The French regulator disagrees with the negative opinion expressed by the European supervisory authority at the end of May. The industry had called on the AMF to ignore ESMA's opinion.
The Autorité des Marchés Financiers (AMF) has decided to maintain the planned framework for liquidity contracts, despite the negative opinion expressed by ESMA, its European counterpart, at the end of May.
"As permitted by European law, the AMF has decided to implement this project, which will apply to issuers and intermediaries as of 1 July", AMF said in a press release.
It was in fact an update of the practice that had been in place since January 2019 in France. This new draft, which had been presented on March 31, takes into account, according to the French regulator, "the effects of the in-depth analyses (of the current regime, ed. note) and the series of short thematic checks carried out in 2020".
Legal comfort
"The purpose of liquidity contracts between an issuer and a financial intermediary (investment firm or credit institution) is to enable the financial intermediary to buy and sell securities independently of the issuer in order to improve the regularity of daily trading and the liquidity of the issuer's shares for investors. When established as an accepted market practice, liquidity contracts give issuers and financial intermediaries that implement and comply with the terms of the contract legal comfort with regard to market manipulation regulations", explains the AMF.
Liquidity contracts are widespread in France, involving 440 companies, i.e. nearly 70 % of listed companies. The practice is considered essential to the smooth operation of the Paris Bourse, especially for mid caps, according to the AMF.
ESMA's negative opinion had prompted a reaction The European Commission's proposal to create a European Securities and Markets Authority (ESMA) was very controversial, as the financial markets association, Amafi, expressed its incomprehension and even questioned the authority's powers.
No change in market confidence
"The AMF, whose market surveillance system based on Big Data technologies enables it to monitor market integrity, does not share ESMA's negative opinion and reiterates the value of the liquidity contract framework for regular daily trading and the liquidity of small and medium-sized companies' shares", AMF adds.
"Contrary to the view expressed by ESMA, the accepted market practice does not risk altering market confidence", the French supervisory authority insists.
In a statistical and econometric analysis published at the end of April, which included the period of high volatility at the start of the health crisis, the AMF attempted to demonstrate the relevance of liquidity contracts as they exist in France.
At the end of May, however, ESMA issued a non-binding opinion stating that France's accepted market practice was not compatible with European regulations on market abuse. It gave the AMF two months to react and asked it to justify its decision if it maintained its plan.
In 2019 and 2020, however, the same supervisory authority had validated similar systems in Spain and Italy.