The Autorité des marchés financiers (AMF) has today published the 2010 edition of Risk and Trend Mapping for Financial Markets and Retail Savings . This edition, the fourth, has been expanded to include contributions from the AMF's newly formed risks committee, which is tasked with combining macroeconomic analyses with operational input from the regulator's departments.
Enhancing its risk-based approach and the surveillance of markets and market participants is one of the AMF's key commitments. Risk and Trend Mapping, which is divided into four chapters covering the credit and equity markets, market structure and intermediaries, household saving and collective investment management, contributes to the AMF's dialogue with the financial community on the analysis of risks affecting the French markets.
Market trends: Risk and Trend Mapping addresses the question of government debt and the risk of rising interest rates and asset price instability. Larger-scale issuance of securities by governments and banks, but also by corporates, is likely to intensify competition for market financing. And companies may find it harder to raise equity financing because institutional investors are scaling back their holdings of shares.
Risks: The publication also stresses the risk to price formation and to market integrity and security stemming from trends in equity markets, notably the development of dark pools and high-frequency trading (HFT). In the sphere of saving and collective investment management, special attention needs to be paid to the "retailisation" of complex products (i.e. their broader distribution to individual investors). This could apply to hedge funds, which may seek to adopt investment-fund or UCITS status to meet investor security and transparency requirements, and also to private equity funds.
The actions taken by the AMF to address the risks it has identified have two main thrusts:
Investor protection: An initial set of actions seeks to ensure that products are transparent and that investors understand the risks involved in them. Accordingly, the AMF carefully scrutinises marketing materials, particularly for complex products; it also intends to step up its supervision of marketing practices for financial products.
Market structure and surveillance: The work programme for this issue focuses on two areas:- The AMF will concentrate firstly on the review of the Markets in Financial Instruments Directive, addressing not only the issue of exemptions from the pre-trade transparency and post-trade reporting regime, but also the development of algorithmic trading and HFT;
- To promote the robustness and security of over-the-counter markets, the AMF endorses European initiatives to regulate post-trade activities and is supporting and monitoring the introduction of new infrastructures for derivatives markets. Further efforts will also be made to strengthen resources for supervising these markets and their participants.