DOCSLIB.ORG

Integration of Capital Markets in the European Union

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Integration of Capital Markets in the European Union www.pwc.com/financialservices Capital Markets Union: Integration of Capital Markets in the European Union September 2015 2 PwC Capital Markets Union Contents Preamble 03 Executive Summary 04 Introduction to the Capital Markets Union 08 Why a Capital Markets Union in Europe? 08 A Capital Markets Union to support the real economy by 2019 10 A report to assess market-based development and integration 10 Section 1: Market-based financing is underdeveloped 12 1.1 The EU is dominated by loan-based finance 13 1.2 There is room to increase the depth of capital markets for NFCs 15 1.3 Lack of alternative ways of financing 18 1.4 Securitisation as a compromise to bank loans 21 1.5 A heterogeneous and concentrated capital market 24 Section 2: The integration of capital markets is already underway 28 2.1 Indicators based on prices 28 2.1.1 Stock markets are showing signs of convergence 28 2.1.2 The crisis has hindered bond market convergence 31 2.1.3 The loan market is highly fragmented 33 2.2 Indicators based on economic decisions of agents 35 2.2.1 Increased capital flows within the EU confirm increased integration 36 2.2.2 Financial hubs are evidence of capital markets integration 38 2.2.3 Home-biased capital markets need further integration 40 Section 3: Barriers to the Capital Markets Union 42 3.1 Impediments to market-based finance 42 3.2 Impediments to integration 46 Section 4: Observations and conclusion 50 Appendix 54 Appendix 1: Bibliography 55 Appendix 2: Additional figures 57 Appendix 3: List of tables and figures 67 PwC Capital Markets Union 3 Preamble Our report focuses on the objectives of the European Commission’s initiative to develop a Capital Markets Union Our goal with this report is to offer analysis We then provide an overview of the and evidence which can be helpful to structure of capital markets, with an policymakers and firms alike as they analysis of the level of integration, seeking consider the near term changes proposed to identify the main blockages preventing in the Commission’s 2015 action plan for further integration. We then offer a CMU, as well as the opportunities which observations on measures that could be further policy measures could unlock. (and in some cases are being) considered to ease integration. PwC, by virtue of its work and roles within the financial services industry, has A Capital Markets Union certainly offers experience relevant to the debates taking the potential to foster higher levels of place in Europe about the direction, scope, sustainable economic growth in the EU. ambitions and priorities for a Capital We hope that our report will be useful to Markets Union. support the prioritisation that should be set to reach this important objective. Achieving a Capital Markets Union is an ambitious initiative. In this report, we Brian Polk start by examining the current levels of PwC UK integration of EU capital markets. 4 PwC Capital Markets Union Executive Summary Capital Markets Union (CMU) is the European Commission’s plan to diversify and improve access to funding of businesses in the real economy, thereby supporting higher levels of economic growth and job creation across the EU. The CMU aims to foster stronger, of the integration of capital markets GDP, debt securities 220%, and listed shares sustainable economic growth by: in EU countries by looking at various 115%. creating deeper and more integrated metrics. Third, we aim to identify barriers capital markets in the European Union preventing the development of market- NFCs need capital markets with greater (EU); removing barriers to cross-border based finance and the integration of capital depth. The debt market is mainly dominated investments; increasing competition markets across the EU. Fourth, we provide by government issuance (45% of total and reducing costs of raising capital; a set of observations aimed at addressing debt securities) while NFCs’ issuance of and improving access to financing for the barriers identified. debt remains limited, representing 7.6% of businesses, especially for Small and total debt securities. Monetary Financial Medium-sized Enterprises (SMEs). To achieve a true CMU, two different but Institutions (MFIs) are seen as contributors complementary approaches need to be to the depth of the loan market rather than More efficient capital markets would pursued: first, the CMU should foster the to the debt and equity markets. NFCs’ access improve the allocation of capital and development of market-based sources of to finance depends on their relative size. thereby also foster economic growth. financing; and second, it should promote Small NFCs mostly rely on a single owner Better integrated markets and diversified the increased integration of capital or a family and entrepreneurs, whereas funding sources would also increase markets by removing barriers to cross- larger NFCs tend to finance themselves on economic resilience by improving the border transactions. Our report and its the capital markets using public issuance diversity of investment funding sources. recommendations maintain the distinction or venture capital. This shows the difficulty between these two approaches. smaller NFCs have in diversifying their The CMU initiative also comprises various sources of funding. risks. Market volatility can increase Market-based finance is systemic risks, reduce the ability of small underdeveloped in Europe Alternatives to traditional methods of and local players to access finance and risk The EU is dominated by loan-based financing are limited. Alternatives to bank the weakening of investor protections in finance. More specifically, non-financial loans and large capital markets remain some places through the harmonisation corporations (NFCs) rely mostly on loans limited. Private equity and venture capital process. and have a limited role in the debt market, are still underdeveloped despite showing while EU households prefer banks when signs of recovery. While crowdfunding Our report seeks to assess development investing their assets. Loan liabilities in the is fast-growing, it remains a tiny market, and integration of EU capital markets. EU account for 212% of EU Gross Domestic focused mainly on the very early stages of We start by analysing the structure and size Product (GDP), assets of debt securities a company’s development. Private equity, of capital markets in Europe, highlighting are worth 171% of GDP, and listed shares venture capital, business angels and potential differences with other global issued in the EU represent 60% of GDP. By crowdfunding combined represent a mere regions. Second, we assess the degree contrast, in the US loans represent 147% of 0.5% of GDP. PwC Capital Markets Union 5 Securitisation has been in steady The integration of capital time. Even when taking into account decline. Securitisation allows loans and markets is already underway country specific risk, credit conditions other receivables to become tradable, We have measured the level of integration remain different from one country to and can therefore (indirectly) foster of capital markets by using two types of another. Other indicators, such as the the financing of firms, especially SMEs. indicators: those based on price and those evolution of credit market conditions Securitisation issuance, however, has not based on the economic decisions of agents. applied by banks to NFCs, do not follow recovered to its pre-crisis level mainly Below is a summary of our key findings. the same path across EU countries. because of the misuse associated with the Finally, SMEs’ access to finance remains subprime crisis and the use of alternatives, Stock markets are showing signs of particularly fragmented in that access to such as covered bonds. From 2001 to 2008, convergence. Stock market returns finance differs from one country to the the annual growth rate of securitisation of EU economies are showing signs of other. issuance was at 36.1 %, but decreased convergence. Correlations of stock market by 13.4% on average every year from returns for EU countries compared to Increasing capital flows within the 2009 until 2014. That said, regulatory returns of the benchmark country have EU confirm increased integration. changes are set to boost the securitisation increased over time, showing that stock Integration is reflected through the market by setting up regulations aimed markets are becoming increasingly internationalisation of the operations of at standardising and increasing the connected to each other. However, financial institutions. Among the top banks transparency of this type of products. distressed economies, such as Greece and in each country, all leading banks in the Spain, have shown decreased integration EU are headquartered in an EU country. EU capital markets are heterogeneous due to idiosyncratic issues such as Finally, the share of cross-border deals and concentrated. Capital markets in government insolvency. On the other side, value is increasing over time demonstrating the EU are concentrated in the largest countries such as the Czech Republic, that EU Member States are increasingly economies: the UK, France and Germany. Hungary, Slovakia, Estonia and Slovenia becoming interconnected and integrated. Reliance on capital markets for financing have shown increased convergence. varies enormously from one EU country Financial hubs provide evidence of to another. For instance, the use of listed Yield convergence has eased in the euro capital markets integration. Barriers shares is a common practice in Western area, but the crisis has hindered bond from capital flows have been sufficiently Europe, whereas debt securities are market convergence. Being part of the low to allow the specialisation of countries generally unavailable to firms in the least monetary union facilitates the convergence in terms of financial services, especially developed EU economies. process for the bond market. However, regarding the investment fund industry. the sovereign debt crisis has significantly Some countries, such as Luxembourg and A Capital Markets Union could be based slowed yield convergence in the euro area Ireland, have positioned themselves as on a series of specialist markets, with compared to the non-euro area.
Load more

Recommended publications
  • An Agenda for Capital Markets Union November 2014
    An agenda for capital markets union November 2014 Association for Financial Markets in Europe www.afme.eu About AFME The Association for Financial Markets in Europe (AFME) is the voice of Europe’s wholesale financial markets. We represent the leading global and European banks and other significant capital market players. We believe that liquid capital markets and a well-functioning banking system are central to any successful modern economy. We advocate stable, competitive, sustainable European financial markets Focusthat support economic growth and benefit society. Expertiseon a wide range of market, business and prudential issues Strongdeep policy and technicalrelationships skills Breadthwith European and global policymakers Pan-Europeanbroad global and European membership organisation and perspective Global reach via the Global Financial Markets Association (GFMA) Capital Markets Union An agenda for capital markets union Contents FOREWORD ........................................................................................................................................ 2 1. EXECUTIVE SUMMARY ............................................................................................................ 3 2. GOALS FOR A CAPITAL MARKETS UNION ........................................................................ 5 Defining the capital markets union ...................................................................................................................... 5 The international dimension to capital markets union ..............................................................................
    [Show full text]
  • Cbonds Russian Domestic Bond Market Indices
    01.10.2019 Cbonds.Ru LLC www.cbonds.info Tel: + 7 (812) 336 9721 Pirogovskaya nab., d. 21, lit. A, Saint-Petersburg, 194044, Russia CBONDS RUSSIAN DOMESTIC BOND MARKET INDICES Russian Government Russian Russian Corporate Bonds Indices Bonds Indices Municipal Bonds Indices Composite Index Composite Index IFX-Cbonds 1-3Y 3-5Y more Composite Composite Composite Composite than 5Y Index Index Index Index BBB/ruAA- BB/ruBBB B/ruB- High Yield Composite Composite Composite Index Index Index 1-3Y 3-5Y more than 5Y Cbonds Indices Calculation Methodology Cbonds Indices Calculation Methodology .......................................................................................................................... 2 Calculation Formula ............................................................................................................................................................... 3 Methodology of Index List Formation .................................................................................................................................. 6 Russian government bonds Index family ............................................................................................................................ 6 Cbonds-GBI RU .............................................................................................................................................................. 6 Cbonds-GBI RU 1-3Y ...................................................................................................................................................
    [Show full text]
  • At-The-Market Equity Offerings
    Lexis Practice Advisor® Market Trends 2019/20: At-the-Market Equity Offerings A Lexis Practice Advisor® Practice Note by Eric Johnson, Michael Blankenship, Ben Smolij, and John Niedzwiecki, Winston & Strawn LLP continued volatility of market conditions, with factors such as the continued trade war between the United States and China. History has shown that more companies conduct ATM offerings in such uncertain times. For instance, at the height of the recession in 2009, the total value of ATM Eric Johnson offerings reached approximately $18 billion (with 13 ATM Winston & Strawn LLP offerings announced), whereas in 2008 the total value of ATM offerings was $323 million (with only two ATM offerings announced). In addition to providing some comfort in times of volatility, ATM offerings have remained an attractive capital raising option due to their low-cost nature as compared to other types of equity offerings. Michael Blankenship For more information, see At-the-Market Offerings and Winston & Strawn LLP Equity Distribution Agreements for At-the-Market Offerings. Deal Structure and Process In order to conduct a successful ATM offering, issuers must comply with the filing requirements of the Securities and Exchange Commission (SEC). Issuers must have filed Ben Smolij with the SEC a shelf registration statement on Form S-3. Winston & Strawn LLP This is a prerequisite before an issuer can proceed with an ATM offering. The issuer can either use a preexisting shelf registration statement or a newly filed shelf registration statement. Most companies utilize a preexisting shelf registration statement. This emphasizes one of the advantages of ATM offerings, which is the short time in which an issuer can create an ATM program.
    [Show full text]
  • The Latham FPI Guide: Accessing the US Capital Markets from Outside the United States
    The Latham FPI Guide: Accessing the US Capital Markets From Outside the United States 2021 Edition 2 The Latham FPI Guide – 2021 Edition 2021 EDITION The Latham FPI Guide: Accessing the US Capital Markets From Outside the United States Fabry-Pérot Interferometer, SA is a highly successful non-US company known to the world as FPI. FPI is considering doing a debt or equity offering in the United States. What are the key legal issues it, and its underwriters or financial advisors, are likely to face? This book was written to help answer that question. Our aim is to help the FPIs of the world and their investment bankers understand better the regulatory regime applicable to capital-raising activities in the United States. US regulation of securities offerings is quite complex and may appear overwhelming to an issuer accessing the US capital markets for the first time. In order to make the maze of US regulations a bit more manageable, we have chosen in this book to focus only on those aspects of US law that, in our experience, are most relevant to US capital markets transactions involving non-US companies. Taking this approach means we have had to be selective – for example, we do not address the separate regimes that apply to offerings by certain Canadian-domiciled issuers, non-US governments, and registered investment companies. And we do not attempt to provide a detailed analysis of every legal issue or every regulatory regime (such as, for example, those that may apply to companies engaged in business in highly regulated areas like banking, communications, or utilities) that a non-US company may face.
    [Show full text]
  • BOOK of JARGON
    The BOOK of JARGON The Latham & Watkins Glossary of Corporate and Bank Finance Slang and Terminology First Edition Latham & Watkins operates as a limited liability partnership worldwide with an affiliated limited liability partnership conducting the practice in the United Kingdom, France and Italy. Under New York’s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York’s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY 00-4834, Phone: +..906.00. © Copyright June 008 Latham & Watkins. All Rights Reserved. The purpose of this publication is to assist the newest members of the finance community in learning to talk the talk of corporate and bank finance. It is intended to be a sort of “Berlitz Course” for recent law school and business school graduates seeking initiation into the world of Wall Street, and a desktop reference for not-so-recent graduates. In this book, you will find the key to the secret verbal handshakes that make up the code of the Wall Street finance community. While this publication is prepared on the basis of US law and practice, we believe it may be of interest to those involved in finance in the City of London or the other financial centers of the world. Once you know the code, you are well on your way to becoming a full-fledged member of the community. Welcome to our world.
    [Show full text]
  • Market Offerings
    FREQUENTLY ASKED QUESTIONS ABOUT AT-THE-MARKET OFFERINGS to commencement. For more information regarding understanding At-the-Market Offerings equity lines of credit, see “What is the difference between an ‘equity line of credit’ and an equity distribution program?” What is an “at-the-market” offering? What are the advantages of at-the-market offerings? An “at-the-market” offering is an offering of securities At-the-market offerings provide issuers with several into an existing trading market for outstanding shares advantages over traditional follow-on offerings, of the same class at other than a fixed price on, or including the following: through the facilities of, a national securities exchange, Minimal market impact or to or through a market maker otherwise than on an • . Issuers can quickly raise exchange. Therefore, the price at which securities are capital by selling newly issued shares into the sold in an at-the-market offering will vary because it natural trading flow of the market, without having is based on the price of the securities in the trading to market and/or announce the offering. As a result, market. shares are able to “trickle” into the market, without impacting the issuer’s stock price. Investors cannot short the issuer’s stock in advance of the offering What is an “equity distribution program”? since the timing of any particular takedown is not An “equity distribution program” provides a means known. for an issuer to conduct at-the-market offerings from • Flexibility. Sales can be effected on an agency or time to time using a shelf registration statement to or principal basis, and the terms of each sale, including through a broker-dealer acting either on a principal its timing and size, are agreed upon between the or agency basis.
    [Show full text]
  • US IPO Guide
    Subject to improvement and expansion in subsequent editions, dated June 15, 2021 US IPO Guide 2021 EDITION _______________________________________ This is our initial public offering guide. It will help you decide whether an IPO is the right move for your company and, if so, help you make sure your IPO goes off as quickly and as smoothly as possible, without any unpleasant surprises. Prior to this offering, there will have been no public market for your common stock, but we will help you understand what will be required of you as a public company and how to make the transition to life in the limelight. _______________________________________ Undertaking an IPO involves risks. See “Summary” beginning on page 1 to read about common pitfalls and how good advance planning and legal advice can help you avoid them. Per Share Total Price to the public ..................................................................................................................... $ $ Underwriting discounts and commissions(1) .............................................................................. $ $ minute guidance. - Proceeds, before expenses, to us ............................................................................................ $ $ the - _______________________________________ to - (1) The underwriters are crucial players in conducting a successful offering.You and your counsel will be spending lots of quality time with them, their counsel, and your auditors. Closing of your offering should occur approximately 120-180 days after you say “go.” Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of this guide, or passed upon the accuracy or adequacy of this guide. We hope this guide will make the IPO process less mysterious and the goal of going public more attainable. The information in this guide represents only a fraction of our accumulated expertise capital markets transactions and does not constitute legal advice.
    [Show full text]
  • Secondary Market Liquidity and Primary Market Pricing Of
    Journal of Risk and Financial Management Article Secondary Market Liquidity and Primary Market y Pricing of Corporate Bonds Michael A. Goldstein 1, Edith S. Hotchkiss 2,* and David J. Pedersen 3 1 Babson College, 320 Tomasso Hall, Babson Park, MA 02457, USA; [email protected] 2 Boston College, Fulton Hall, Room 340, Chestnut Hill, MA 02467, USA 3 Rutgers School of Business–Camden, 227 Penn Street, Camden, NJ 08102, USA; [email protected] * Correspondence: [email protected] An earlier version of this paper entitled “Liquidity and the Pricing of Corporate Bond Issues” was presented y at the 2009 Financial Management Association Annual Meeting. Received: 14 February 2019; Accepted: 3 May 2019; Published: 13 May 2019 Abstract: This paper studies the link between secondary market liquidity for a corporate bond and the bond’s yield spread at issuance. Using ex-ante measures of expected liquidity at the time of issuance, based on the characteristics of the underwriting syndicate, we find an economically large impact of liquidity on yield spreads. We estimate that a 10% increase in expected liquidity implies a decrease in the yield spread at issuance of between 8% and 14%. Our results suggest that liquidity has an important effect on firms’ cost of capital, and they contribute to the literature which examines the impact of liquidity on asset prices. Keywords: corporate bonds; liquidity; primary market pricing 1. Introduction Does liquidity affect asset pricing? This question is important for academics, investors, and corporate issuers. Theoretical models, such as Amihud and Mendelson(1986), suggest that assets with low liquidity require a liquidity premium, but the magnitude of these premia is debatable.
    [Show full text]
  • Us Securities Offerings and Exchange Listing
    U.S. SECURITIES OFFERINGS AND EXCHANGE LISTING BY FOREIGN PRIVATE ISSUERS B. JEFFERY BELL, ESQ.* Copyright © 2019. All rights reserved. Quotation with attribution is hereby permitted. * Jeff Bell is a partner in the Mergers & Acquisitions/Private Equity group in MoFo’s New York office. Special thanks are due to John Dougherty, Don Lee and Lee Nisson for their assistance in preparing these materials. TABLE OF CONTENTS Page Page I. Securities Act ............................................. 2 III. Foreign Private Issuer Status ...................... 8 A. Registration Requirement and A. Qualification as a Foreign Private Exemptions .......................................... 2 Issuer .................................................... 8 1. Exempt Issuance Transactions ....... 2 B. Benefits of Foreign Private Issuer 2. Resale Restrictions ......................... 3 Status .................................................... 9 B. Registration Forms ............................... 4 IV. Listing on a U.S. Securities Exchange ..... 10 C. Communication by Issuers During the A. Listing through an American Offering Process................................... 5 Depositary Receipt Program .............. 10 D. Emerging Growth Companies .............. 5 B. Exchange Application Process and II. Exchange Act ............................................. 6 Listing Standards ................................ 11 A. Applicability of Registration and 1. Exchange Application Process ..... 11 Reporting Requirements ...................... 6 2. Quantitative Listing
    [Show full text]
  • Putting the Capital in the European Capital Markets Union
    Putting the capital in the European Capital Markets Union Joanna Cound Martin Parkes Laetitia Boucquey Head of Public Policy, Managing Director, Associate, Public EMEA Public Policy Policy Stephen Fisher Carey Evans Managing Director, Director, Public Policy Public Policy Executive Summary Summary of BlackRock remains strongly supportive of the Capital Markets Union (CMU). Building deeper, better-connected capital markets recommendations in Europe is an important objective to promote investment, realise Promote retail investor participation the goal of a true Single Market for capital, and help European savers and companies realise their long-term financial objectives. 1. Simplify the investment process 2. Harness the power of digital tools to engage To date, the CMU has built a policy agenda that, when seen with consumers through to completion, will provide a framework for advancing this 3. Allow regulation and supervision to follow the aim. But important challenges remain, and some of the remaining move away from selling individual products to barriers will be difficult to break down, both technically and providing multi-product solutions politically. We see the most valuable way to add greater imperative to addressing these challenges is to refresh the CMU agenda so 4. Focus on value for money across the entire that it can deliver something meaningful and tangible for chain of distribution with meaningful European citizens: improved ability to save more effectively in the comparability and transparency of products, long-term and to better connect to broader economic prosperity. advice, and distribution 5. Encourage Member State initiatives to drive The result will be mutually beneficial to European citizens, increased investment; such as auto- companies and policymakers.
    [Show full text]
  • Credit Rating Standardization Study
    Report to Congress Credit Rating Standardization Study As Required by Section 939(h) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ___________________________ September 2012 This is a report of the staff of the U.S. Securities and Exchange Commission. The Commission has expressed no view regarding the analysis, findings, or conclusions contained in this report. I. Executive Summary The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)1 was enacted on July 21, 2010. Title IX, Subtitle C of the Dodd-Frank Act, consisting of sections 931 through 939H and titled “Improvements to the Regulation of Credit Rating Agencies,” amended the Securities Exchange Act of 1934 (“Exchange Act”) to impose new self-executing requirements with respect to credit rating agencies registered with the U.S. Securities and Exchange Commission (“Commission”) as nationally recognized statistical rating organizations (“NRSROs”), requires that the Commission adopt rules applicable to NRSROs in a number of areas, and requires the Commission to conduct certain studies.2 Section 939(h)(1) of the Dodd-Frank Act provides that the Commission shall undertake a study on the feasibility and desirability of: • standardizing credit rating terminology, so that all credit rating agencies issue credit ratings using identical terms; • standardizing the market stress conditions under which ratings are evaluated; • requiring a quantitative correspondence between credit ratings and a range of default probabilities and loss expectations under standardized conditions of economic stress; and • standardizing credit rating terminology across asset classes, so that named ratings correspond to a standard range of default probabilities and expected losses independent of 3 asset class and issuing entity.
    [Show full text]
  • Introduction to Convertible Debentures
    Intro to Convertible Debentures March, 2009 Introduction to Convertible Debentures Convertible debentures are hybrid securities which offer advantages of both bonds and equities. Like ordinary bonds – they offer regular interest income through coupon payments and a degree of downside protection not found in equity. Similar to equities, they also offer generally unlimited upside potential for capital appreciation in rising equity markets. Convertible bonds are originally issued and classified as bonds but have the option to convert into a fixed number of the issuer’s common shares and can be thought of as bonds with call options attached. The conversion ratio, which is usually based on the number of shares per 100, is determined at the time of issuance. The period during which an investor can convert their bonds to stock is usually open. Most convertible bonds pay accrued interest up to the date of conversion, however, there are some that do not. Therefore, it is important to check the terms and conditions found in the prospectus on an issue by issue basis. Most prospectuses are available on Sedar (www.sedar.com). The debt feature of a convertible debenture is derived from its stated coupon and claim to principal and provides the holder of a convertible with limited downside risk by protecting the investor from a full decline in the equity price. Why are convertible debentures issued? They are an attractive financing vehicle for an issuer as they provide a cheaper way to raise permanent capital. The benefit to selling convertible bonds is a reduced cash interest payment. A convertible bond’s issuer is effectively selling a call option on their common stock to allow for a cheaper cost of funding.
    [Show full text]