Leaders of the largest European derivatives exchange operators have offered their perspectives on how a changing political landscape could potentially affect the financial markets.
With France’s decisive second round of voting slated for 7 July, the first televised US presidential debate sounding the starting gun for November’s election race, and a total of 55 countries heading to the polls this year, the financial world is closely monitoring political scenarios as they unfold.
Speaking on a panel at FIA IDX on 19 June ahead of the UK election, Chris Rhodes, president of London-based ICE Futures Europe, said his clients were more concerned about the outcome of the US election later this year than about the UK vote (which took place on 4 July).
“When speaking to our international customer base, particularly the buy-side, it’s about the US election because of potential market moves in equities, bonds, commodities or anything else,” Rhodes said.
“The focus for the market is on which way that goes, and there will be an impact on the energy market because the Republicans and Democrats have different views, for example on liquefied natural gas permits and sending more LNG to Europe. There is a heightened risk awareness.”
Speaking about the election in the UK, Rhodes said the Labour Party, which had widely been tipped to oust the incumbent Conservatives, had been engaging more and more with City leaders.
“Labour has done some great outreach with financial services players to ensure there is a steady anchor there and to build on some of the progress that's already been made in the last two to three years.”
In the EU, recent gains for the far-right in the European Parliament elections has prompted speculation on whether the EU’s agenda on the green transition might be watered down as well as charges that the bloc may become less predictable and attractive to international investors.
However, Stephane Boujnah, CEO and chairman of the managing board of pan-European exchange Euronext, said that he believes there will be no immediate changes in the direction of travel of EU policy priorities even if there is a slow rise of the far-right.
“With the European elections there is a misunderstanding, an optical illusion, because in reality, the mainstream Conservatives are stronger in the European Parliament and the mainstream Social Democrats are more or less at the same level,” Boujnah said on the panel.
“The big hit has been on the extreme left, the Greens and the central Liberals, while the far-right is doing marginally better. So there is unlikely to be any impact from these elections on the direction of travel [of EU policy priorities].”
Boujnah acknowledged that in France, President Emmanuel Macron’s recent call for a snap election had created uncertainty in the markets, leading to wider spreads on companies exposed to the French environment, but he added that politics would not change overnight, nor would the impact on the economy be felt in the coming months.
“We have strong institutions, we have the European Central Bank, we have a single currency, and there is no Liz Truss mini-budget risk in France,” he said.
When it comes to the EU’s aim for a capital markets union – an ambition outlined a decade ago when the UK was part of the bloc – Boujnah noted that the renewed momentum behind it will continue because “for the first time, this project is no longer a political orphan”.
Leaders in countries like France, Germany, Italy, Spain and the Netherlands are really pushing for strategic autonomy to unify the bloc’s fragmented capital markets and counter the threat of further capital heading abroad, he said.
Regulation
The exchange leaders also discussed the implications of regulation on their markets. A recent FIA and Acuiti survey of market participants found that regulatory burden was viewed as a major challenge for the industry, with lengthy and complex frameworks requiring significant resource mobilisation.
The exchange leaders on the panel agreed that complex regulation is largely now a fact of life in modern financial markets. Robbert Booij, who officially became CEO of Eurex Frankfurt on 1 July, said that regulations are put in place for a reason, namely, to keep markets safe, though there are areas where processes could be simplified.
“If you think about DORA (the Digital Operational Resilience Act), for many people, this is going to be a big hassle for months but it’s also there to make sure that markets are safe and to address cyber-security concerns, so it has a purpose,” he said. “However, one thing that I always felt when I was a clearing member was that duplicate transaction reporting requirements for exchange-traded derivatives under EMIR and MIFIR could be significantly simplified.”
Speaking about the EMIR 3.0 regulation, which will require EU clearing members and clients to hold an active account at EU-authorised CCPs, Booij said he has always advocated for customer choice and his stance has not changed since he moved from his role as head of ABN Amro Clearing Europe to become chief of the Eurex exchange.
“Customer choice means you can choose where you want to clear your contracts depending on market liquidity, risk management standards and how you are treated as a customer,” Booij said.
“Looking at Eurex, I see we have a great team and a great system. Also, looking at prices, they are very competitive, so there is choice. One thing I have always believed is that customers should decide for themselves where they want to clear. I understand the regulatory focus, but I also believe that customers have a credible alternative clearing at Eurex.”
Matthew Chamberlain, chief executive of the London Metal Exchange, noted that in some cases exchanges can help the market with regulation challenges.
“For us, it’s not just about financial regulation, there is also regulation of the underlying physical, where issues like responsible sourcing and carbon data are increasingly coming to the fore. On those, exchanges have an important role to play because we are in many ways a choke point, where a lot of material passes through,” Chamberlain said.
“We’ve had support from our users to leverage our status to embed responsible sourcing requirements into our brand listings, which then takes the burden off the rest of the industry because they know if they are trading an LME-listed brand of metal, it ticks the responsible sourcing boxes. Our approach has been to try to help our market with these regulations,” he said.
