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Analysis-EU adds more pieces to its ‘elusive’ capital market jigsaw

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November 25, 2021

By Huw Jones

LONDON (Reuters) – The European Union has moved a step closer to its vision of creating a single capital market across the bloc, a slow moving process but one that is chipping further away at Britain’s status as Europe’s investment banker.

The bloc first began an ambitious – but tortuous – process of ultimately creating a single EU securities market in 2015.

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Creating a single market should make it easier for companies to issue and bonds and shares, enabling them to spread risk and be less reliant on just bank loans for funding – the risks of which were highlighted during the euro zone crisis.

On Thursday, the EU set out proposals to introduce a single ‘consolidated’ set of prices for stocks and bonds listed across the EU and a single portal for corporate information – akin to Wall Street’s Edgar system – analysts say the vision will gain more traction.

“Those two for me are key to setting up the whole CMU (capital markets union) effort and when that’s in place you will see a real push to further it. Onwards and upwards,” said Mairead McGuinness, the EU’s financial services chief.

The initial plans for a capital markets union were set out in 2015 by McGuinness’ then British predecessor Jonathan Hill to much fanfare, promising the building blocs would be in place by 2019.

Follow-up measures two years later raised expectations further, but an EU official acknowledged that there remains a perception that CMU is an ‘elusive’ goal.

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“Perhaps the mistake of the original version of capital markets union was that it gave the impression that CMU was a legislative project that could be ‘completed’ by passing lots of new regulations,” said William Wright, head of New Financial, a London-based think tank that does research on European capital markets.

“The current version may look less ambitious but is taking a more practical and tangible approach,” Wright said.

The EU capital market is still little more than a quarter as deep as that of the United States, relative to GDP, with Britain’s twice as deep as the bloc, according to New Financial figures.

Sander Schol, a former banker who is head of EU public affairs at consultants Hanbury Strategy, said the less controversial CMU measures have been approved previously and Brussels’ latest proposals tackle more difficult issues, though rules on even tougher issues that are crucial, such as harmonising insolvency rules, are still missing.

This time round the EU executive, the European Commission, has proposed thornier steps for knitting together national markets by creating an EU tape or record of stock and bond trades by 2024, a step exchanges will lobby hard to water down.

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A single EU point of access for information on listed companies to mirror the ‘Edgar’ filings system on Wall Street, is also proposed.

But far tougher reforms like harmonising settlement, taxes on investments and accounting will need tackling to create a truly seamless EU securities market like in the United States, Schol and others said.

“Market participants have asked for harmonisation of settlement and insolvency laws but member states don’t want to change insolvency rules, for example, because if you start tinkering with those then you have to change the legal foundations of each country,” Schol said.

STRATEGIC AUTONOMY

Brexit, the recovery from COVID-19 and the need for massive investments to tackle climate change have added a sense of urgency to CMU that was missing six years ago as Brussels seeks to build “strategic autonomy” in sectors like finance.

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Britain’s exit has shown Brussels that the bloc’s markets can largely stand on their own feet after billions of euros in daily trading of shares, interest rate swaps and EU emissions allowances left London for Amsterdam without market disruption.

Previously a relatively small financial centre, the Dutch capital became Europe’s biggest share trading centre immediately after Brexit, although London is now roughly neck and neck. Amsterdam has also attracted 22 public floats and private placements so far this year, raising 10.7 billion euros ($11.99 billion).

There have been 108 floats on the London Stock Exchange which raised 16.1 billion pounds ($21.47 billion), though London is aware of how it trails New York, which has raised $128 billion this year.

London is expected to remain Europe’s top financial centre in coming years and the EU still relies on London for clearing interest rate swap trades worth trillions of euros, but here too Brussels is determined to reduce reliance over coming years.

“One way to think about CMU is as a multi-decade process of laying the important foundations over five to 10 years and then building on them over the next 10 to 20 years: the United States has a 150-year head start and still doesn’t have a full ‘CMU’,” Wright said.

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In reality, CMU was never going to happen overnight and remains a work in progress, said McGuinness, already flagging her next batch of measures due next year to include simplifying listing rules, making cross-border payments more efficient, and finally seeking to harmonise aspects of insolvency laws.

($1 = 0.8928 euros)

($1 = 0.7497 pounds)

(Reporting by Huw Jones; Editing by Susan Fenton)

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Arnault-backed group launches second SPAC listing

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December 7, 2021

By Emma-Victoria Farr

LONDON (Reuters) – France’s richest man Bernard Arnault and former UniCredit head Jean Pierre Mustier will publicly list a second blank cheque vehicle in Amsterdam, raising 200 million euros ($226 million), the bookrunners on the deal said.

Earlier this year, the duo raised half a billion euros from their special purpose acquisition company (SPAC), Pegasus Acquisition Company Europe B.V., which is searching for takeover targets in the financial sector.

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On Tuesday, the same group of backers announced they would list a second vehicle with a similar focus, Pegasus Entrepreneurial Acquisition Company Europe, in Amsterdam.

SPACs are listed on a stock exchange by a group of entrepreneurs, who use the money raised to target a private company – allowing the target to get a stock market listing without the arduous process of launching a public listing.

Mustier is working with former Bank of America banker Diego De Giorgi and entrepreneur and investor Pierre Cuilleret in launching the 200 million euro listing.

Several SPACs have listed in Amsterdam, potentially boosting the Dutch financial capital’s credentials as a hub for fast-growing companies. London has only hosted one major SPAC in 2021, after updating its rules to make them easier.

Pegasus is backed by institutional sponsors Tikehau Capital and Financière Agache and by sponsors De Giorgi, Cuilleret and Mustier. Citi, Goldman Sachs and BNP Paribas are the bookrunners on the deal.

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($1 = 0.8860 euros)

(Reporting by Emma-Victoria Farr; editing by John O’Donnell and Louise Heavens)

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Bulls back in charge as Omicron worries wane

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December 7, 2021

By Marc Jones

LONDON (Reuters) – Waning Omicron COVID-19 variant worries and a timely booster shot of Chinese stimulus lifted world stock markets and oil on Tuesday and left traders offloading safe-haven currencies and bonds again.

The FTSEurofirst 300 index was on track for its first back-to-back run of plus 1% gains since February while Asia saw record bounces from some of China’s biggest firms such as Alibaba and Baidu. [.SS][.EU]

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The risk-on mood also helped the dollar climb against safe haven currencies such as the Japanese yen,, which had lost 0.6% overnight, as the confidence-sensitive Australian dollar also found buyers. [FRX/]

Safe-harbour government bonds went the other way with yields – which move inverse to bond prices – up 2.5% on Germany’s benchmark 10-year Bund after falling to a three-month low on Monday. [GVD/EUR]

Reports in South Africa said Omicron cases there had only shown mild symptoms and the top U.S. infectious disease official, Anthony Fauci, told CNN “it does not look like there’s a great degree of severity” so far.

“Good news relating to the severity of Omicron should be taken with a pinch of salt. Faster transmission could offset the benefits of milder symptoms,” researchers at ING said in a note. “More broadly, it is still early days, even if markets are starting to display Omicron fatigue.”

The gains also came after China’s central bank on Monday injected its second shot of stimulus since July by cutting the amount of cash that banks must hold in reserve.

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There was still uncertainty about its property sector as Evergrande teetered on the brink of default again but data showing much stronger import growth was “a positive sign on the strength of domestic demand”, RBC analyst Adam Cole said.

Elsewhere, Australia’s S&P/ASX200 rose 0.95%, while Japan’s Nikkei advanced 2.1% as risk-on sentiment pushed markets higher.

MSCI’s main Asia ex-Japan benchmark has lost about 5% so far this year, with Hong Kong markets figuring among the big losers, while Indian and Taiwan stocks outperformed.

Shares in embattled developer Evergrande edged up 1.7% after hitting a record low on Monday as markets waited to see if the real estate giant has paid $82.5 million with a 30-day grace period coming to an end.

Elsewhere, markets were supported by gains on Wall Street, where economically sensitive stocks outperformed.

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“While epidemiologists have rightly warned against premature conclusions on Omicron, markets arguably surmised that last week’s brutal sell-off ought to have been milder,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, said in a note.

“After all, early assessments of Omicron cases have been declared mild, spurring half-full relief.”

Also supporting the dollar in FX markets was the expectation the Federal Reserve will accelerate the tapering of its bond-buying programme when it meets next week in response to a tightening labour market.

Oil prices jumped another 2% to $74.60 a barrel, adding to a near 5% rebound the day before as concerns about the impact of Omicron on global fuel demand eased. [O/R]

Copper prices also ticked higher while gold was steady at $1,778.5 per ounce on expectations U.S. consumer price data due later this week will show inflation quickening.

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(Additional reporting by Anshuman Daga in Singapore; Editing by Nick Macfie)

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Exclusive: EU antitrust regulator seeks input on Microsoft’s $16 billion Nuance deal

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December 7, 2021

By Paresh Dave

(Reuters) – EU’s antitrust regulator is taking a deeper look into Microsoft Corp’s $16 billion deal for transcription technology company Nuance Communications Inc, asking customers and competitors to draw up a list of concerns, according to a questionnaire from last month seen by Reuters.

The previously unreported outreach is the most extensive by an antitrust authority since the companies announced the acquisition in April, according to a person familiar with the matter.

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Microsoft declined to comment, and Nuance did not respond to a request for comment.

After minimal review, the U.S. Department of Justice in June and the Australian Competition Commission in October said they would not contest the deal. The companies filed for approval from the European Commission’s competition bureau last month, and the regulator has until Dec. 21 to clear the deal or open a bigger investigation.

The companies had expected to close the deal by the end of this year, but said last month the timeline could slip to early next year.

The questionnaire asks whether Microsoft and Nuance are competitors and whether a tie-up could affect clients and rivals, including whether Microsoft could favor Nuance over competing services.

Nuance primarily sells transcription technology that is popular among doctors and call centers that want to automate note-talking. Analysts view the deal as bolstering Microsoft’s presence in the healthcare market, and bringing it new voice and medical data to train artificial intelligence offerings in health, speech and biometric security.

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Like other big tech companies, Microsoft for years has grown its business through acquisitions, such as in advertising and video gaming. But in the last decade, Microsoft has avoided the target that recently has dogged its competitors Alphabet Inc’s Google, Facebook Inc, Apple Inc and Amazon.com Inc, all of which are facing antitrust lawsuits and investigations on numerous issues.

Steven Weber, a University of California Berkeley professor studying the intersection of technology and health care, said possible concerns about the pending deal could include Microsoft forcing its Office suite on Nuance customers by bundling them together.

Nuance has said it serves 77% of U.S. hospitals.

A key to its success has been has ensuring in deals with customers that it could use their data to advance its voice recognition systems, according to former chief executive Paul Ricci and another former employee.

For instance, a Nuance contract with Augusta University Medical Center, obtained by Reuters this year through a public records request, reads, “Customer shall provide Nuance access to voice and text data…and grants Nuance a perpetual, royalty-free license to copy, use and analyze such data for speech recognition research.”

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Big cloud vendors such as Amazon and Microsoft typically do not have unfettered access to customers’ data for research and development. But the opportunity to acquire those relationships and data explains Microsoft’s interest in Nuance, the former employees said.

Other providers of health transcription technologies include 3M Co and Philips.

(Reporting by Paresh Dave; Editing by Kenneth Li and David Gregorio)

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