The International Capital Market Association chief executive talks to GFS about the sovereign debt crisis, the lack of harmonisation both in Europe and globally and what is most concerning ICMA members at present

International Capital Market Association chief executive Martin Scheck says there is a “tremendous amount” going on in the securities world at the moment, both on the primary and the secondary side of the market.

He fires off a list of directives that ICMA is working to respond on including Mifid, Prospectus, Basel II and the Capital Requirements Directive, as well as the more overarching supervisory architectural changes in the European Union.

Scheck says there are “so many moving parts” at the moment that ICMA is fully occupied in making sure it remains aware of timetables, consulting members in good time to get a response for the regulators. “If we can help to shape their thinking a little bit, I think that is a very good result when there is so much going on.”

ICMA was set up under the name Association of International Bond Dealers in February 1969 in Zurich. It is primarily focused on market practice across the primary and secondary securities markets and represents members’ interests in the regulatory space.

Its membership currently stands at 380 organisations encompassing issuers, intermediaries and investors.

Scheck says: “One of the strengths of ICMA is that we have a very diverse membership. We have members who are large global investment banks, we have large and small brokers, central banks, sovereign wealth funds, institutional investors, regional and national banks, a large group of private banks, some insurance companies and one or two hedge funds as members.
“The one thing they have all got in common is that they are all interested in the efficient working of the securities market, but there is no reason on earth why all of them should think exactly the same at the same time, and they do not.”

Scheck says that when opinions diverge, ICMA brings together people in a relatively neutral forum where they can have “an adult discussion”.

“At the end of that, we often reach a sensible consensus. And where we simply can’t reach a consensus, we are able to represent both points of view, but we know precisely what segments in the market are thinking. We also know why they are not agreeing and that adds a lot of value to the debate.”
Scheck says that the financial crisis and subsequent slew of regulatory changes has seen their membership rise.

He says: “We would like to think it is because we are getting out and reaching members, but it is also because the markets are so dysfunctional at the moment. There is so much going on in the regulatory space, that a lot of members know they need all the help they can get, in terms of getting to the decision makers, or at least seeing what is going on and how it is going to impact their business.”

ICMA is just about to publish a white paper on the repo market which the organisation is heavily involved in. Scheck says the organisation spends a lot of time running the ICMA European Repo Council which developed the Global Master Repurchase Agreement standard documentation.

He says: “We are in the process of reviewing that at the moment with a working group to turn the GMRA 2000 version into the 2010 version, but it has been a very central plank for securities markets now for many years.”
ICMA also runs a Euro Commercial Paper sub-committee which is looking into liquidity issues that have been raised by the Basel Committee, among other things.

In addition to this, ICMA produces a quarterly regulatory policy newsletter, has recently started an issuer forum to represent the issuers’ views, and runs various courses in association with the ICMA centre, which is part of the Henley Business School at the University of Reading.

Scheck took over as chief executive of ICMA in August 2009, and previous to this, he had been a board member since 2004, as well as chairman of its Audit, Compliance and Governance Committee.

Previously he was managing director and head of fixed income at UBS investment bank, Zurich from 2001 to 2009 and before this head of debt capital markets for UBS in Switzerland from 1999. He is a qualified UK chartered accountant and has previously worked at Swiss Bank Corporation and KPMG.

He says the overarching regulatory supervisory infrastructure is “fascinating” at the moment because everything is changing, whether it is the FSA and the interplay between the Bank of England in the UK, or the new supervisory authorities in Europe.

“One of the things that’s going to happen this year is defining what powers each of these genuinely have, and where this boundary between the rule setting which is going to happen at supervisory authority level, and the surveillance and supervision as we call it, enforcement which is broadly speaking going to happen at national level, where those boundaries are set, I think that will give arise to a lot of discussion as well from that perspective.”
However, he says one of the main issues that ICMA members are concerned about is liquidity issues surrounding the capital requirements directive. Scheck says the banks want clarity on this.

“They are very worried about regulations layering up on top of each other so that the ability to operate efficiently is impaired and they cannot contribute to global growth.

“As you go down to the more working levels of the banks, the more operational levels of regulation begin to worry people. For example, things like revisions to the prospectus directive, segmentation under Mifid, European market infrastructure regulation - all of these things are causing concern.”

On the asset management side, Scheck says they are concerned with similar issues but they are also focused on directives such as the Alternative Investment Fund Managers Directive, where the Alternative Investment Management Association has been spearheading the discussion.

ICMA is a member of AIMA and likewise, AIMA is a member of ICMA. Scheck says ICMA tries to work with the other trade associations as much as possible, especially because it does not view itself as a lobbying association, focusing more on market practice.

“It is important that all the associations know what their specific niche is and we try and work with all the other ones that are relevant. There is simply so much going on, we could not do it all ourselves. Our specific space is cross-border securities market practice.”

One of the things also worrying ICMA members is the lack of harmonisation both on a global and EU level and Scheck cites Germany’s naked short-selling ban as an example of this.

“It has exactly the opposite effect of what it is intended to do; it unsettles the markets. And we need to do a lot to restore stability and to restore well working markets, particularly at the moment.

“And we see that also very strongly with what is going on in the US and what is going on in Europe, and I think that wherever regulation is not harmonised, there is the potential to really increase costs for our members in terms of how they operate.

“Ideally what they would like to see is a globally harmonised framework. That may or may not be realistic. The last G20 discussion seemed to slightly move away from that, but at the very least it would be great to have a harmonised European framework, and that is one of the great hopes that we have for ESMA going forward.”

He says there may be perfectly legitimate reasons why one country does something slightly differently to another, but it would be nice to do it in a consultative way, rather than in a non-consultative way.

But it is not just various regulatory aspects which are concerning ICMA’s membership; markets are extremely dysfunctional and volatile while liquidity is an ongoing concern.

In fact, the sovereign debt crisis is the most serious phase of the crisis so far, in Scheck’s view.

“We have had various different phases of this crisis. We have had the sub-prime crisis, the real estate generated crisis which moved into a general credit crisis, then a banking crisis, and we have now moved into the sovereign crisis. They have all sort of over-layered.

“They are difficult to separate, but once the sovereign debt markets really do not function well, that is probably the most serious phase of the crisis we have been in so far.”

Does he believe that risk has moved from the corporate sector into the sovereign sector?

“I do not think there has been a total migration of risk from corporates to sovereigns; I think it has been a gradual spreading of risk and once it is in the sovereign sector it impacts on the rest of European markets as well.”

Although primarily focused on cross-border business in Europe, ICMA has strong links with the major financial centres worldwide and has a set of memoranda with regulators and trade associations, such as in Russia and China. This allows them to share information and best practice and try and learn from each other. All the major US banks are part of ICMA’s membership and they join in when they do their cross-border business which primarily is focused in London.

Scheck says there is some crossover; for example Russia has a big domestic repo market and ICMA is working with them to see if that could be moved into a more international repo market.

Does he think enough is being done to prevent a future crisis? Scheck says it is impossible to predict everything, but he believes that there is a good attempt to build a framework that works.

“We don’t always know where systemic risk is going to come from, but at least we’ve got a body now which is looking out for it, and trying to spot it before it gets into a particular crisis mode. I think it is a very good stab at trying to stop future crises, but will it work? I am convinced that at some point there is going to be a future crisis, there is bound to be but hopefully the ESRB will be well placed to spot it early so that we can take measures to reduce its severity.”

If he could wave a magic wand and change one thing on the regulatory side, what would it be? Without hesitating, Scheck says: “I would want a functioning single European rule-book. In a way, whether it is completely right or only largely right, that is not the issue; everyone knows where they are. I think that would be a brilliant piece of legislation to come in.”