CMU: a North Star for the long term
If Europe manages to staying on the CMU path, our chances of actually delivering a stronger European capital market will stay strong.
The engagement of retail investors is one of the main strengths of the European capital market. In the European Nasdaq markets, especially in Sweden, retail investors play an absolutely essential role in providing funding and growth opportunities for businesses, especially SMEs. On the Nasdaq First North Growth Market, retail investors provide up to 50% of the investments as well as trading volumes. Retail investors are stable shareholders who induce long-term sustainable capital. This helps to create favorable conditions for IPOs in the primary market as well as for the continued life of a company in the secondary markets.
I support the European Commission’s agenda for retail, but since retail investor activity is very much influenced by national policies, Member State initiatives are crucial, such as financial education, pension systems and savings-investment accounts, especially when they involve flat-rate taxation for investments and also automatic tax reporting, which significantly reduces administrative barriers for individuals. More than 3 million Swedes have such an account. In Finland, the introduction is more recent and the numbers are growing with currently over 225,000 accounts. In Estonia, the number of retail investors on the stock exchange has quadrupled in 5 years and now reaches 100,000.
The high participation of retailers on informed and multilateral exchanges means good quality of execution. In the Nordic countries, more than half of retail orders are traded within the spread between the best bid and ask price. In this context, I don’t see the need for dark execution for retail orders and am concerned about order flow payout. If it were widely introduced and accepted in Europe, there is a risk that retail volume would be diverted from enlightened and multilateral markets, with no real benefit.
Rather, retail investors are needed where IPOs take place, where stock prices are formed, and where they benefit from non-discretionary execution.
All investors, including individuals, need access to data to be active in the markets. Currently, Nasdaq stock data is available for free after 15 minutes and real-time data on the best bids and asks at cost, which we offer to retail investors for €1 per month. What investors lack is a picture of the off-exchange market. A consolidated strip in the EU could provide this by covering stock data from all stock exchanges, MTFs and systematic internalisers. What’s important to note is that the geography of Europe has a built-in natural latency. For a band in the EU to provide an accurate picture of all transactions equally and fairly for all users, it must have some delays.
In my experiences with market data, the greatest demand for the fastest data comes from larger, highly sophisticated professional market players and is for blue chip stocks. Making exchanges bear the cost of near real-time tape would therefore tend to benefit primarily the larger and more professional market participants, to the detriment of transparent markets. However, for smaller players such as retail investors, SMBs and small venues, a delayed tape is the product that would offer cost advantages. This is an example where it is important to keep the CMU as the North Star.
An initiative more in line with the spirit of CMU is the Listing Act initiative. The parts of this initiative that I support are clarifications within the framework of market abuse that should leave less room for divergent interpretations and sanctions. In addition, simpler prospectuses can be useful documents rather than obstacles for issuers and investors. I also insist that each issuer should have the power to decide when the cost of translating disclosure documents adds value, and that only English should always be permitted, as it is the predominant language in finance today. A single European access point will only add value if non-local investors can actually use it.
Letting the CMU be the North Star in all policy areas in the long term would increase the possibilities to further improve the European capital market and help Europe to strengthen its competitiveness in the global economy. Supporting stability and growth opportunities for individuals as well as businesses is what is needed to manage the current period of many levels of uncertainty and crises.