More power to ESMA, single market operator: EU seeks to centralize financial markets

Brussels – EU decisions and the centralization of European financial markets are essential to achieve the investment union. The European Commission is putting on the table what it considers a key element of that project, aimed at reviving twelve‑star competitiveness, with a framework that goes beyond the Member States and their competences. It does so with the proposal to convert the directive on payment and securities settlement systems into a regulation. It means less discretion for governments and more management at a supra-national level. 

Additionally, as far as financial markets are concerned, the EU executive envisages the transfer of direct supervisory powers over critical market infrastructures such as certain trading venues, central counterparties (intermediaries), central securities depositories (banks and central banks), and all cryptocurrency service providers to the European Securities and Markets Authority (ESMA). ESMA is also expected to strengthen its coordination role for the asset management industry. “We will have to increase the budgetary resources for ESMA,” emphasises Maria Luís Albuquerque, Commissioner for Financial Services and the Savings and Investment Union. 

Too many national markets; ahead with the single market operator

The European Commission considers the single market still too fragmented. “Despite recent progress, EU financial markets remain significantly fragmented, small, and lack competitiveness,” said Albuquerque. 

Numbers in hand, in 2024, the market capitalisation of stock exchanges amounted to 73 percent of the EU’s Gross Domestic Product, compared to 270 percent in the US. Furthermore, within the EU, financial instruments are traded on over 300 trading venues, with 14 central counterparties providing clearing services and 32 central securities depositories (CSDs) offering settlement services, including 7 CSDs operated directly by central banks or other public sector entities. In contrast, the US market is more concentrated and specialised, particularly in settlement, with 2 CSDs and 8 CCPs. 

Hence, the proposal is to introduce “Pan-European Market Operator” (PEMO) status for trading venue operators to simplify corporate structures and licences into a single entity or a single licence format. “We are not copying the US model or introducing bizarre things,” Albuquerque stresses. “It is an ambitious reform,” which aims to change 18 different legislations through targeted amendments. 

The real hurdle of this initiative is political. It has to be seen how the member states will react to the European centralisation initiative. Albuquerque has no doubts: “It is in the interest of the countries” because, she explains, this will attract investors and resources to Europe. “I am concerned when European money goes out of Europe.” The Commission’s proposal aims to tackle this issue.