AFME has today published the first ever set of ESG guidelines for the European high yield market. The guidelines are intended to provide guidance on sustainable finance considerations for issuers and investors when leading or otherwise participating in offerings of non-investment grade notes (known as “high yield bonds”). The guidelines make recommendations for considerations and practices to encourage transparency and consistency in disclosure, as well as recommendations for due diligence practices related to such transactions. They are intended to assist the market by providing a framework for assessing relevant ESG factors, including: Disclosure and Diligence considerations; Impact of ESG factors on an issuer’s strategy and business model; and Exposure of an issuer to ESG risks, both at issuer and stakeholder level including sponsors and shareholders.

AFME has published a new research note on the“Impact of COVID-19 on European Capital Markets: Market Update”. The purpose of this report is to provide an update on how European capital markets have performed during the COVID-19 outbreak. This report follows a first publication launched in mid-April which assessed the initial impact of COVID-19 on Europe’s capital markets. Key findings: Issuance levels of investment grade (IG) bonds have reached record weekly, monthly and quarterly volumes. Q2 2020 saw the highest ever quarterly value of IG bond issuance for Non-financial corporates in Europe totalling EUR 225bn in proceeds. The increase has been largely driven by Central Bank support. An ESG recovery. European social, sustainable, and green bond issuance reached EUR 55.2bn in Q2 2020, the highest quarterly issuance volume to date. The increase was predominantly driven by social bond issuance which reached a record issued amount during the quarter of EUR19.1 bn. European market liquidity has deteriorated over the last few months. In most asset classes, bid ask spreads remain above pre-COVID levels with equity and corporate bond market bid-ask spreads respectively remaining elevated at about 30% and 40% higher than pre-crisis levels as of late June. Government bond bid-ask spreads also continue above pre-COVID levels, particularly for Italian and French sovereign bonds. Price volatility in equity and in fixed income markets also remain elevated and above pre-COVID levels. Follow on equity offerings have continued to support the recovery as companies seek to recapitalise and improve their balance sheet capacity. European secondary equity offerings totalled EUR 28bn in 2Q 2020, the largest quarterly volume since Q1 2017. After two months of a virtually inactive IPO market, the European primary equity market reopened in May with EUR 3.6bn in proceeds from 24 deals. Issuance volumes continue subdued compared to pre-COVID levels. European listed SMEs have also benefited from access to equity capital, predominantly from secondary offerings on Junior exchanges which totalled EUR 2.7bn between March and June of 2020. This amount, however, continues to represent a minor portion of total SME funding compared to bank lending. Record volumes of bank lending. Euro area statistics have shown a marked increase in corporate net lending and in gross lending to SMEs, as underpinned by EUR 2.6trn in state loan guarantees issued by European governments. Further increases in bank balance sheets are also to be expected as corporates continue to draw down on their existing borrowing facilities and banks channel government support programmes to clients. The report follows from AFME’s research on the initial impact of COVID-19 on Europe’s capital markets and summarises AFME’s approach to COVID-19 and the areas the association has been focusing on to ensure that markets remain well-functioning and liquid in light of the recent impact of the coronavirus. – Ends –

A diverse and competitive market structure has ensured European equity markets remain robust, according to a study published today (7 July) by the Association for Financial Markets in Europe (AFME). The study analysed the liquidity landscape of European markets using data provided by independent analytics firm Big XYT and revealed that for the first six months of 2020, 81% of addressable liquidity was executed on-venue, 13% on systematic internalisers and 6% over the counter (OTC). Other key findings include: 81% of total addressable liquidity is found on-venue, with 13% being traded on systematic internalisers and 6% pure OTC. The share between lit and dark markets remained stable after the application of MIFID II, with the quality of price formation remaining strong. The current range of execution venues serve different functions and market needs. Continuous lit order book trading is not interchangeable with the service provided by systematic internalisers, which play a critical role for pension and investment funds. Pensioners and savers would be worse-off if diversity of trading was curtailed. Better data reporting is needed to benefit investors, including increased identification and flagging of the different trade categories. This analysis was produced using data provided by Big XYT, an independent analytics firm. For more details, read the report and our press release

AFME has set out its priorities for the future EU-UK relationship in financial services, calling the EU and UK to put in place equivalence determinations and address regulatory challenges as soon as possible to minimise disruption to markets and businesses. The paper also highlights outstanding regulatory challenges for financial services that should be addressed ahead of the end of the transition period.

AFME has release a discussion paper that highlights how industry collaboration can better strengthen and harmonise the EU’s supervisory framework in the AML/CFT space.

AFME has published a new research note on the “Initial impact of COVID-19 on Europe’s capital markets”. The report analyses the significant impact that Covid-19 has had across all major capital markets sectors including: equities (IPOs and secondary), fixed income primary and secondary (sovereigns, corporates, securitisation, high yield, leveraged finance), FX, derivatives, and banks. The report also highlights AFME’s initiatives to support markets during the COVID-19 crisis. Key findings: European capital markets have continued to operate well following the outbreak of COVID-19, with liquidity ranging from very good to mixed, depending on the sector. In fact, there have been record volumes of new issuance in certain sectors. Issuance of investment grade corporate bonds surpassed EUR 50bn in the first week of April; this amount was also the highest weekly amount ever issued in Europe. French companies have been particularly active in this respect. This is remarkable, given that many, if not most, financial market participants are working remotely. Markets are more volatile than a few months ago, which has made it costly for some companies to list through IPOs. IPO issuance on European exchanges has declined 83% compared to a year ago. Markets have been playing their role in providing liquidity, price formation, and timely clearing and settlement procedures, contributing to capital allocation and helping investors manage their portfolios. Equity average daily trading has surged 94% year on year in March-20, corporate bond trading increased 31% year on year in Q1 2020, and FX trading rose 61% year on year in March-20. The rapid increase in securities trading and post-trade activity has been carried out without any major disruption from a business continuity perspective. Securitisation secondary markets have suffered disproportionate reductions in liquidity due to central bank support which is more limited in scope and slower and more difficult to access than for other fixed income sectors. Banks operating in Europe are well-positioned from a solvency and liquidity perspective to support households and businesses during this period of abnormal economic pressure.

AFME has published an introductory guide to Shareholders Rights Directive II, and the new requirements which will apply from September 2020. The guide explains the key impacts to existing processes on corporate actions, shareholder identification and general meetings.

AFME has summarised the latest European Regulatory Developments on Sustainable Finance into a “State of Play” document where we take stock of the recent events and provide a clear overview of the upcoming initiatives. The document covers all the main topics, including taxonomy, reporting & disclosure, benchmarks, climate-risk stress-testing and others.

AFME has updated its European Primary Dealer Handbook, providing a detailed description of the infrastructure of the Primary and Secondary government debt markets in 20 European jurisdictions, as well as the European Stability Mechanism (ESM). This latest version of the Handbook includes information on 5 additional Primary Dealer markets, which were not previously included. These are: Bulgaria Czech Republic Hungary Poland European Stability Mechanism (ESM) Since it was first published in 2008, this handbook has been an invaluable reference work for European government bond market participants, dealers, brokers, DMOs, investors, as well as policymakers and journalists. Primary Dealers fulfil a key role by providing liquidity in the markets for government debt. The sovereign debt crisis emphasised the importance of Primary Dealers within the structure of the government debt markets.

Ahead of the European Commission’s MiFID2/R Review, the European Forum of Securities Associations (EFSA) has published a paper calling for certain areas of the regulation to be recalibrated in order to deliver its intended policy outcome of establishing a more transparent financial system that works to the benefit of the economy and society as a whole. MiFID 2/R, in conjunction with Level 2 and Level 3, forms the cornerstone of financial regulation for securities markets in the EU. However, there are some areas of MiFID2/R which need recalibration in order to deliver on the regulation’s original aims and to avoid unintended harm to the market, liquidity and investor choice. The paper highlights a number of issues which EFSA members believe should be a priority in the context of a review. Areas where amendments and further review are needed include: Market structure Transparency and data quality Market data costs Cost and charges Product governance Best execution reporting Research