Prepared Remarks of Richard E. Thornburgh
The 2nd Annual European Financial Services Conference
Tuesday, January 27th, 2004
Good morning. I'm Dick Thornburgh. As the Chief Risk Officer for Credit Suisse Group and a member of the Executive Board, as well as the 2004 Chairman of the Securities Industry Association—I am very happy to be here today to moderate this panel.
The Securities Industry Association (or "SIA"—as we call it) brings together more than 600 U.S. securities firms—including investment banks, broker-dealers and mutual fund companies—to accomplish common goals. SIA members are active in virtually every market in the world, and in all phases of corporate and public finance. They are small and large. But perhaps most interesting for this panel, SIA's member firms are extremely diverse in terms of parentage.
SIA may have begun life as the storied "American without a passport" but today its member firms (and their parent companies) represent the most globalized industry on Earth. Their transatlantic character is even more remarkable, with our largest members receiving roughly 20 percent of their net revenues (excluding interest) from European markets—nearly double the earnings from their Asian operations.
My own firm, the Credit Suisse Group, thru CSFB, may be the quintessential transatlantic firm—large indigenous operations in Europe and the United States, global capabilities with offices in more than 30 countries—but essentially defined by our Swiss and American, transatlantic nature.
The global reality of our industry, and the true transatlantic partnership that is the foundation of many of our businesses, are a catalyst for three points I want to stress today, in my role as SIA Chairman.
First, the SIA considers itself a partner with the EU. The EU and its capital markets are our home too, with a significant number of our firms, including my own, having major business and market operations on this side of the Atlantic. Our membership has a substantial interest in the details of the Financial Services Action Plan and the success of our businesses is inextricably linked to the development of an integrated, efficient and globally competitive EU capital market. We are committed to continuing to work with EU officials to ensure the creation of an effective FSAP that achieves that goal.
Second, as partners we feel that certain elements of the FSAP, in particular, the Transparency and Investment Services Directives, can benefit from further refinement if they are to be as effective as possible in helping provide investors with world-class markets.
Lastly, the EU has the unique opportunity to create the world's premier capital market and we want to encourage the EU to benefit from this position by taking the best elements from markets worldwide, whether they are located in Frankfurt, London or New York. No marketplace is perfect, but there exists a tremendous opportunity to develop a marketplace built on a foundation of best practices.
Partnership with the Commission and the EU
As discussed, SIA understands that the health of each of our respective economies—along with the health of our own business—is inextricably linked to the health of each other. The two-way flows of trade, portfolio and direct investment between Europe and America, amounting to more than $1 trillion annually, is solid evidence of the partnership already cemented between the U.S. and the EU. 1
The continued benefits from this robust investment relationship, however, should not be taken for granted. One critical ingredient of our mutual economic success is implementation of the Financial Services Action Plan. The FSAP's ability to create an integrated, competitive, deep, transparent and liquid European capital market is clearly in the best interests of European consumers, investors, and companies, as well as the global economy. A more integrated European capital market will improve capital allocation, reduce intermediation costs and maximize the savings that can be channeled into investment. We also know that our customers need transparent markets that offer low-cost solutions and innovative products that meet their fast changing investment and financial objectives. As a result, we have worked with the Commission on the Transparency, Investment Services and Financial Conglomerates Directives to develop a market framework that delivers those capabilities and makes the EU an even more attractive environment for capital.
Transparency and Investment Services Directive
While we are extremely supportive of the FSAP, there are two proposed EU directives of particular concern to the SIA. First, the proposed Transparency Obligations Directive. We share the Commission's objective to increase transparency obligations of issuers of securities admitted to trading in the EU. As currently drafted, however, the Directive would require non-EU issuers of securities listed on EU exchanges to produce financial statements and reports prepared under International Accounting Standards—unless their own domestic law provides "equivalent" standards. The proposed Directive does not grandfather existing listed debt issues. This concern is not only for U.S.-based issuers, but the wide number of South American and Asian-Pacific issuers. And even though we are in the middle of a process of accounting convergence, it is still an open question as to whether U.S. GAAP for new securities will be found equivalent to IAS within the deadline established by the Directive. If the Directive's text is not corrected, there could be major damage to European capital markets—diminished liquidity, reduced investor choice and less appeal to non-EU country issuers.
Our second concern is the proposed Investment Services Directive. We have been a strong supporter of efforts to revise the ISD to eliminate obstacles resulting from ISD's outdated approach to the regulation of market structure. One critical market structure issue in Europe—just as in the United States—is how best to accommodate the revolutionary technological and competitive changes transforming the securities industry. The proposed ISD approach to a very significant market structure issue—pre-trade transparency—doesn't adequately account for investors' desire for liquidity and desire for varied and tailored types of trading.
In fact the pre-trade transparency provisions of the proposed Directive could actually diminish investor choice by forcing trading back onto exchanges or, even, away from Europe altogether. Based on our experience, discriminating against one market or trading method over another stifles innovation and results in less investor choice.
Premier Global Capital Market
The combination of FSAP and EU enlargement is a tremendous opportunity to develop liquid, deep and transparent capital markets. No marketplace has a monopoly on ideas, and that is why lessons learned—both positive and negative—from our collective experiences in other sophisticated markets, particularly London and New York, would be invaluable as we all work together to create an integrated and competitive European capital market that will support and drive transatlantic economic growth. Commissioner Frits Bolkestein put it perfectly in his speech to FESE in 2003, when he said:
"The pace of technological change, market innovation and globalisation goes unabated. If we cannot create the competitive, liquid market that investors need and demand, will they not vote with their feet and look elsewhere?" 2
We at SIA don't want them to look elsewhere. Our firms are committed to Europe, and to addressing the issues to be discussed today. I would like to thank you for your attention, and would now like to turn to our panel.
Footnotes:
1. Our respective capital markets also benefit from the cross-border purchase and sale of securities. In 2002, EU resident investors had transactions (purchases plus sales) in U.S. stocks and bonds of almost $10.5 trillion, resulting in net acquisitions of $208 billion of U.S. securities. Total U.S. transactions in EU securities amounted to about $2.9 trillion, resulting in U.S. net acquisitions of EU securities of nearly $14 billion.
2. Speech by Frits Bolkestein, Member of the European Commission in charge of the Internal Market and Taxation." Towards an integrated European Capital Market: Some of the Major Issues Reconsidered." Keynote address at Federation of European Securities Exchange Convention London, 13th June 2003.
