Leading the debate
London Stock Exchange Group is an active participant in international and domestic regulatory debates.
As one of Europe’s leading diversified exchange groups, London Stock Exchange Group is an active participant in international and domestic regulatory debates.
This page contains links to recent submissions and responses on behalf of the Group, or certain entitites within the Group.
LSEG Response to the European Commission Proposal for a Prudential Framework for Investment Firms
LSEG welcomes the European Commission’s (the Commission’s) proposal for a Prudential Framework for Investment Firms. We recommend that the Regulation and Directive should be more proportionate than envisaged by the EBA in its application to principal traders acting as market liquidity providers, in order to support the Commission’s objectives for Capital Markets Union.
- The co-decision process represents a unique window to act because the EBA have declined to acknowledge the need to calibrate their advice to be consistent with the Commission’s CMU objectives (i.e. to support diversification away from an overreliance on bank financing in Europe).
- The proposed framework is welcome in many respects - for example it is simpler than CRR however it does not support market diversity
- In particular which are not suitable for principal traders as essential liquidity providers
- Principal traders provide a substantial (at least a quarter) amount of market liquidity as well as supporting market innovation.
- However as drafted they will get hit with a sevenfold capital requirements increase. They are different to banks and the risks are different.
- This will negatively impact liquidity, especially in stressed conditions, and will put up the costs of capital for investors.
- The result could be a less competitive European market, exacerbated by a third country regime which creates barriers.
LSEG propose 4 key recommendations to enhance the proposal:
- Greater optionality to use different risk metrics e.g. clearing member guarantee;
- Ability for smaller firms to access a lighter regime ‘class 3’;
- ESMA not EBA to be the lead regulator to ensure capital markets expertise is deployed and
- Removal of burdensome third country requirements.
LSEG is delighted to respond to this consultation. We fully support the SME Growth Market (SME GM) concept and to our knowledge are the only current operators of authorised SME GMs (AIM and AIM Italia). We welcome the objectives of the European Commission to seek further ways to enhance the regulatory framework to ensure that SME GMs are a success and support Capital Markets Union (CMU) and the EU growth, jobs and innovation agenda. We believe that the key benefit of getting the regulatory framework right is an increased investor pool. We urge against any focus on a simple reduction in standards because companies will generally be willing to meet higher standards of regulation if the benefits warrant the investment
- SME ecosystems. It is essential that vibrant ecosystems develop around growth markets to help ensure their success and create an enduring identity for such markets. Alongside comprehensive support and mentoring programmes such as ELITE, it is essential that all growth market participants have reasonable commercial incentives (e.g. brokers) to participate in equity capital markets compared to other forms of finance.
- Prospectuses. The ‘restricted circle’ to whom a public offer can be made without a prospectus should be increased from 150 to at least 500, not counting existing shareholders and employees. Secondary issuances should be completely exempt.
- Attracting investors. Increasing research coverage; SME fund of funds and embedding SME GM in regulatory regimes (e.g. UCITS)
- Definitions. We have no objection to raising the €500m threshold however we do not believe that the 50% threshold needs to be changed. Debt SME GM threshold should be €30m capital raised.
- Key advisors. We believe that markets should have the flexibility to be able to mandate whether or not a key adviser is required, taking into account local ecosystems.
- Delisting. We consider that it is important for rules around delisting, whether voluntary or mandatory are clear in their operation and that market operators are able to take measures to protect investors and preserve the integrity of markets.
- Transfer of listings. We believe that mandating transfers should be avoided and issuers should have the choice and flexibility to make decisions about when to move markets so that they are best served at each stage of their development.
- Administrative burdens. Alleviations should be available for all SME GM issuers. MAR imposes burdens (e.g. management transactions; PDMR; insider lists). PRIIPs are causing uncertainty for some issuers.
- Tick Sizes. We believe that the minimum tick size regime in MiFID II will have a reduced impact on the liquidity of shares traded on SME GM however market operators should be given full flexibility.
- Free Float. We do not believe that prescriptive free float requirements should be set and a qualitative consideration is essential to ensure there is an appropriate balance between existing shareholders retaining their desired stake at IPO and liquidity post admission.
LSEG support the objectives of the European Commission's proposal and we wish to ensure that the benefits of the proposal are more widely understood, together with necessary enhancements we believe are desirable to ensure that the ESAs are able to deliver effectively on an expanded mandate. In particular we support the vision of ESMA as a fundamentally enhanced organisation with some proportionate direct supervisory powers over CCPs and Benchmark Administrators, with the potential for more efficient decision making (within a framework of appropriate governance) and calibrated financial contributions from industry.
- Objectives. We support the objectives of the Commission to ensure a level playing field across the Single Market. We agree with the principle of supervisory convergence in order to reduce any real or perceived regulatory arbitrage between jurisdictions.
- Governance. At the same time we consider that some recalibrations of the proposal are needed to ensure an effective balance of powers and governance oversight for ESMA, with a more incremental approach towards building a single capital markets supervisor and tailored, proportionate approach towards market segments.
- Interdependence with EMIR. We consider that the co-legislators should assess the impact of the ESA review against the full context of relevant dossiers (e.g. EMIR 2.2; ECB Article 22; CCP R&R).
- Extraterritorial Licensing. We suggest a model closer to direct extraterritorial proportionate licensing for ESMA to supervise third country financial institutions with direct application of the acquis, underpinned by regulatory co-operation but without duplicative equivalence assessments.
- Key principles for ESMA. We focus on ESMA and propose five key enhancements which a transformed 'new ESMA' must possess in the future in order to support its important mission (accessibility; empowerment; accountability; proportionality and international competitiveness)
- Direct supervision. We set out three policy tests to determine which direct supervisory powers should be granted to ESMA (systemic impact; significant cross border activity and a clearly defined and manageable set of market participants)