WFE and EBA advocate predictable capital treatment for equity-market risk

By Joy Dumasia

The World Federation of Exchanges (“The WFE”), the global industry group for exchanges and CCPs, published its response to the European Banking Authority (EBA) concerning the recognition of developed equity markets. In responding to the EBA, the WFE seeks to promote market-based finance globally by advocating for proportionate and predictable capital treatment for equity-market risk.

The WFE proposes that the favourable designation of the developed economy equity market in the draft EBA Regulatory Technical Standards is linked to objective criteria relevant to positions in the trading book. It is essential for all firms not to use internal models, as the standardised approach should avoid introducing distortions through arbitrary bucketing of countries.

Adding more countries to the advanced economy list subject to their meeting appropriate criteria would mean that brokers with operations in any given country will better serve the needs of investors outside that country.

Nandini Sukumar, Chief Executive Officer of the WFE, said: “The list of countries included in the Basel approach does not appear to have a clear, risk-based methodology behind it. We hope the EBA will take this opportunity to implement the bank capital regime in the EU in such a way that all countries can understand the yardstick against which they are being judged for these purposes.”

Established in 1961, the WFE is the global industry association for exchanges and clearinghouses. It represents over 250 market infrastructure providers headquartered in London, including standalone CCPs not part of exchange groups. Its members, 35% are in Asia-Pacific, 45% in EMEA and 20% in the Americas. WFE exchanges are home to 47,919 listed companies, and the market capitalisation of these entities is over $109 trillion.