Attractiveness of the Paris financial centre

Announced in late 2023, the Attractiveness Act is going forward, with MP Alexandre Holroyd recently submitting a bill that contains several significant amendments. AMAFI is especially pleased about the following measures:

• Efforts to make IPO rules more flexible by authorising shares with multiple voting rights. This measure was the subject of a Treasury consultation last March, to which AMAFI provided input (AMAFI / 23-22) and which anticipated the draft directive on the topic in the EU’s Listing Act package.
• Steps to relax the rules for capital increases without pre-emptive subscription rights, which address long-standing calls by AMAFI to scrap a uniquely French scheme.
• The ability for French-approved investment services providers to promote products traded on third-country venues to retail investors without having to apply for recognition of that market. Conversely, promotion by a third-country market operator targeting these investors would be subject to a recognition requirement.

Several amendments called for by AMAFI went unheeded, including the request to raise the capitalisation threshold below which listed companies are eligible for inclusion in small-business equity savings plans from EUR 1 billion to EUR 2 billion and to remove size requirements in terms of headcount, total assets and revenues. AMAFI will continue to lobby for these proposals during future legislative initiatives.

Settlement

T+1

With the United States poised to shorten its securities settlement period from two days to just one at the end of May 2024, and with several countries, including the United Kingdom, contemplating a similar move, the European Commission is mulling the same action in the EU. At this stage, AMAFI (AMAFI / 24-15) has expressed serious concerns, arguing that such a change is not worthwhile because the costs outweigh the scant benefits. There is no evidence that EU markets would gain added appeal, since attractiveness is based on sound economic fundamentals and robust settlement processes, not on the length of the settlement cycle.

Nevertheless, if the decision is taken to shorten the cycle, several aspects must be addressed to ensure a smooth transition. These include:

• Close coordination with the United Kingdom and Switzerland.
• Adjustments to the penalty mechanism of the Central Securities Depositories Regulation (CSDR).
• Genuine harmonisation of different settlement processes across the EU, notably via the ECB’s T2S settlement platform, which is far from effective.

CSDR penalty mechanism

At the same time, ESMA is planning to amend the CSDR system of penalties for market participants responsible for settlement fails. A key goal is to set up a progressive penalty regime that considers how long these fails actually last.

AMAFI stressed that the finance industry shares ESMA’s goal of making settlement within the EU more efficient. But the proposed changes seem premature, insofar as the current penalty mechanism was introduced only recently, in February 2022, and the first step should be to improve market practices. Since any change to the penalty regime will entail major investments by financial institutions and settlement infrastructure providers, the implications for shortening Europe’s settlement cycle to T+1 need to be considered, because the result could be an increase in settlement fails.

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