A unified pricing mechanism. Integrated trading. Shared information, and standardised rules. The European Union this week pushed forward with plans for what it calls a “capital market union”. It is attempting to build a common rule book and a single market in money that will, in theory anyway, make it cheaper for companies to raise capital, and strengthen the continent’s key financial centres.
A threat to the City? That would be the knee-jerk reaction. In fact, it should be a gift to London. Why? Because, in the real world, the more Brussels harmonises its rule books the worse its performance gets. And because the common rules will undoubtedly be far more cumbersome than the national ones they replace. If London plays it right, it should emerge from this process in a much stronger position.
There is no questioning the ambitions of the commissioners in Brussels to create a single market in finance to serve the whole bloc.
On Thursday, it unveiled the latest round of proposals to bring national capital markets under a single umbrella. There will be a single tape for pricing, as in the US, shared rules on transparency and settlement, and common standards on disclosure.
The reason London – and New York – wins is because it is flexible.
You can have an idea during the Morning George, be selling it by lunchtime and counting the money by tea. The rules are that any such idea conform to certain general rules about fraud, ripping off and so on, something that we’ll sort out later after we’ve seen how it all does.
The EU version of regulation demands that everything be approved before it can be done. In a static world that might not be all that bad an idea. But our whole point here is that the financial centre which can innovate will win. It’s not even which rules the EU will install. It’s the very fact that there will be one set of detailed rules to govern all which will kill the project over time.