The International Capital Markets Association (ICMA) chief
executive Martin Scheck has revealed the key concerns of its
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.
ICMAs 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,"
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
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
didnt even know whether they were under domestic or
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
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.