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Developing equity financing in the EU - Financing of the EU economy
What can EU regulation do to support financing by capital markets?
By Boujnah Stéphane - Chief Executive Officer, Euronext N.V.
The Capital Markets Union (CMU) is a powerful vision for the future of the European Union. Europe is not only about finance. But finance can make or break Europe. The CMU will help make the European financial system stronger and more committed to address the financing needs of companies of all sizes.
Its regulatory framework must allow companies to grow through different stages of development as part of a ‘funding escalator’ of financing options which are linked and mutually dependent. The framework will have to recognise all types of international and local companies and investors. The CMU must increase financing by capital markets in the EU while reflecting this very diversity of financing needs. Euronext, as a result of its history of exchange harmonisation, has responded to these challenges by establishing a pan-European exchange, driven by its local characteristics to serve the real economy. We are united in diversity. This balance should be a central consideration in the CMU agenda, in particular in the review of the Prospectus Directive.
Euronext believes EU capital markets would benefit from a strengthened Single Rulebook. This can be done via a greater use of regulations, a development we welcome in the review of the Prospectus regime which should strive to establish a true level playing field. This is particularly the case when it comes to cross-border financing and investment opportunities, both at European and international levels. It is critical that the CMU makes progress towards greater harmonisation.
At the same time, the CMU should not undermine the ability of exchanges to offer diversified options to companies accessing capital markets. When companies consider a listing, they must find solutions tailored to their conditions. Euronext offers listing both via its Regulated Market and via Alternext, a Multilateral Trading Facility. While listing on the Regulated Market requires compliance with a full set of disclosure requirements as well as adoption of IFRS, an admission to trading on Alternext provides tailored disclosure options and flexibility to opt for either local GAAP or IFRS. We broadly welcome the Commission’s proposal to lighten the burden on SMEs and midcaps, but believe all SMEs – regardless of their market of listing – should be able to avail themselves of proportionate disclosure.
Allowing flexibility for issuers, taking into consideration initial and ongoing requirements and the investor base, should facilitate both cross-border and domestic capital raising. We support national exemption regimes in the Prospectus Regulation for capital raising below €10m as a means of encouraging local markets and recognising the domestic nature of the issuer demand and investor supply. Such national regimes should give flexibility to the exchange, issuers and investors to determine the appropriate levels of information disclosure for small and local capital raising. This would mirror the current practice in respect of private placement on our markets.
All these initiatives will remain moot in the event of agreement on a European Financial Transaction Tax (EU FTT). The EU FTT would dramatically reduce the level of liquidity available to SMEs, which is already low. As a result, SMEs would be primary victims of this tax which would affect any type of stocks, irrespective of the size of the company. Given its impact on the financing of the real economy, European governments should consider whether such a tax is consistent with growth objectives in Europe, and practically compatible with the goals of the CMU. As a matter of fact, this tax raises immense problems in defining its perimeter, applies to a very mobile base, will not generate any proceeds for smaller countries and can trigger massive relocation of financing operations, destroying jobs within the Eurozone.
European actors of the financial industry have a responsibility and an opportunity to help Europe in a critical phase of its history to accelerate the building of an integrated Eurozone. Euronext, as the leading pan-European venue for financing the Eurozone’s real economy, will spare no effort in rising up to the challenge.