Euronext - 2019 Universal Registration Document
Risk Management & Control Structure 2 Risk Factors
Risk Identification and Description
Potential Impacts on the Group
Risk Control & Mitigation Euronext actively monitors all relevant European and national legislative and regulatory policy developments and engages in regular discussions with public authorities’ to ensure that it is able to provide input and respond to developments. Alongside this the Group operates comprehensive systems and controls to mitigate compliance risk. The appropriateness of Euronext processes and policies are continuously assessed and improved in relation to the business activities, organisation and resources of the Company as well as market conditions, under which the activities of Euronext are performed to avoid breaches of legal, statutory, regulatory or contractual obligations related to information security requirements and to ensure that information security is implemented and operated in accordance with the global best practices. Brexit The decision of the United Kingdom to withdraw from the European Union (Brexit) should have, at a regulatory level, wide-ranging implications for European financial markets whose full impact will only become clear once the negotiations between the European Union and the United Kingdom regarding withdrawal have clarified the general nature of the post-Brexit relationship (including the extent to which UK-based firms have access to the single market in financial services). While the risk of a “no deal” scenario has diminished, it still remains a possible outcome should negotiations on the longer-term framework fail to reach agreement. The level of uncertainty is still too high to positively affirm that the Brexit will not affect ease of access to trading between the UK and the EU, consequently impacting Euronext’s business, we continue to maintain our “no-deal” mitigation plan.
Brexit n Access of UK-based members to Euronext’s markets.
n Risk that the attractiveness of our markets with high-levels of dual-listings could be negatively impacted as a result of limitations on EU broker access to all significant liquidity pools (due to the Share Trading Obligation). n Access of Euronext Dublin to UK-based CREST settlement system. n Access of UK-based clearing members to EU clearing houses. n Use of Euronext’s benchmarks by UK supervised entities.
Brexit Euronext maintains a Brexit group which has established a mitigation plan for the various scenarios and continues to monitor developments. As part of this approach, Euronext liaises with clients (including trading firms and issuers) in terms of impact and any proposed actions, and there is engagement with European and national policy-makers and regulators on developing an outcome that minimizes the impact on our markets as much as possible. Regarding the migration of Irish securities to a new settlement system in the EU, there is a dedicated project in progress to deliver this by 29 Mar 2021, and temporary equivalence has been secured from the Commission and ESMA to continue to use the CREST settlement system in the UK in the interim.
Competition
Risk Identification and Description
Potential Impacts on the Group
Market Fragmentation Concerning the trading activity, fragmentation of markets and increased competition, MiFID II opened the path for new forms of competition, specific examples being systematic internalisers and new tradingmodels. The principle consequence of MIFID 2 has been the reshuffling of equity landscape of OTC and grey markets. Index derivatives may come under some competitive pressure as Open Access to Benchmarks comes in to force in January 2020. Open Access allows any exchange to buy an index license and trade products based on index on its markets.
Market Fragmentation Global competition among tradingmarkets and other execution venues remains intense. Given that the Company’s current and prospective competitors are numerous and include both traditional and non-traditional trading venues: multilateral trading facilities (“MTFs”) and a wide range of over-the-counter (“OTC”) services provided by market makers, banks, brokers and internalization other financial market participants amongst whom some are allowed to offer better pricing than exchanges. Further, some of these competitors are among Euronext’s largest customers or are owned by its customers. Systematic internalisers have not disrupted the regulatedmarket as significantly as had initially anticipated however remain closely monitored for any possible shifts in the environment. Open Access to benchmarksmay result inmore fierce competition in the index business. The success of the Group’s business depends on its ability to attract andmaintain order flow, both in absolute terms and relative to other market centres. If Euronext fails to compete successfully, the loss of order flow would deteriorate liquidity andmarket quality,andmay endanger Euronext’s attractivity and impact its financial results. Listing Business As a result of the growing appeal of private equity and the intensifying competition among exchanges, a number of potential issuers may not join Euronext. This ultimately has a negative impact on Listing admission fees and future trading fees.
Listing Business In the listing segment, Euronext is facing competition from other exchanges developing initiatives to capture primary listing of issuers based in Euronext’s home markets. Beyond these incumbent competitors, an ever increasing number of private companies favour private equity funding, notably given the lesser regulatory burden. In recent years, record low-interest rates have amplified leveraged funding in private equity, allowing for higher valuations outside of capital markets. More recent innovative funding solutions also include Initial Coin Offerings (ICO).
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2019 UNIVERSAL REGISTRATION DOCUMENT
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