Proportional regulation of independent investment firms is needed to promote stronger capital markets in Europe, promoting liquidity, choice and stability to investors and businesses.

1. Investment Firm Review
Strengthening
European capital markets
through proportionality
Piebe Teeboom
Secretary General, FIA EPTA

2. FIA EPTA’s mission is to support transparent, robust and safe markets with a level
playing field for all market participants.
FIA EPTA’s members play a key role in the modern financial ecosystem, bridging gaps
in supply and demand between market participants and facilitating price discovery,
especially at times when markets are volatile.
Collectively, FIA EPTA members provide up to 45% of liquidity on European
exchanges, allowing end-investors to buy and sell financial instruments and manage
their financial risks efficiently and at low cost.
28
independent
principal
trading
investment
firms
2
Introducing the
FIA European Principal Traders Association
QED Conference on Prudential Regime for Investment Firms
4 September 2018

3. 3
• Provide liquidity and immediate risk
transfer in exchange-traded
markets, acting as an alternative to
bank-based finance
• Improve price formation, reduce
volatility and lower trading costs
• Catalyst for innovation, choice, and
competition in EU capital markets
• Help deliver a resilient and more diverse
financial market ecosystem, thus reducing
systemic risk
• Help improve market quality and lower
costs for retail and institutional investors
alike
• Allow end-investors to efficiently achieve
their investment and risk management
goals
• Contribute to wider economic prosperity
for European companies and citizens
• Highly-disciplined risk managers & market
makers
• Trade only on own-account, for their own risk
• Data-driven, innovation-oriented and nimble,
applying first-in-class technology
• Focus on exchange-traded and centrally
cleared instruments (shares, exchange traded
funds, options and futures)
• Diverse and highly competitive community of
independent firms
Contributing to a resilient and
diverse financial market ecosystem
QED Conference on Prudential Regime for Investment Firms
4 September 2018

4. STABLE & ORDERLY
Greater market resiliency through transparency and sound risk management
practices
EFFICIENT
A diverse, innovative and competitive capital markets ecosystem governed by
proportionate regulation which efficiently serves end-investors
FAIR
Minimizing undue barriers to entry, ensuring markets are non-discriminatory and
accessible to all appropriately regulated market participants
Our regulatory priorities for
strengthening European capital markets
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QED Conference on Prudential Regime for Investment Firms
4 September 2018

5. The Investment Firm Review
5
Classification
Class 3
Class 2
Class 1
Capital Requirements
• We strongly support the objectives for a new prudential regime for
non-systemic investment firms and welcome the K-factor model
• Proportionality and simplification compared to the current banking-
based framework are key
• Limited amendments will help establish appropriate requirements
for different types of firms
• Aiming to make the regime more proportionate, simpler to implement
and more efficient, while safeguarding prudential soundness
Our focus areas
QED Conference on Prudential Regime for Investment Firms
4 September 2018

6. Proportionality in scope:
Classification
6
• Correct classification is key
• Class 1 rightfully limited to systemically relevant institutions
• Current proposals however are likely to automatically classify all
independent market makers as Class 2
• Not reflective of the differences in size, scale and nature of activities
of different firms
• Might raise new barriers to entry, leading to less competition and
higher costs for end-investors
Solutions
 No automatic Class 2 classification for
all principal trading firms
• Link threshold to K-CMG<€15m
Class 3
Class 2
Class 1
QED Conference on Prudential Regime for Investment Firms
4 September 2018

7. 7
 Allow K-CMG to be used in practice (“either-or”
approach)
 Ensure scope of K-CMG is aligned with market practice
 Ensure K-DTF is proportionate and predictable:
smoothening with a fixed maximum cap based on Fixed
Overhead Requirement
 Address disproportionate impact of K-DTF on high-
notional Exchange Traded Derivatives
Solutions
Proportionality in outcomes:
Capital requirements
Risk-to-Market
• The proposal foresees four methods for calculating Risk-to-Market.
• Different methods may be more appropriate than others for
specific market making portfolios
• In current draft, one method – K-CMG (Clearing Member
Guarantee) cannot be used in practice
Risk-to-Firm
• We welcome a harmonised European approach to operational risk
• The design of K-DTF (Daily Trading Flow) can be improved
• Linear, procyclical features may lead to unintended outcomes
• Risk of constraining independent market markets ability to provide
liquidity during stressed market circumstances
QED Conference on Prudential Regime for Investment Firms
4 September 2018

8. Diverse product range calls for multiple
calculation methods
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QED Conference on Prudential Regime for Investment Firms
4 September 2018

9. Closing thoughts
9
• The Investment Firm Review should create a regime that is more
proportionate and simplified compared to the current banking-based
framework
• We strongly support this initiative and welcome the K-factor model.
• More can be done to establish a regime which recognises the diversity
of non-systemic investment firms
• Our key suggestions aim to make the regime more proportionate,
simpler to implement and more efficient, while safeguarding prudential
soundness
QED Conference on Prudential Regime for Investment Firms
4 September 2018

10. Thank you
pteeboom@fia.org
epta.fia.org
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