AFME has published a new research note on the “Initial impact of COVID-19 on Europe’s capital markets”. The report analyses the significant impact that Covid-19 has had across all major capital markets sectors including: equities (IPOs and secondary), fixed income primary and secondary (sovereigns, corporates, securitisation, high yield, leveraged finance), FX, derivatives, and banks. The report also highlights AFME’s initiatives to support markets during the COVID-19 crisis. Key findings: European capital markets have continued to operate well following the outbreak of COVID-19, with liquidity ranging from very good to mixed, depending on the sector. In fact, there have been record volumes of new issuance in certain sectors. Issuance of investment grade corporate bonds surpassed EUR 50bn in the first week of April; this amount was also the highest weekly amount ever issued in Europe. French companies have been particularly active in this respect. This is remarkable, given that many, if not most, financial market participants are working remotely. Markets are more volatile than a few months ago, which has made it costly for some companies to list through IPOs. IPO issuance on European exchanges has declined 83% compared to a year ago. Markets have been playing their role in providing liquidity, price formation, and timely clearing and settlement procedures, contributing to capital allocation and helping investors manage their portfolios. Equity average daily trading has surged 94% year on year in March-20, corporate bond trading increased 31% year on year in Q1 2020, and FX trading rose 61% year on year in March-20. The rapid increase in securities trading and post-trade activity has been carried out without any major disruption from a business continuity perspective. Securitisation secondary markets have suffered disproportionate reductions in liquidity due to central bank support which is more limited in scope and slower and more difficult to access than for other fixed income sectors. Banks operating in Europe are well-positioned from a solvency and liquidity perspective to support households and businesses during this period of abnormal economic pressure.

AFME has published an introductory guide to Shareholders Rights Directive II, and the new requirements which will apply from September 2020. The guide explains the key impacts to existing processes on corporate actions, shareholder identification and general meetings.

AFME has summarised the latest European Regulatory Developments on Sustainable Finance into a “State of Play” document where we take stock of the recent events and provide a clear overview of the upcoming initiatives. The document covers all the main topics, including taxonomy, reporting & disclosure, benchmarks, climate-risk stress-testing and others.

AFME has updated its European Primary Dealer Handbook, providing a detailed description of the infrastructure of the Primary and Secondary government debt markets in 20 European jurisdictions, as well as the European Stability Mechanism (ESM). This latest version of the Handbook includes information on 5 additional Primary Dealer markets, which were not previously included. These are: Bulgaria Czech Republic Hungary Poland European Stability Mechanism (ESM) Since it was first published in 2008, this handbook has been an invaluable reference work for European government bond market participants, dealers, brokers, DMOs, investors, as well as policymakers and journalists. Primary Dealers fulfil a key role by providing liquidity in the markets for government debt. The sovereign debt crisis emphasised the importance of Primary Dealers within the structure of the government debt markets.

Ahead of the European Commission’s MiFID2/R Review, the European Forum of Securities Associations (EFSA) has published a paper calling for certain areas of the regulation to be recalibrated in order to deliver its intended policy outcome of establishing a more transparent financial system that works to the benefit of the economy and society as a whole. MiFID 2/R, in conjunction with Level 2 and Level 3, forms the cornerstone of financial regulation for securities markets in the EU. However, there are some areas of MiFID2/R which need recalibration in order to deliver on the regulation’s original aims and to avoid unintended harm to the market, liquidity and investor choice. The paper highlights a number of issues which EFSA members believe should be a priority in the context of a review. Areas where amendments and further review are needed include: Market structure Transparency and data quality Market data costs Cost and charges Product governance Best execution reporting Research

This latest report from AFME and Linklaters, in collaboration with Irish law firm Arthur Cox, articulates the approach to conduct supervision taken by financial regulators in France, Germany, Ireland and the Netherlands. Focusing on conduct supervision rather than prudential supervision (particularly where one regulator supervises both) and on supervision by national competent authorities rather than the ECB, the report clarifies: who the financial services conduct supervisor is; how they supervise; the current priorities; and specific approaches taken to the supervision of key activities.

This paper assesses the EU equivalence framework for financial services and provides recommendations to further enhance its functioning. The paper considers last year’s European Commission Communication and recent developments in the EU equivalence framework. The EU’s equivalence system is one of the most widely used cross-border regimes for financial services and plays an important role by effectively regulating market access and international relationships. AFME proposes key objectives for the EU’s relationship with third countries and core principles which should underpin equivalence. It also makes a number of recommendations to further improve the functioning of the regime and strengthen relationships with third countries to ensure continued connectivity with international financial markets while effectively managing risks to financial stability, market integrity and investor protection. The paper addresses the EU’s relationship with third countries generally as opposed to the specific future relationship with the UK post Brexit.

SinceAndrew Bailey’s speech in 2017banks have had to prepare for the reality that after 2021, the London Interbank Offered Rate (LIBOR) – one of the world’s most important reference rates - might cease to exist. As part of industry preparation, regulatory authorities have been working with market participants to transition away from the use of LIBOR to risk-free rates; however, this transition also poses significant conduct risk. The term “conduct risk” can be broadly defined to mean the risk that actions taken by a firm could be detrimental to a client or have an adverse effect on market stability or effective competition. As a result, AFME and Simmons & Simmons have together highlighted questions which compliance teams should ask themselves concerning their LIBOR transition preparations in order to mitigate conduct risk. Read the paper forall the details Overview Firms should review theirstructure and governance frameworksas this will define how they approach the transition and manage their relationships with external parties and key decision-makers. Given the scale and complexity of the transition, firms should review theirrecord-keepingprocesses to ensure they remain compliant when large volumes of documents are produced. Review whether the organisation issuitably engaging with regulators and working groupsso its responses to consultations are as informed as possible. Firms should review whether their new risk-free-rate products are compliant under regulatoryproduct governance obligationsand access the viability of any new LIBOR-referencing instruments. Determine whethercommunicationsteams are suitably addressing client needs and their varying levels of understanding of the transition. Take steps to ensureoutsourced servicesare compliant with regulation. Ensure allbusiness divisions are suitably trainedand aware of the firm’s regulatory and legal obligations. Reviewpost-transition communications processesto determine if they are prepared for potential questions and complaints from clients regarding new risk-free-rate linked contracts.

AFME’s latest paper sets out fiverecommendations to deliver supervisory convergence on the regulation of crypto-assets in Europe. The paper’s recommendations are intended to encourage collaboration between regulators in Europe and work towards a common approach to the regulation and development of crypto-assets in financial services. In this paper, AFME provides an overview of the crypto-asset taxonomies and regulatory approaches in use by a sample of National Competent Authorities across Europe, outlining the areas where divergence in regulation exists. The paper finds that while there is some convergence on the methods used to classify different types of crypto-assets, there is significant divergence in the methods used to regulate crypto-assets. This creates uncertainty for market participants, which limits innovation.

Our latest paper from AFME’s Technology & Operations Division sets out 14 recommendations to help realise the full potential of public cloud computing across the capital markets industry. The recommendations for banks, cloud providers, regulators, and the industry as a whole aim to increase the transparency and collaboration required to build further confidence, trust and capability in public cloud.