AFME research shows market infrastructures bearing up well under COVID 19 strain

European capital markets have continued to operate well following the outbreak of COVID-19 according to new research from AFME.

By Richard Schwartz

New research from Europe’s banking association has shown a rapid increase in securities trading and post-trade activity has been recorded without any major disruption from a business continuity perspective. 

A new report from the Association of Financial Markets in Europe (AFME) showed that despite IPO issuance on European exchanges having declined 83% compared to a year ago, issuance of investment grade corporate bonds surpassed €50 billion in the first week of April and non-financial corporates have also rapidly increased secondary equity offerings in an effort to raise cash buffers.

“While prices and spreads have shifted considerably, 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,” said Julio Suarez, director of research at AFME “ In fact, there have been record volumes of new issuance in certain sectors.”

Only seven IPOs were launched on European exchanges between early March and mid-April, accumulating a total of €26.2 million in proceeds compared with €6.4 billion issued in the same period of 2019 — a 99.6% YoY and a 83% year-to-date decline. By contrast a total of €10.3 billion in secondary offerings was issued on European exchanges year-to-date as of 14 April – just below the €11 billion issued in the same period of 2019.

Meanwhile in March, repo transactions of European government bonds cleared on LCH SA and LCH Ltd accumulated a monthly increase of 17%, though this represents only a 2% increase against March 2019.

AFME is now working on identifying challenges related to upcoming regulatory implementation deadlines.

The research report welcomes measures undertaken by European regulators with regards to the implementation of changes to the tick size regime, the first wave of reporting obligations under the Securities Finance Transactions Regulation (SFTR) as well as the deferral of final implementation phases of the margin requirements for non-centrally cleared derivatives announced by the BCBS and IOSCO.

 

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