Current European Union plans to make the European capital markets more liquid and efficient could backfire, the chairman of the New York-based Securities Industry Association (SIA) told a conference in Brussels this morning.
Dick Thornburgh – the Chief Risk Officer for Credit Suisse Group and a member of the Executive Board, as well as the 2004 Chairman of the Securities Industry Association-said that he thought “certain elements of the Financial Services Action Plan, in particular, the Transparency and Investment Services Directives, can benefit from further refinement if they are to be as effective as possible in helping provide investors with world-class markets.”
The Transparency Directive lays down rules by which companies communicate information to the financial markets, while the Investment Services Directive sets out the regime governing competition between investment banks and stock exchanges.
Thornburgh says the Transparency Obligations Directive s objectinable because it would require non-EU issuers of securities listed on EU exchanges to produce financial statements and reports prepared under International Accounting Standards-unless their own domestic law provides “equivalent” standards. “The proposed Directive does not grandfather existing listed debt issues,” says Thornburgh. “This concern is not only for U.S.-based issuers, but the wide number of South American and Asian-Pacific issuers. And even though we are in the middle of a process of accounting convergence, it is still an open question as to whether U.S. GAAP for new securities will be found equivalent to IAS within the deadline established by the Directive. If the Directive’s text is not corrected, there could be major damage to European capital markets-diminished liquidity, reduced investor choice and less appeal to non-EU country issuers.”
Thornburgh also said that the proposed Investment Services Directive had adopted the wrong approach to pre-trade transparency, because it did not “adequately account for investors’ desire for liquidity and desire for varied and tailored types of trading. In fact, the pre-trade transparency provisions of the proposed Directive could actually diminish investor choice by forcing trading back onto exchanges or, even, away from Europe altogether. Based on our experience, discriminating against one market or trading method over another stifles innovation and results in less investor choice.”