ICMA chief reveals members' key concerns

Author: | Published: 25 Apr 2012
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The International Capital Markets Association (ICMA) chief executive Martin Scheck has revealed the key concerns of its member institutions.

Speaking at IFLR's European Capital Markets Forum on April 25, Scheck explained that consumer protection is arguably the most important element for regulators, carrying far more weight with them than market efficiency.

"The thinking amongst regulators is almost that consumers need saving from themselves," said Scheck.

ICMA’s chief executive explained that in a recent meeting with the authorities, a senior official explicitly said that they are prepared to overshoot initially with new regulations, and then see how they work and what problems they cause in the market.

"Then they can recalibrate and adjust regulations if necessary to restore an optimal balance. That is a worrying scenario for those of us concerned about market efficiency," said Sheck.

He said that political will still dominates the regulatory process: "We are all trying to squeeze a decade of regulation into three years - which is frankly proving pretty uncomfortable.".

The sovereign debt crisis is also, unsurprisingly, still a key concern amongst member institutions, he said.

"We were amazed at the beginning of the sovereign debt crisis when, in a meeting with the buy side, a number of the world's major investors mentioned that they were not aware of the precise terms and conditions of the sovereign bonds they owned,” he said. Scheck added that the investors didn’t even know whether they were under domestic or non-domestic law.

Another legal issue for the sovereign sector is that the recent Greek restructuring involved the retroactive implementation of collective action clauses. This raises major questions in terms of precedent.

For capital to flow smoothly between issuer and investor confidence in the bond markets is essential - and legal certainty is a critical component of that.

“I think we all understand the situation – the authorities have called it unique and exceptional, but any retroactive change that threatens legal certainty is unlikely to encourage future investment,” according to Scheck.

He also touched on the future of the over-the-counter (OTC) cash bond markets. Despite operating well over the past 45 years, Scheck said that the future shape, or even existence of the market is now uncertain: “We need to wait until the implementation phase of MiFID 2/MiFIR to gain some clarity.”

Lastly Scheck discussed the so-called balkanisation of investor flows – or home bias.

“Assets in a particular country are now financed almost exclusively by investors of that same country. In fact the cross border flows have migrated to the official sector with the European Central Bank playing the main intermediating role,” he said.

“It remains to be seen if this is a permanent shift back to a more national model with quasi domestic markets or whether cross border appetite will return – we think it likely that it will. But that depends on a full restoration of confidence in the European capital market,” he added.