on the preferred end state for each IBOR. “This is a timely report. In Europe, there are €1.2 trillion of outstanding securitizations, many of which are linked to an IBOR and will revert to a fixed rate if this IBOR ceases to exist before the maturity of the bond, causing significant changes to future cash flows. To avoid this and ensure that the transition to new risk-free rates is smooth and minimizes disruption for market participants, we need to ensure we are actively engaged with authorities, trade associations and our members to raise awareness and work towards solutions,” said Simon Lewis, AFME Chief Executive. “This comprehensive global benchmark survey is an important step forward in raising the level of awareness in international financial markets about the transition to risk-free rates. It provides a helpful assessment of the challenges faced by market participants as they deal with this fundamental change to market structure,” said Martin Scheck, ICMA Chief Executive. “The transition from the IBORs to alternative RFRs will have an impact across financial markets – from derivatives to bonds to mortgages. It’s vital that firms commit resources and begin their transition planning initiatives. Our report sets out a number of steps that institutions can take to prepare. Given the scale of the task, this implementation checklist should be adopted now,” said Scott O’Malia, ISDA’s Chief Executive. “We need to prepare the market to transition away from reliance on LIBOR, and to ensure that both the cash and derivatives markets remain liquid and resilient when there is a move to new reference rates. By laying the foundation now, through efforts such as the Transition Roadmap published earlier this year and the survey that is the basis for today’s report, along with participation with the Alternative Reference Rates Committee (ARRC), we are working to raise awareness, identify exposures and prepare for a smooth transition,” said Kenneth E. Bentsen, Jr., SIFMA president and CEO. “SIFMA and SIFMA AMG agree it is crucial to try to strive for consistency across geographical regions, product segments and market participants to both avoid fragmentation in global markets and permit the most effective risk management. Benchmark Transition Awareness and Preparation Awareness of benchmark transition issues is relatively high, with 87% of respondents concerned about their exposure to the IBORs. Most survey participants expect to adopt RFRs, with 78% stating they intend to trade them within the next four years. However, preparations are at an early stage. While more than half of survey respondents (53%) have commenced internal discussions on the transition to alternative RFRs, a much smaller proportion is at the stage of allocating budget (11%) or developing a preliminary project plan (12%). Nearly a quarter of all survey participants have not yet initiated a program to support transition. Some segments of the market – notably corporates – are further behind, with just 30% having started internal discussions within their firms. Key Transition Issues Survey participants identified a number of key elements for achieving a successful transition to RFRs. These include widescale market adoption of the alternative RFRs (cited by 72% of respondents), and the need for market participants to develop liquidity in over-the-counter derivatives and futures referencing the RFRs (64%). Recent progress has been made in this area, with the launch of new futures contracts referenced to the reformed UK Sterling Overnight Index Average and the US Secured Overnight Financing Rate (SOFR). Survey respondents also highlighted valuation and risk management issues (72%). These would primarily apply if market participants opt to amend legacy IBOR transactions to reference alternative RFRs while the relevant IBORs continue to exist. The absence of forward-looking term fixings was cited as another key issue. The IBORs are currently available in multiple tenors – one, three, six and 12 months – but the RFRs are only available on an overnight basis. Term structures are considered important for certain types of products like floating rate notes, which are traded on the basis of known interest payments at the next interest payment date. Approximately 86% of survey participants believe a forward-looking term structure is required, with corporates and financial end users having the strongest views on the subject. The ARRC in the US has committed to creating a forward-looking term rate based on derivatives linked to SOFR, while the Working Group on Sterling Risk-Free Reference Rates is expected to launch a consultation on the issue shortly. Other public-/private-sector RFR working groups are also looking at this topic. Communication and Timelines The various RFR public-/private-sector working groups are recognized as a key source of information on benchmark transition. However, firms expressed a preference for regular, globally coordinated information and more clarity about the desired end state. The need for sufficient time to plan and implement transition was also highlighted, with respondents particularly concerned about compressed timelines in the European Union. Transition Checklist Alongside the survey results, the report includes a checklist of steps that firms can take to prepare for the transition to alternative RFRs. This includes: Mobilising a formal IBOR transition program and allocating budget and staffing; Assessing exposure and the anticipated roll-off of IBOR exposures; Understanding the impact of a permanent cessation of an IBOR, reviewing fallback provisions within existing contracts and making amendments where necessary; Communicating with clients and counterparties early; Defining a transition roadmap for the organization. Background Working groups have been set up in several jurisdictions, including the UK (the Working Group on Sterling Risk-Free Reference Rates), US (the ARRC), Europe (the Working Group on Euro Risk-Free Rates), Switzerland (the National Working Group on Swiss Franc Reference Rates) and Japan (the Japanese Study Group on Risk Free Reference Rates), to bring together representatives from both the public and private sectors to determine the most appropriate RFRs in the relevant currencies. This is in response to concerns that liquidity in the transactions underpinning certain of the IBORs has decreased to the extent that these rates are no longer sustainable across all relevant tenors. The selected alternative RFRs are reformed SONIA for sterling, SARON for Swiss franc, SOFR for US dollar and TONA for yen. In July 2017, the chief executive of the UK’s Financial Conduct Authority (FCA), Andrew Bailey, announced that the FCA would no longer compel or persuade banks to provide submissions for LIBOR post-2021. On February 1, 2018, ISDA, AFME, ICMA, SIFMA and SIFMA AMG jointly launched a benchmark transition roadmap that aggregates and summarizes existing information published by regulators and various public-/private-sector RFR working groups in order to provide a single point of reference on the work conducted up until publication to select alternative RFRs and plan for transition. - Ends -

Europe’s capital markets join forces with academics on banking regulation & supervision FRANKFURT AM MAIN - The Association for Financial Markets in Europe (AFME) has become the newest supporting member of the European Banking Institute (EBI), joining the 28 academic members from all over Europe, as well as representatives of EU institutions such as the ECB, SRB and EBA and other European banking associations, in order to help develop international academic research on European banking regulation and supervision.Jacqueline Mills, Managing Director, Head of the AFME Frankfurt Office, said: “AFME is delighted to join the EBI, which is a valuable forum for academics, regulatory and supervisory authorities and market participants to debate current issues affecting the industry. AFME is highly supportive of European research in the area of prudential regulation and supervision, particularly in view of the complex regulatory and supervisory environment most market participants are currently facing.”Mills continued: “We hope that AFME’s focus on the particular challenges for global banks can bring a new perspective to the work of the EBI’s academic members. AFME’s participation will also help highlight the link between banking regulation and the development of capital markets, a topic we hope will be increasingly addressed by the European academic community.”Dr Thomas Gstaedtner, President of the Supervisory Board of the EBI, said: “AFME’s participation in the European Banking Institute (EBI) is a clear signal of the need for further academic research in the area of wholesale financial markets.”Gstaedtner also said: “In my role as President of the Supervisory Board of the EBI, I warmly welcome AFME’s decision to support EBI’s activities on a broad range of regulatory and capital markets issues. The EBI is a platform where key market players such as AFME can interact with academics, regulators and supervisors to discuss high quality academic work. The regulatory environment is in constant evolution, in particular in light of Brexit, therefore, the European banking and financial industry requires more dialogue.”Enrico Leone, Chancellor of the European Banking Institute, said “the EBI is extremely pleased to welcome AFME as a Supporting Member. AFME’s participation will further enrich our academic research, in particular on capital markets. Our academic and supporting members are looking forward to working with them.”Leone also said: “The enthusiastic support our academic joint venture is receiving from supervisors and the industry shows there is a clear need for research in the field of banking regulation and supervision to mirror the supranational/European dimension at which it is developed.”– Ends –

Commenting on the European Commission’s proposals for Sovereign Bond-Backed Securities (SBBS), announced today, Victoria Webster, Director of Fixed Income at AFME, said:“AFME supports continuing discussion regarding the creation of a European “safe asset”. At the same time, we believe that a number of essential criteria to successfully develop a market for SBBS have not yet been met. In order for such instruments to be workable, more analysis by a variety of market participants is needed.“We therefore encourage EU legislators to consider further consultations with Debt Management Offices, Primary Dealers and investors before deciding to progress this initiative further.”In particular, some elements that would need to be taken into account are(i) demand, as investors can already build portfolios replicating what would be the underlying portfolios of SBBS, with the ability to shift risk more easily than if they were holding tranches of SBBS, and(ii) its structure, as the fixed blend of national bonds and the high contagion risks between the bloc’s countries without risk-sharing measures are likely, therefore trust in SBBS will be lowest when they are most needed in times of crisis.– Ends –

Welcoming the European Commission’s plans for legislative actions to promote sustainable finance and SME growth markets as part of the Capital Markets Union (CMU) package, Simon Lewis, Chief Executive of AFME, said:“Facilitating access to finance for SMEs is a key element of the Capital Markets Union. And we are already seeing that the CMU initiatives are having a positive impact on SMEs’ ability to access a broader range of financial products. For example, total annual funding from venture capital, business angels and equity crowdfunding has increased 65% in the last 5 years from €7bn in 2013 to almost €12bn in 2017. Therefore, the completion of the CMU remains vital in order to create the right foundation for long-term economic growth across Europe and to help reorient long-term capital flows towards SMEs. “Capital markets also have a key role to play in the transition towards a greener economy. For example, developing the green securitisation market could encourage more diversified European issuance and has the potential to encourage the development of energy efficient housing. We therefore welcome the further sustainable finance proposals from the Commission today demonstrating its leadership role in this essential area.” On SME growth markets:AFME is fully supportive of the Commission’s focus to help improve access to long-term sources of financing for European SMEs, which are net job creators. However, it is well-known that many small businesses struggle to reach the size required in order to attract larger institutional investors on the public markets. This is why policymakers must continue their ongoing efforts to build the CMU, which can help build up Europe’s capital markets’ capacity so that promising small firms can raise risk capital at all development stages. To enhance the number of SMEs going public, it is important to make sure that those companies can: Access a true single market with standard rules across the EU Member States to enable businesses to scale-up cross-border; Access additional funding from European venture capital and private equity funds. The average European VC-backed company receives only €1.3 million compared to €6.4 million in the US. Filling this gap would build companies with enough scale to access public institutional investors in the public markets. On sustainable finance:AFME: Supports the progressive development of a sustainability taxonomy – with strong involvement from sustainability and financial market experts – as well as the promotion of green standards and labels, which will help position Europe as a global leader in sustainable finance; Very much supports better voluntary disclosures through the existing industry-led FSB TCFD work. Sufficient disclosure of material information must play a key role in making sustainable investment decisions and promoting socially responsible investment analysis; Recommends even further measures, such as steps to encourage development of the green securitisation market, which could play a future role in encouraging energy efficient housing, for example; Reiterates the importance of further work in the EU prior to any recalibration of prudential measures to ensure that capital frameworks can still achieve financial stability aims. A green supporting factor provides a clear incentive for institutions to transition to a green economy, but it should be recognised that capital requirements are there to mitigate risk, and green investments could also contain risks that may then not be fully represented in capital requirements. – Ends –

New White Paper outlines AFME’s vision for integrated, safe and efficient post trade in Europe AFME’s Post Trade Division has today published a new White Paper setting out a vision for a future post-trade system in Europe.The paper explores the issues currently impeding progress in European post trade reform and outlines some key objectives for public authorities and the industry in the paper entitled ‘A Roadmap for Integrated, Safe and Efficient Post Trade Services in Europe’.Areas of focus include: a sound legal basis for cross border holdings in book entry securities, an efficient method of reclaiming withholding taxes, ensuring open access and interoperability for European CCPs, ensuring collateral management is harmonised and unencumbered by unnecessary restrictions and continuing the process of fully embedding T2S as a low cost, pan-European settlement platform.Stephen Burton, Managing Director of Post Trade at AFME, said: “European post trade reform must go further if we are to build larger and more diverse capital markets in Europe. While the solutions put forward to date are necessary, they have not gone far enough in addressing the barriers to efficient post trade. In order to make progress towards an integrated, low-risk and low-cost post-trade eco-system in Europe, European and national authorities should prioritise reform. The overarching goals of post trade reform are well-established, the mandate and the foundations have been clearly set, now it’s time for action.”One of the paper’s key recommendations focuses on the opportunities created by new technologies. With the advent of new technology, such as Artificial Intelligence, cloud-based applications and distributed ledger technologies, there is the potential to revolutionise how post trade services are delivered. The consequence for industry of not developing common standards and collectively maximising its benefits could be further fragmentation. Therefore, the paper calls for industry to work collaboratively on this.The White Paper follows some major recent developments, such as the publication in August 2017 of the European Post-Trade Forum (EPTF) report, and the publication on 8 March 2018 of the European Commission’s latest initiatives for its Capital Markets Union project, including Action Plans on Fintech and on Sustainable Finance.AFME’s vision is for: a truly integrated, harmonised, low-risk and low-cost post-trading system in Europe post-trade infrastructures and service providers that compete in a harmonised and standardised operational, legal and regulatory environment offering innovative and low-cost services to all users on a non-discriminatory basis. To achieve the vision of low-risk and low-cost post trading in Europe, AFME’s White Paper calls for: the barriers determined by the European Post Trade Forum (EPTF Barriers) in 2017 to be swiftly dismantled in the context of the European Commission’s Capital Markets Union project (CMU); a longer-term strategy, based on detailed analyses, to achieve the targeted future state of the post-trading landscape to be developed, including responsibilities and timelines, and to be implemented accordingly; the opportunities created by new technology should be leveraged; close and institutionalised cooperation between the public and the private sector should be continued, including an intensified dialogue with European and national public authorities in a bespoke and targeted manner; post trade reform should be pursued across all European markets, including non-EU capital markets. – ENDS –

Welcoming the joint announcement by the European Commission and HM Treasury, that they will ask the European Central Bank and the Bank of England to convene a technical working group on risk management, Simon Lewis, Chief Executive at AFME, said: “We welcome today's announcement that the ECB and the Bank of England are convening a group to address technical issues to manage risk around a no deal Brexit scenario. While banks continue their preparations for all scenarios, it is imperative that the regulators come together to address cliff edge risks in the interests of financial stability across Europe. It is important that issues such as contractual continuity, access to market infrastructure and transfers of data are addressed to ensure an orderly withdrawal in all scenarios." –Ends –