The World Federation of Exchanges Seeks Risk-based Calibration of EU Bank Capital for National Equity Markets
London, July 5 – The World Federation of Exchanges (“The WFE”), the global industry group for exchanges and CCPs, today published its response to the European Banking Authority (EBA) concerning recognition of developed equity markets. In responding to the EBA, the WFE is seeking to promote market-based finance globally, by advocating for proportionate and predictable capital treatment for equity-market risk.
The WFE proposes that the favourable designation of ‘advanced-economy’ equity market in the draft EBA Regulatory Technical Standards be linked to objective criteria that are relevant to positions in the ‘trading book’. For example, it may be desirable to use a metric comparing the liquidity and volatility of a particular country to a global index. This is important for all firms not using internal models, as the standardised approach should avoid introducing distortions through arbitrary bucketing of countries.
Adding more countries to the advanced economy list, subject to their meeting appropriate criteria, would mean that brokers with operations in any given country will better be able to serve the needs of investors outside that country, allowing those investors to benefit from its economic growth and to diversify portfolios.
Nandini Sukumar, Chief Executive Officer of the WFE, said: “The list of countries included in the Basel approach does not appear to have a clear, risk-based methodology behind it. We hope the EBA will take this opportunity to implement the bank capital regime in the EU in such a way that all countries can understand the yardstick against which they are being judged for these purposes.”
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About the World Federation of Exchanges (WFE):
Established in 1961, the WFE is the global industry association for exchanges and clearing houses. Headquartered in London, it represents over 250 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of our members, 35% are in Asia-Pacific, 45% in EMEA and 20% in the Americas. WFE’s 57 member CCPs collectively ensure that risk takers post some $800bn (equivalent) of resources to back their positions, in the form of initial margin and default fund requirements. WFE exchanges are home to 47,919 listed companies, and the market capitalisation of these entities is over $109 trillion; around $137 trillion (EOB) in trading annually passes through WFE members (at end 2020).
The WFE is the definitive source for exchange-traded statistics and publishes over 350 market data indicators. Its free statistics database stretches back more than 40 years and provides information and insight into developments on global exchanges. The WFE works with standard-setters, policy makers, regulators and government organisations around the world to support and promote the development of fair, transparent, stable and efficient markets. The WFE shares regulatory authorities’ goals of ensuring the safety and soundness of the global financial system.
With extensive experience of developing and enforcing high standards of conduct, the WFE and its members support an orderly, secure, fair and transparent environment for investors; for companies that raise capital; and for all who deal with financial risk. We seek outcomes that maximise the common good, consumer confidence and economic growth. And we engage with policy makers and regulators in an open, collaborative way, reflecting the central, public role that exchanges and CCPs play in a globally integrated financial system.