The London Investment Banking Association is scheduled to meet Wednesday with the Financial Services Authority to push for a reduction in proposed regulations governing a listed retail derivatives market in the U.K. One of the central planks of LIBA's position is it wants the FSA to classify derivatives for the retail market as "securities", which would thereby require a less onerous regulatory framework, according to Tim Plews, partner at Clifford Chance in London. LIBA is representing a number of equity derivatives houses which hope to see a comparable U.K. retail equity derivative market to the massive German and Swiss retail warrants markets. Among firms pushing for the creation of the market--either independently or via LIBA--are Deutsche Bank, Citibank, Dresdner Kleinwort Wasserstein and Commerzbank.
The FSA started soliciting industry feedback on its proposed regulatory framework at the beginning of the year and has extended its deadline to the summer for implementing the regulation. Bankers and lawyers were shocked by the severity of proposed regulation and the internal inconsistencies between the parts drafted by two different departments of the FSA. Patrick Humphris, spokesman at the FSA in London, said the FSA took both sides into account.
"The future success of this product in the U.K. is now in the hands of the regulators," said Vasco Duarte-Silva, managing director and European head of warrants distribution at Citibank in London.
Among the FSA proposals that drew industry ire is a rule requiring that brokers should only be allowed to pitch equity derivatives to retail investors who have requested information and signed a warning letter. This provision is self-defeating, since investors will only ask for information if brokers are pitching the products, said David Pratten, director of securitized products at Dresdner Kleinwort Wasserstein in London. "It is like the chicken and the egg."
Approximately EUR110 billion of securitized equity products were issued in Germany in 2000, which is about the same volume as the entire European initial public offering market, according to Johan Groothaert, managing director and head of equity structured products and alternative investments at Deutsche Bank in London. He added, "The U.K. is missing a huge opportunity here." Henrik Takkenberg, head of public distribution at Commerzbank in London, said, "there is an equity culture in the U.K. and an appetite in leverage products. This could be a big market." Officials at LIBA declined comment.
