Consolidated market data, centralised access to corporate reports, harmonised liquidity management – the Commission publishes proposal for Capital Markets Union regulation

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The European Commission has published its legislative proposals designed to contribute to achieving the objectives of the Capital Markets Union.
The proposals include, for example, changes to the use and distribution of market data.
The Commission also proposes setting up a European single access point (ESAP), which would provide centralised access to all reports required by regulation.
The extensive package also includes changes concerning the outsourcing and liquidity management of fund managers.

The overall aim of the Capital Markets Union (CMU) action plan is to increase and diversify the funding sources for businesses, boost the functioning of markets, and provide better information to investors, thus making investment opportunities more visible.

Easy and democratic access to market data

The most significant changes of the action plan are related to the MiFID/R regulation, especially where it concerns market data. Market data means information that stock exchanges, for example, are required to publish in connection to trade in financial instruments, such as shares, exchange-traded funds and bonds.

“At the moment, when a trade is executed in a stock exchange – the Helsinki stock exchange, for example – the exchange publishes data on the trade or listing. If an investor wants information on trades in a specific company’s shares, they have to collect information from all the different trading venues on which the company’s shares are traded. The objective of the reform is to centralise all this data in a single access point, also called ‘consolidated tape’. This is meant to ease the burden for both investors and supervisors. The proposal also harmonises the data reported on different financial instruments and increases transparency”, explains Satu Wennberg, head of consumer protection at Finance Finland (FFI).

Proposals that concern the transparency of trade and market structures must take into account the special characteristics of the well-functioning Nordic capital markets and market participants as well as the needs of customers. In Finance Finland’s opinion, the regulation of market data must be developed further.

The supplementary lower-level regulation currently being prepared forms an important part of the regulatory framework. After both levels of regulations are approved, the sector must be given 12 months for implementation.

A single access point for corporate reports

Regulation obligates companies to publish a massive amount of different kinds of reports and data. The Commission proposes setting up a European single access point (ESAP), which would provide centralised access to companies’ financial and sustainability-related information and product data. This database would be maintained by the European Securities and Markets Authority ESMA.

While the idea is supportable, the scale of the planned database worries FFI’s Head of Asset and Fund Management Jari Virta.

“Compiling sustainability information and various reports in a single access point is wise, but the planned database would also include prospectuses and key information documents, for example. Although this information is already being published, converting all this data in the format of the database would be a considerable task.”

Revised rules applying to the outsourcing and liquidity management of funds

The action plan includes two significant amendments that apply to funds. The first of these concerns the rules on how fund managers may outsource their functions and is chiefly designed in response to the changes caused by Brexit.

“The Commission wants to ensure that fund managers who delegate their functions to third parties especially outside of the EEA adhere to the same high standards applicable across the EU, and that these standards are not circumvented using ‘letterbox’ companies, for example”, says Virta.

Another change that affects funds is related to the market disruptions witnessed during the coronavirus crisis. Different member states currently have different tools to manage liquidity risks, and the Commission seeks to harmonise these tools with regulation.

“It is important that fund managers are able to manage liquidity risks effectively. Finland already has a good toolkit that includes proved and tested measures such as swing pricing and restricting redemptions. Harmonising other member states on the same level is a good decision”, Virta notes.

The proposal will next be entering discussions in the European Parliament and the member states’ Council. The next round will also further specify the new rules’ schedule of implementation.