AFME has today published a new guide, European SPACs: Guide to Regulatory Obligations. SPACs offer an alternative to traditional IPOs for companies going public, and they can be a better fit for certain companies. However, the structural requirements for SPACs are set by the individual EU-member states at the national level, in line with local listing rules or domestic corporate law, so there is little harmonization of the regulatory approach to SPAC transactions across the EU. Given how quickly the market is developing, market participants need to be able to track and align considerations related to SPACs, as well as to interpret existing and new pan-European (and national) regulatory frameworks. The purpose of this guide is therefore to assist AFME members in understanding those considerations and obligations when participating in SPAC transactions.

New GFMA Paper by BCG and Clifford Chance Outlines Benefits and Challenges of Wholesale Central Bank Digital Currencies Paper Encourages Collaboration between Public and Private Institutions and Outlines Opportunities, Challenges, and Questions Concerning the Design, Issuance, Legal Status, and Use Cases of wCBDCs BOSTON, February 22, 2022—Over 70% of central banks have begun exploring the possibility of introducing central bank digital currencies (CBDCs). A new paper, commissioned by the Global Financial Markets Association (GFMA) from Boston Consulting Group (BCG) and Clifford Chance LLP, identifies the GFMA’s critical considerations for the success of potential CBDCs in wholesale markets (wCBDCs). EntitledCentral Bank Digital Currencies: A Global Capital Markets Perspective, the paper is based on research, as well as extensive interviews conducted with contributing member firms and market participants with particular expertise relevant to CBDCs, during the fourth quarter of 2021. The authors’ recommendations stress that: Central banks in collaboration with the private sector should continue to explore the role that wCBDCs can play in driving innovation and efficiencies in wholesale markets. Central banks should take a measured approach in the introduction of wCBDCs and the timeline should be cautious to mitigate any potential transition risk impacting safety and soundness, and financial stability. wCBDCs are expected to operate alongside legacy instruments and systems, and not to replace them. It is therefore important for wCBDCs to be interoperable with the broader financial market ecosystem. The use of sandboxes, proof of concept, dialogue with market participants, and pilot programs based on specific use cases will test the application of wCBDCs and help identify the impact on capital markets. After sufficient analysis of lessons learned, financial institutions and regulators should define a transition period that is reflective of the risks and opportunities, and an effective implementation. The paper outlines the opportunities, challenges, and questions concerning the design, issuance, and legal status of wCBDCs, while introducing use cases to provide a framework for continuing a constructive conversation.

The Association for Financial Markets in Europe (AFME) has published a new report, commissioned from Expand Research LLP, which finds that the cost associated with fixed income market data has soared between 2017-2021, increasing by 50%. This has been driven by price increases of 35% on the existing cost base and new, incremental usage which accounts for an additional 15% of spend. This is compared to a 25% price increase for sell-side market data more generally. Fixed income data costs are therefore rising much faster than the average cost of overall market data. The report, “The Rising Cost of European Fixed Income Market Data”, identifies the sources of rising market data costs within fixed income markets and proposes solutions to encourage greater liquidity, efficiencies and growth in European markets, which play a critical role in providing funding for governments and corporates. Key findings: Costs in all categories have increased, with the composition of data spend significantly different than for equities. Buyside costs have also increased significantly. Figure 3 of the report demonstrates that costs have increased regardless of the number of market data users and is driven by price increases and changes to charging structures. Figure 3 also demonstrates that the cost of sourcing the data is rising yearly and the trend is likely to continue, steepening the trajectory further. As a result, increasing market data costs are likely to have forced some consumers to scale back their data purchase to a minimum and often to economically suboptimal levels. In some cases, it could lead to strategic decisions to withdraw from specific markets. The report identifies a first step to achieving more reasonable fixed income data costs is to establish and apply a set of industry developed standards to fixed income market data across the industry. These should cover: Standardised pricing models for purchasing data from all vendors. Uniform formats in which the data is stored and provided to firms. A consistent procedure for accessing the data.

This report is part of the European Benchmarking Exercise, a market-led initiative organised by AFME, EDW and TSI Its purpose is further to enhance the quality and usefulness of disclosure in the private cashsecuritisation market, both ABCP and balance sheet financed, in the EU and UK, in order toassist market participants and reassure supervisors Synthetic securitisations and public ABS bonds are not in scope of this report This report provides, on a voluntary basis, aggregated transaction-level data gathered from12 banks across 6 countries The overall market is estimated at least €189bn of total commitments; specific data receivedcovers €63bn of commitments Private securitisations backed by Trade Receivables and Auto Loans or Leasing make uparound 80% of the market, of which 39% and 80% respectively are funded throughsyndicated transactions Over 80% of private cash securitisations fund sellers in the EU, and over 70% directly fundreal economy (non-financial) sectors of the economy As is usual, Trade Receivables contain certain concentrations of debtors, while Auto Loansor Leasing have more granular portfolios The majority of transactions were initiated after the Global Financial Crisis but before theentry into force of the Securitisation Regulation Of all transactions by volume, 84% were undertaken by sellers with ratings of BBB and below at inception, and the average seller rating was BBB. In contrast the average transaction rating is in the range A to AA. This shows that private cash securitisations provide a cost-effectivemeans of financing especially for lower rated sellers. We expect this to be the first in a series of such reports, to be published regularly over time. All amounts are in EUR.

A new report by the Association for Financial Markets in Europe (AFME) and Linklaters titled, “Sustainable Finance in Europe: Regulatory State of Play” provides a practical guide to the significant number of initiatives which make up the regulatory framework for sustainable finance in the EU, UK and Switzerland. It highlights how the banking sector is impacted and makes recommendations to further the goal of developing sustainable finance in Europe. The report provides analysis and identifies key milestones and actions for the banking industry in the five key elements of the European sustainable finance regulatory framework including: Sustainability reporting and disclosures; The development of taxonomies for sustainable activities; The development of market standards; Incorporation of ESG into banks’ risk management; and Initiatives relating to sustainable corporate governance. AFME assesses the current state of play of the European regulatory framework and highlights three priority areas to facilitate the flow of capital to help achieve sustainability objectives: Finalising effective foundations Significant progress has been made over a short space of time, but it is important to finalise and implement effective regulatory building blocks as enablers of sustainable finance including (a) developing a disclosure framework for sustainability reporting; (b) providing a common classification system of sustainable economic activities; and (c) ensuring that ESG risks are effectively integrated into banks’ risk management. Ensuring coherence and consistency Due to the urgency of the task to tackle climate change, a very large number of initiatives have been put in place in a short space of time. While recognising the urgency of the task at hand, it is necessary to ensure that the framework is coherent and consistent, particularly as many aspects are complex and interconnected. As the foundations are finalised, AFME calls on policymakers and regulators to carefully consider the coherence of the framework as a whole to ensure that it is meeting its goals of facilitating the allocation of investment to meet sustainable objectives, avoids undue complexity and overlapping, duplicative or inconsistent requirements. Further enhancing the consistency, understanding and usability of the framework would facilitate its implementation and help support well-functioning sustainable finance markets. Strong international coordination Climate change and other sustainability objectives are a global challenge which necessitates an internationally coordinated response. In order to maximise the benefits of sustainable finance, it is vital to leverage international capital markets and to provide a coherent approach for multinational businesses and financial institutions which are key to supporting the transition.

European fixed income markets play a critical role in providing funding for corporates and governments. The purpose of this document is to provide an educational overview of the current EU fixed income market size and structure. We examine how these markets serve corporates and sovereigns, differentiating between fixed income and equity market practices, types of fixed income investors and ways of transacting trades. We evaluate the relationship between liquidity and transparency, electronic trading compared to voice, and conclude with a focus on future developments.

The Association for Financial Markets in Europe (AFME), with support from PwC and Linklaters, has today published a new report, which provides a practical guide for European authorities and Member States looking to introduce a new hybrid recapitalisation instrument that could help provide funding for smaller corporates post-COVID. The report, “Introducing a New Hybrid Recapitalisation Instrument for Smaller EU Corporates” builds on an earlier January 2021 report which examined the recapitalisation needs of smaller EU corporates following the pandemic and found that a hybrid equity instrument could enable a greater number of SMEs to gain access to equity-like funding without relinquishing control of their organisation – one of their chief concerns. However, such a solution needs to be tailored to the local accounting, legal framework, and tax and insolvency treatment in individual EU Member States, to achieve the key attributes necessary for creating an instrument which meets the needs of both investors and corporate issuers. Existing domestic frameworks in Germany, France, Italy, Spain and the Netherlands are presented as examples which officials in other Member States can refer to in developing structures which work in their own countries and preferably at EU-wide level. The report presents the following analysis: An overview of the key hybrid instrument attributes required to achieve the desired equity accounting, tax deductibility and insolvency treatment. A summary of state aid considerations that are likely to be taken into account in assessing the introduction of such equity-accounted hybrid instruments for the purposes of compliance with EU state aid requirements. A generic sample term sheet outlining the proposed instrument features which can be used as a reference for discussion with officials, investors and mid-cap/SME corporate issuers. AFME believes the report will provide a useful reference for policy makers and key stakeholders in order to bring the idea of a new hybrid instrument for SMEs to reality and that officials, corporates and investors can continue to work together to design solutions adjusted to the needs of companies seeking investment capital in the phase of economic recovery. This report follows AFME’s January 2021 report, which estimated that Europe could face a funding gap of €450-600bn in equity and hybrid capital to prevent business defaults with the gradual reduction of state support measures.

AFME is pleased to publish “Guiding Principles for Data Sharing: A Perspective for European Capital Markets”, which has been developed with input from members of the AFME Data Strategy Working Group. Data sharing is an essential function within European capital markets, in which firms see opportunities for further data sharing to support common objectives such as greater security and resilience, sustainability, innovation and compliance and monitoring. European authorities have also similarly identified the value of data, both within and across sectors. For example, the European Data Strategy, published by the European Commission in February 2020, sets out an ambitious horizontal strategy for promoting data-driven innovation across multiple industry sectors and providing clear rules for data access. However, barriers to data sharing remain, with high costs, security and data protection risks and a lack of standardisation, all of which currently reduce incentives for sharing between market participants. We believe these issues must first be addressed as part of any further data sharing initiatives in order to be cost-effective and bring value to the market and end users. This paper examines these opportunities, barriers and risks in further detail, and concludes by providing nine guiding principles to support European policymakers in addressing the risks and barriers identified when implementing future data sharing policies. These principles are also applicable in a global context, and we welcome further collaboration between public authorities and the industry across jurisdictions to support the development of global data standards and cross-border data sharing arrangements.

A new report by the Global Financial Markets Association (GFMA) and Boston Consulting Group (BCG) titled, “Unlocking the Potential of Carbon Markets to Achieve Global Net Zero”, finds that close to 80% of greenhouse gas emissions are not covered by regulated carbon pricing today. In order to meet the Paris Agreement goals, price levels need to increase to an estimated $50-150/tonne average by 2030 from the current global average of <$5/tonne. To do this, the report highlights the role and importance of both compliance and voluntary carbon markets (a description of which can be found in the below graphic) to the low-carbon transition.

Press releaseavailable inEnglish,French,German,Italian,Spanish. Individual country analysis available forUK,France,Germany,Italy,Spain. Record levels of capital markets funding supported EU businesses in the first half of 2021, reflecting significant recapitalisation needs in response to the pandemic and favourable conditions for raising capital; Capital markets funding to European SMEs grew at a record rate,with the increase predominantly driven by venture capital and private equity growth funds; In spite of these record growth rates, absolute levels of market-based financing remain below those of other major jurisdictions. Additionally, securitisation issuance levels continued to decline; The increases observed may be influenced by the extraordinary conditions of the past year, public support programmes and other factors; ESG issuance in Europe continues to expand in Europe, up 69% compared to 2020; Inefficient withholding tax collection procedures continue to be a barrierto cross-border integration in EU securities markets. European capital markets activity has surged in the past year as businesses emerging from the pandemic have sought to raise capital according to a report published today by the Association for Financial Markets in Europe (AFME) in collaboration with 10 other European and international organisations. The fourth edition of the “Capital Markets Union Key Performance Indicators” report tracks how individual Member States have progressed against 8 key performance indicators on metrics such as access to market finance, levels of bank lending, transition to sustainable finance and a supportive fintech environment. Key findings: European primary capital markets continued to expand during H1 2021for the third consecutive year, with the proportion of markets-based funding for EU corporates rising to 16.8%; Many European SMEs have benefited from funding availability from private markets. Europe is the fastest-growing major region by private capital investment with investment in European SMEs growing by 2.4 times year-on-year in the first half of 2021. European households have increased the amount of capital markets savingsover the last 2 years, although this is predominantly driven by valuation gains of existing products. Countries that entered the COVID-19 crisis with low capital markets savings have increased the most their bank deposit holdings, which suggests that investment vehicles and household incentives could be enhanced in some Member States; The depth of the EU securitisation market has declined over the last 3 years.Unlike in the US, the proportion of EU securitised products and loan disposals relative to total loans outstanding has consistently declined over the last 3 years. This remains an area of concern as securitisation facilitates risk transfer and enables the banking sector to transform loans into tradeable securities, thereby allowing banks to continue lending to corporates; The EU continued to improve the local FinTech ecosystemwith the launch of new regulatory sandboxes in Austria, Spain, Hungary, and Greece over the last year. The EU has also benefitted from a record increase in funding which has also resulted in a rapid surge in the number and valuation of FinTech unicorns (i.e. growth companies valued above $1bn); EU ESG debt markets have expanded rapidly during H1 2021, with total issuance of ESG-labelled bonds reaching EUR 201.4 bn, representing 19.6% of total EU bond issuance during the first half of 2021; As a special feature of this edition, we have included an analysis of the current variations between Member States in their procedures forwithholding tax relief,which have a significant negative impact on cross-border investment, cost of capital and GDP. In 10 of the 27 EU Member States there is a lack of a relief-at-source mechanism which frequently results in long delays in tax reclaim reducing investor returns. The report was authored by AFME with the support of the Climate Bonds Initiative (CBI), as well as European trade associations representing: business angels (BAE, EBAN), fund and asset management (EFAMA), crowdfunding (ECN), retail and institutional investors (European Investors), stock exchanges (FESE), venture capital and private equity (Invest Europe), private credit and direct lending (ACC) and pension funds (Pensions Europe).