EU in talks to delay $61 trillion securities market reforms

Brussels is facing pressure from lobby groups to postpone the February start date with changes designed to help make the block safer and more efficient. Under the proposals, if one party fails to deliver the security as planned, the other party will be able to purchase it independently, then refund the cost to the original counterparty, according to Ashley Rowlands, managing associate at Linkletters LLP.

He said that this process is voluntary at present, but will become mandatory.

The measures have drawn backlash from industry groups, the European Securities and Markets Authority and Italian authorities, amid concerns that firms are unprepared and that the change could jeopardize the bloc’s competitiveness. The European Union’s securities settlement system held more than 53 trillion-euro ($61 trillion) worth of securities at the end of 2019, according to data from the European Central Bank cited by the European Commission.

According to a copy of the agenda, the working party of the Council on Financial Services and Banking Union will discuss the matter at 1:30 pm London time.

‘Really problematic’

Esma called for the delay in September, saying the reforms were causing “serious difficulties” to companies.

And the working group’s Italian delegation has said the reforms are “really problematic” and could increase pressure on liquidity in the market, as well as drive up the cost of some securities, according to a Monday working paper.

“The implementation of the mandatory buy-in rules in their current form could potentially have a negative impact on the efficiency and competitiveness of European capital and settlement markets,” the Italian delegation said. ESMA has said that changing systems and processes can increase costs for businesses.

For the rules to be implemented in a timely manner, a delegated act is needed from the European Commission, which the Council has yet to receive, according to an EU official, who asked not to be named. A representative for the EU’s executive branch was not immediately available to respond to an emailed request for comment.

According to Linklater Rowlands, the reforms will affect secondary-market bond and share sales, as well as some stock loan and repurchase agreements. The changes could deter firms from trading certain securities and reduce market liquidity, he said.

“People have to optimize their systems internally, there’s a huge lift on the legal side,” he said in an interview. “If you look at the broader context where people have recently had big Libre, Brexit and MiFID II repair projects. Over the years, this is something that has caused a bit of tension.”

This story has been published without modification in text from a wire agency feed.