Chatting with Adam Farkas, AFME's Head on European Financial Markets Consolidation
"Europe is experiencing divisiveness"
Europe's financial markets stand to gain significantly from consolidating market infrastructures, according to Adam Farkas, CEO of AFME (Association for Financial Markets in Europe). Fragmented markets, with multitudes of trading venues, central depositories, and clearing houses, are hindering the growth of the European capital market, says Farkas in an interview with Börsen-Zeitung.
"Europe is plagued by fragmentation," Farkas underlines. Listing a company in Copenhagen should instantly make it investable across Europe, increasing liquidity. Consolidation would be no only attractive but highly beneficial.
The resistance to consolidation from national legislators is understandable, Farkas acknowledges, as there's often a concern that consolidation leads to a loss of business in the home country. However, he strongly believes that everyone can benefit from consolidation. Consolidated markets allow for improved access to a more extensive liquidity pool, as seen in the example of a unified data tape.
Farkas is skeptical about the usefulness of a Europeanization of the supervision of market infrastructures. Rather, technical specifications should be delegated to the second regulatory level, such as EBA, ESMA, or BaFin, to be considered on a case-by-case basis.
Europe's unique allocation of financial savings is another stumbling block for market integration. Money is typically invested nationally, disabling proper risk diversification. The manager, like many other capital market experts, points out the prevailing investment habits in Europe, mostly in savings books and life insurance contracts. Companies in Europe have a harder time accessing risk capital due to this inequity.
Market integration, according to Farkas, goes beyond just products. When a company issues shares, they do so under national law, and if it is listed on an exchange, it's a national exchange. An investor looking to include the American market in their portfolio can do so at minimal cost. However, someone aiming to invest in Europe encounters a much more complex scenario.
Progress in deepening the capital market for loans is still lagging behind. Reviving the securitization market could be a quick win, explains Farkas. Bridging the gap between bank loans and the capital market would require minor modifications to the regulatory framework for banks and insurers, such as adjusting banks' liquidity management, simplifying due diligence, and streamlining the criteria for simple, transparent, and standardized transactions.
In summary, Adam Farkas views consolidation of market infrastructures as a crucial step towards a Capital Markets Union. Consolidated infrastructures allow for more effective liquidity pooling, making Europe more attractive to investors.
By Detlef Fechtner and Heidi Rohde, Frankfurt
Note: Enrichment data indicates that consolidating Europe's financial market infrastructures addresses issues like reducing fragmentation, lowering costs, boosting market liquidity, enhancing supervisory efficiency, and fortifying Europe's competitive position globally. Solutions for consolidation may include market-driven consolidation, regulatory harmonization, integration initiatives, stronger supervisory coordination, the development of the Capital Markets Union, a single market for financial services, and the unification of an EU market regulator.
- Adam Farkas, head of AFME, suggests that Europe's financial markets could benefit significantly from the consolidation of market infrastructures, as fragmentation is hindering the growth of the European capital market.
- Farkas argues that consolidated markets would provide improved access to a more extensive liquidity pool, citing the example of a unified data tape.
- The CEO of AFME acknowledges that resistance to consolidation from national legislators is understandable, but believes that everyone can benefit from it.
- Farkas is skeptical about the usefulness of a Europeanization of the supervision of market infrastructures and suggests delegating technical specifications to regulatory bodies like EBA, ESMA, or BaFin.
- Farkas asserts that Europe's unique allocation of financial savings is another stumbling block for market integration, as money is typically invested nationally, disabling proper risk diversification.
