Supervision of most major European stock exchanges and other financial market infrastructure such as clearing houses will be centralised at an EU level under reforms agreed on Friday aimed at deepening integration of the bloc’s capital markets.
The overhaul is part of a broader effort by Brussels to bolster the EU’s flagging competitiveness in relation to the US by ensuring that companies can raise sufficient capital locally and grow to scale rather than crossing the Atlantic to obtain funding.
The European Commission argues that the current set-up, with 27 national regulators overseeing more than 35 different stock exchanges, as well as 17 separate central counterparties for clearing and 28 central securities depositories for settling trades, reduces liquidity and increases companies’ financing costs.
Under an agreement struck by EU finance ministers on Friday, the Paris-based European Securities and Markets Authority (Esma) will directly supervise key financial entities including eight trading venues, post-trading infrastructure and some crypto exchange platforms — although Germany has secured an exemption for Deutsche Börse.
The trading venues that would qualify for direct supervision by Esma include Euronext, Nasdaq, Cboe, Tradeweb and the London Stock Exchange Group’s European subsidiaries, according to people familiar with the compromise.
But the carve-out obtained by Germany to exclude Deutsche Börse until it reaches a certain market share threshold has riled smaller countries, including Luxembourg and Belgium, which in turn sought to claw back control from Esma for organisations operating in their own countries.
The new system of regulation will include some safeguards: nine national regulators acting jointly will be able to contest a draft binding decision by Esma, but the latter can still over-rule national objections, according to a draft compromise seen by the FT.
Some countries are critical of these safeguards, arguing that they add red tape and costs to what was supposed to be simplified and efficient market supervision modelled on the US’s Securities and Exchange Commission — something Esma’s outgoing chair Verena Ross warned against in a recent interview with the FT.
“It actually becomes a competitive disadvantage to be under Esma supervision,” said one EU diplomat.
Maria Luís Albuquerque, the European Commissioner in charge of financial regulation, also admitted that the deal struck “falls significantly short of the level of ambition needed”.
“We need Esma to become an effective supervisor, and this requires a strong operational and agile governance. The current compromise text would simply not allow for that,” she added.
Others saluted the agreement, which needs to be negotiated with the European parliament before it becomes EU law, as the best possible achievement. “We have a good, functional operational agreement,” said one official briefed on the compromise.
“People can hold out for the perfect or people can hold hands and jump together for the good,” said Simon Harris, Ireland’s finance minister, who was in charge of chairing negotiations.