At the end of September of last year, the European Commission published the Action Plan on building a Capital Markets Union. One of the underlying actions was an extensive inventory of examples and evidence to identify where the new EU regulatory framework for financial services is not functioning properly and where we see unintended consequences. As pension fund and dedicated service provider, PFZW and PGGM hold a strong interest in the regulation and supervisory role of the EU in its financial markets. This so called Call for Evidence provided us with the opportunity to address our concerns and where possible solutions.
The full read can be found here.
1.Cash variation margin requirements under EMIR and CRDIV
No robust central clearing solution has yet been developed for pension funds that can be relied upon in stressed market conditions. We request the engagement of policymakers and other stakeholders to ensure that any solution that is developed is robust and can be relied upon even in stressed market conditions.
2.Synthetic risk-sharing securitisations are fit for STS securitisation regulation
we strongly encourage the inclusion of synthetic securitisation in the proposed regulatory framework of Simple, Transparent and Standardised (‘STS’) securitisations. Synthetic securitisations that meet certain criteria are good for the economy, conceptually simple and appropriate for standardization. From a financial stability perspective, they are often preferable to cash securitisations as they can help transfer risks off the bank’s balance sheet and share these with investors outside the banking sector.
3.MiFID II: Pre- and post-trade transparency is potentially disruptive
PGGM and PFZW support post-trade transparency shortly after a trade to prevent market disruptive behaviour of market participants and avoid market price distortion and would welcome a distinction between pre trade and post trade transparency to the market and pre trade and post trade transparency to regulators.
4.Harmonization of tax rules is needed
In our view, a harmonised definition of ‘pension fund’ in this context will significantly contribute to removing undesirable and unnecessary obstacles for pension funds when investing in other EU Member States and accordingly claiming domestic tax benefits applying to pension funds across other EU Member States.
5.Algorithmic trading is becoming mainstream. Clear distinction between HFT and algorithmic trading is needed under MiFIDII.
The way in which algorithmic trading and high frequency trading is used should be regulated and subject to monitoring as it is the behaviour of players in the market that creates the problem.