Proposed Solvency II rules around securitisation will dramatically reduce the willingness of insurers to invest in securitisation assets, according to the Securitisation Investor Survey, a new survey of leading asset managers and insurance companies carried out by the Association for Financial Markets in Europe (AFME). AFME canvassed the views of 27 Europe-based insurance companies and asset managers who collectively hold or manage more than €5 trillion in global assets. A third (33%) of insurers polled said the new rules would stop investment altogether, with the remaining two-thirds (67%) saying they would dramatically reduce allocation of funds to the securitisation sector. In late 2011, the European Commission proposed Solvency II capital charges of 7% of market value per year of duration on AAA-rated securitisations held by insurance companies, compared with 0.9% for corporates and 0.7% for covered bonds. Significantly, more than one in five insurers (22%) who stated that they would withdraw from the securitisation market now if the proposed rules were enacted, said they would never return - even if the capital charges were in future reduced to levels more comparable to those of corporates and covered bonds. Of those who would return, 63% said that any return would take more than one year, with almost a fifth saying it would take three years or more. Moreover, the proposed capital charges have been calibrated using a flawed methodology by including historic and largely US-sourced bonds that are no longer issued and would be prohibited anyway for investment by European insurers. The charges, therefore, not only fail to reflect the economic risks of permitted investments, they also fail to distinguish between different types of risk. Furthermore, they have not been consistently applied across all asset classes. AFME’s Securitisation Investor Survey also found that: • 85% of investors, who noted that the proposed Solvency II rules would result in a reallocation of funds, indicated that at least half of these funds would be reallocated away from securitisation. • Over half (56%) indicated that the proposed capital charges would incentivise them to develop their own internal models to calculate their own capital charges. However, over half of respondents also believed that their regulator would not approve their internal model if the results were materially different from those generated by the standardised approach. Commenting on the ‘Securitisation Investor Survey’ findings, Rick Watson, a managing director at the Association for Financial Markets in Europe said: “Many European policymakers acknowledge that Europe very much needs a healthy securitisation market to help support its economic recovery, particularly in light of European Central Bank estimates that European banks will need €1 trillion of funding over the next two years. Given insurers are a key investor group, these findings raise serious concerns. “The survey shows that Solvency II capital charges will have a direct negative impact on securitisation investment. Once this investment disappears, it could take a long time for it to return. “Much of this calibration has been based on a misperception of the sector as being high risk and badly performing. This reputation is undeserved since the performance of European securitisation has been very good. For example, since 2007, only 0.07% of European residential mortgage-backed securities have defaulted, and price performance has been better than many senior bank debt, covered bond and European sovereign debt issues. “We urge policymakers to conduct further analysis using more appropriate calibrations for assessing securitisation capital charges that properly reflect the economic risks of the investments.” -ENDS-

Commenting on the European Commission’s Green Paper on shadow banking, issued today, Simon Lewis, AFME’s chief executive said: “Shadow banking poses particular challenges for regulators who must address the potential systemic risks posed by entities that undertake bank‐like activities in an integrated and proportionate way without undermining the benefits they bring in diversifying risk and supporting economic growth. “Given changes to global banking regulations, it is particularly important that capital markets‐based financing be encouraged to help businesses access the widest possible sources of funding in order that they can fully contribute to the growth of the economy. AFME welcomes the opportunity to engage with policymakers to develop the most appropriate market infrastructure to allow for this much-needed growth, whilst also mitigating any potential systemic risk.”

Commenting on today’s announcement by the European Securities and Markets Authority (ESMA) that credit rating agency regulation in US, Canada, Hong Kong and Singapore is in line with European rules, Mark Bearman, a director at the Association for Financial Markets in Europe (AFME) said: “ESMA’s announcement should allow firms to continue to use ratings from these major jurisdictions, thereby avoiding the potential for multiple increases in regulatory capital requirements. The inability of banks to use ratings from these third-country jurisdictions could also have led to increased concentration risks, unintended consequences for the management of liquidity and the non-viability of some business models, so this is good news for the industry and alleviates much of the impending market disruption. “Similar announcements in relation to the ability to use ratings from Mexico, Brazil and Argentina would be welcome ahead of the end-April deadline.” - ENDS -

Commenting on the publication today of the UK’s Financial Services Authority’s finalised guidance on ‘FG12/06: Collateral upgrade transactions (includes liquid) said: “In its Guidance, the FSA has recognised that ‘collateral upgrade transactions’ bring real benefits to the economy. We believe that they not only provide an alternative means to utilise excess liquidity, they also provide an important source of liquidity to enable banks to lower their liquidity risks, an increasing priority in light of existing and forthcoming liquidity regulation ­ for example, CRD IV. “The Guidance also identifies the potential risks associated with collateral upgrade transactions, such as asset encumbrance, and recognises that these should be dealt with in a broader risk management framework applicable to all forms of collateralised borrowing transactions. We hope that European policymakers and regulators approach these collateral upgrade transactions in a similar way.” The FSA finalised guidance can be found at http://www.fsa.gov.uk/library/policy/final_guides/2012/fg1206

Dear Secretary Geithner and Commissioner Barnier: On behalf of the Global Financial Markets Association (GFMA)[1], whose members represent the common interests of the world’s leading financial and capital market participants, we write to express strong concern that regulation in different G20 jurisdictions may be creating conditions which could result in a fragmented transatlantic capital market. Given your forthcoming meeting we wanted to take the opportunity to draw your attention to the numerous extraterritorial issues, both new and previously raised, that risk impeding or disrupting the efficient functioning of our global financial markets. In particular, we are concerned about duplicative, incompatible, or conflicting requirements, regulatory uncertainty, and the impact that these will have on competition and consumer choice. Fragmented or conflicting regulation – even when the policy objectives are the same – would negatively impact the ability of market users and participants to raise capital, manage risk and contribute to economic growth. In April 2010, two of our member associations, AFME and SIFMA wrote to you – in the context of the US-EU Financial Markets Regulatory Dialogue (the “FMRD”) and the financial regulatory reform programme being developed in light of G20 priorities. We emphasized that such a programme should seek to achieve consistent results which do not adversely affect our Members’ ability to provide the products and services that their customers demand. Since we last wrote the regulatory community has driven forward with the FSB reform programme, and we have been exploring the extent to which extraterritorial regulatory provisions are giving rise to difficulties in both interpretation and practice. Our present work follows on from the joint paper on issues affecting derivatives, and we remain concerned that extraterritorial regulation may disrupt and fragment the operation of the global derivatives market, and distort competition in that market. However, the scope of our work is now broader and accordingly still very much underway. Moreover, we are concerned about the use of equivalence and other similar forms of determinations – they must be outcomes based, and not used as a tool to export regulations from one jurisdiction to another. Similarly, we believe that policies that promote the concept of reciprocity are equally dangerous and could cause a serious rift. Instead, we encourage use of three “gateways” for modernising the regulation of global business – regulatory recognition, exemptive relief and targeted rules convergence – in solving the difficulties to which extraterritorial measures give rise. Given our concerns, we are of course participating in the parallel follow-up work being taken forward by the EU-US Coalition 3 on these issues. Through the FMRD, and other forums, we respectfully urge you to continue to explore the extent to which the issues that we have identified can be resolved and, to this end, we will be providing our findings to you in the near term. The key issues can be summarised as follows: Duplicative requirements; Incompatible or conflicting requirements; 1 The Global Financial Markets Association (GFMA) brings together three of the world’s leading financial trade associations to address the increasingly important global regulatory agenda and to promote coordinated advocacy efforts. The Association for Financial Markets in Europe (AFME) in London and Brussels, the Asia Securities Industry & Financial Markets Association (ASIFMA) in Hong Kong and the Securities Industry and Financial Markets Association (SIFMA) in New York and Washington are, respectively, the European, Asian and North American members of GFMA 2GFMA with Other Associations Comments to EU Commissioner and US Treasury Secretary Regarding EUExtraterritorial Effects and US Derivatives Regulation(July 2011) 3 In early 2005, a group of leading EU and US financial service industry associations agreed to work together to address the urgent need to simplify the regulation of wholesale Transatlantic financial services business; and subsequently agreed to form themselves into the EU/US Coalition on Financial Regulation. They comprise, currently: American Bankers Association Securities Association (ABASA), Association for Financial Markets in Europe (AFME), Bankers' Association for Finance and Trade (BAFT), British Bankers' Association (BBA), Futures Industry Association (FIA), Futures and Options Association (FOA), International Capital Market Association (ICMA), Investment Industry Association of Canada (IIAC), International Swaps and Derivatives Association (ISDA), Securities Industry and Financial Markets Association (SIFMA), Swiss Bankers Association (SBA) and Observer: European Banking Federation (EBF). The group submitted the following letter: http://www.sifma.org/uploadedfiles/newsroom/2008/us-eucoalition-fin-regualtion-reportmar08.pdf(March 2008) Reduction of consumer choice Distortion of competition; Market fragmentation Impact on clients/counterparties who are not directly subject to regulation; Aspects of mutual recognition in practice; and Regulatory uncertainty. Our shared goal and interest is to implement reforms in a coordinated and consistent manner. We emphasize the urgency of addressing these issues and note that the most recent developments on Legal Entity Identifiers (LEIs) and the Foreign Account Tax Compliance Act (FATCA) demonstrate the extent to which the FMRD, and cooperative dialogue between the industry and regulators, can lead to solutions that meet policy objectives within a framework that allows global firms to respond to their clients’ needs. We appreciate your attention to these issues and look forward to continued dialogue on this ongoing endeavour.

Dear Secretariat, The Global Financial Markets Association (GFMA)1 welcomes the opportunity to comment on the consultative document; Definition of capital disclosure requirements, 19 December 2011. GFMA would like to express its support for the work that the Basel Committee has undertaken to implement clear and comparable disclosure of regulatory capital following the implementation of Basel III, which entails a substantial redefinition of capital. As pointed out in the consultative document, at present, there is no consistent format across all jurisdictions for disclosure of the composition of capital. Moreover, as Basel III introduces significantly more precision in the definition of eligible capital it is appropriate to revisit the existing Pillar 3 disclosure requirements.

The public reporting of certain large equity trades must allow for appropriate delays, but the method proposed for calculating time limits proposed by the European Securities and Markets Authority (ESMA) will only increase costs for investors and issuers, according to a new report, published today by the Association for Financial Markets in Europe (AFME). The ‘Equity Deferred Reporting Blueprint’reportalso concludes that reporting delays permitted under the current MiFID regime, are flawed, since they are based on the value of a trade relative to a historic measure of liquidity – Average Daily Turnover - rather than prevailing market conditions. In addition, changes to the current regime – proposed by ESMA and the European Commission – including raising the minimum qualifying trade sizes and reducing the maximum permitted delays – will increase costs for investors as they are likely to force the premature publication of large trades, allowing short term investors to anticipate and materially affect the price of subsequent related trades. This will be most apparent in less liquid stocks such as SMEs whose cost of capital will, as a direct and predictable consequence, be increased. The AFME study recommends that: Large equity trades are reported as early as possible within permitted delay periods which, importantly, are based on prevailing market conditions; An official European Consolidated Tape – as per the Blueprint published by the European Fund and Asset Management Association in September 2011 – should be implemented and form the measure of liquidity used in calculating the allowable delay period; ESMA assesses alternative approaches to the deferred publication regime and has the power to implement a new regime without undue delay. Commenting on the ‘Equity Deferred Reporting Blueprint’ report, Christian Krohn, a managing director at the Association for Financial Markets in Europe said: “Whilst recognising the need for timely information on trading activity, it is important that reporting rules allow for delays to avoid damaging the returns of investors who act collectively to trade in large sizes. The issue with the current MiFID regime is that permitted delays are based on Average Daily Turnover – which means that a given trade will have the same allowable delay whether it is executed on Christmas Eve or on the day a company announces its results. “To protect the efficiency of this mode of execution there must be an appropriate period of confidentiality when transferring the execution risk of a large trade from one party to another, whilst at the same time, maintaining an appropriate level of transparency. ESMA should reassess deferred reporting requirements, with a view to having reporting delays more closely aligned to prevailing market conditions. A future European Consolidated Tape should form the measure of liquidity used in calculating the allowable delay period.” -ENDS-

The Global Financial Markets Association (GFMA), which represents the common interests of the world’s leading financial and capital market participants, today announces a leadership change at the start of a busy year on the global regulatory agenda. On February 1st, Blythe Masters, Head of Global Commodities at JPMorgan Chase and member of the JPMorgan Chase Executive Committee, takes over as Chair of GFMA from Michele Faissola, Global Head of Rates and Commodities at Deutsche Bank. At the same time, Simon Lewis, chief executive at the Association for Financial Markets in Europe (AFME) takes over as chief executive of GFMA from Tim Ryan, who heads up the US-based Securities Industry and Financial Markets Association (SIFMA). Blythe Masters and Simon Lewis will serve in their respective roles for two years. Masters previously served as the Chair of SIFMA. GFMA brings together three of the world’s largest financial trade associations to address the increasingly important global regulatory agenda and to promote coordinated advocacy efforts: the Association for Financial Markets in Europe (AFME), the Asia Securities Industry & Financial Markets Association (ASIFMA) and, in North America, the Securities Industry and Financial Markets Association (SIFMA). In the coming months, GFMA will focus on the increasingly important global issues in financial market regulation, and, in particular, the position of the Global Systemically Important Banks (G-SIBs). In addition, GFMA’s Global FX Division represents over 90% of the global foreign exchange market. Blythe Masters, GFMA’s incoming Chair, commented: “Global financial markets are being regulated in different parts of the world at different speeds, so it’s vital that the industry has a unified voice. GFMA speaks for the industry on the most important global market issues and is a keen advocate of the free flow of capital and consistency of regulation across multiple jurisdictions. “As the global financial services industry enters its most critical year yet in terms of regulatory change, GFMA has an important role to play in helping shape the future framework.” Simon Lewis, GFMA’s chief executive, commented: “I look forward to continuing the great work Tim Ryan has performed over the last two years as head of GFMA. 2012 promises to be a defining year for the way global financial markets operate, with implementation of the Basel III reforms well under way and the Financial Stability Board active across a broad agenda. We expect to work with the FSB and other regulators to ensure policymakers adopt an evidence-based approach and that financial regulation is consistent and co-ordinated across all jurisdictions.” -ENDS-

LONDON, HONG KONG AND NEW YORK, January 20, 2012 -- GFMA today announced that it has posted a TEST file, created by the Depository Trust & Clearing Corporation (DTCC), and the Society for Worldwide Interbank Financial Telecommunication (SWIFT), of provisional legal entity identifiers, as well as a brief summary describing the provisional legal entity identifier attributes. This information can be found here. GFMA is making this information available so that member firms and other financial market participants can begin to evaluate, understand and test the operational implications for their businesses of recently enacted and impending regulatory reporting requirements that include legal entity identification. This new rulemaking is in accordance with mandates from the G20 for improved transparency around OTC derivatives activity as well as other regulatory initiatives. The provisional legal entity identifier TEST file is meant to assist firms in their preparation for compliance with new reporting requirements. GFMA notes that the posting of the provisional legal entity identifiers is in anticipation of a global LEI Solution that will be phased and sequenced according to regulatory requirements that are established regionally and globally, as well as implemented in accordance with an appropriate governance framework established in cooperation between the G20, Financial Stability Board (FSB), other regulatory bodies, and the financial services industry. A uniform, globally consistent LEI Solution will provide regulators with a powerful tool to better monitor systemic risk and enable individual firms to more effectively measure counterparty exposure. GFMA applauds the FSB’s statement of support for a global LEI Solution and the establishment of a private sector advisory group in its most recent work plan. We appreciate the work being done by the FSB, and regulators around the globe to determine the best approach for a global LEI Solution. GFMA remains committed to working with all stakeholders through this process. The Global Financial Markets Association (GFMA) joins together some of the world’s largest financial trade associations to develop strategies for global policy issues in the financial markets, and promote coordinated advocacy efforts. The member trade associations count the world’s largest financial markets participants as their members. GFMA currently has three members: the Association for Financial Markets in Europe (AFME), the Asia Securities Industry & Financial Markets Association (ASIFMA), and, in North America, the Securities Industry and Financial Markets Association (SIFMA). Contact: Liz Pierce, +1 (212) 313-1173, [email protected] James White, +44 (0)20 7743 9367, [email protected] Rebecca Terner, +852-2537-3246, [email protected]

A Financial Transaction Tax (FTT) levied across the European Union would seriously impact the foreign exchange market, increasing transaction costs by up to 18 times, according to Oliver Wyman research commissioned by GFMA’s1 Global FX Division2. The report findings suggest that, given the tight margins that exist in foreign exchange markets, this increase would, in turn, hit the real economy as these costs would largely be passed onto all endusers, such as Europe’s financial institutions, (pension funds, asset managers, insurers) and corporates. The global foreign exchange market is the most liquid in the world, with an average daily turnover of $4 trillion, according to the Bank for International Settlements, and is used extensively by corporates, as well as investors. The majority of FX trading volume (45%) takes place in the FX swaps market. The report, ‘Proposed EU Commission Financial Transaction Tax; Impact Analysis of Foreign Exchange Markets’, evaluates the impact of the European Union’s proposed FTT on European FX markets, estimating its impact on FX cash and derivatives users. The report not only recognises a primary impact of the tax – an increase in transaction costs, relocation of trading and reduction in notional turnover – but also a secondary impact, namely, a potential reduction in liquidity leading to a widening of bid/ask spreads. The research suggests that a proposed FTT would: Directly increase transaction costs for all transactions by three to seven times and by up to 18 times for the most traded part of the market; Potentially relocate 70‐75% of tax eligible transactions outside of the EU tax jurisdiction; combined with reduced transaction volumes (of approx 5%), this could reduce market liquidity and increase indirect transaction costs by up to a further 110%; Predominantly hit the real economy (pension funds, asset managers, insurers and corporates) as both direct and indirect costs are largely passed onto end‐users, who will be least able to move transactions to jurisdictions not subject to the tax; Have a limited impact on speculative trading as this activity will most likely relocate outside the EU tax jurisdiction; Inefficiently tax the economy as raising €1 of tax would likely cost the economy more than €1, due to the indirect costs associated with reduced and more fragmented liquidity. To reach this increase of 18 times, the report used the example of the most liquid swap product – the EUR/USD 1 week swap with a notional value of €25,000,000, as transacted between a bank and a financial institution (e.g. pension fund). The current cost to transact for the end‐user is €279. The additional taxation of this transaction at 0.01% is €2,500 to the dealer and an additional €2,500 to the financial institution, resulting in a total cost of €5,279 or an 18‐fold increase, assuming all costs are passed onto users. (FX swaps with maturity of less than one week account for over 50% of the tax eligible FX cash and derivatives market). James Kemp, managing director of GFMA’s Global FX Division commented: “It is essential to fully understand the impact of the proposed financial transaction tax and the Oliver Wyman study is an important contribution to the debate. “The foreign exchange industry is an essential part of a stable and sustainable economy, underpinning international trade and investing. This study shows that the proposed tax would in effect penalise Europe’s businesses for sensible risk management – by using FX products to manage currency fluctuations – and also threaten to impose further costs on the investment returns of pension funds and asset managers. “In addition, the combination of direct costs and indirect costs, arising from reduced market liquidity and wider bid/ask spreads, means that raising €1 in tax is likely to cost users more than the amount of the tax itself.” For the full report, click here ‐ENDS‐