CSDR: The Final Chapter?

By Russell Thornton, Trading Strategy Lead

The Parliamentary Financial Services Update released by Rishi Sunak on the 23rd June announced, among other things, that CSDR would no longer apply to the UK markets in February 2021 as previously planned. I’ve written about the consequences of this piece of regulation, and it’s no surprise that its withdrawal will please many UK market participants, not least those market makers dealing in the small cap space.

However, perhaps the most important point to note within the update was not the changes to individual regulatory frameworks, but the tone of the update in its entirety. The paragraph quoted below speaks volumes:

“The future success of the UK financial sector will be underpinned by a world-class environment for doing business. In turn, our future legislation will be guided by what is right for the UK, to support economic prosperity across the country, to ensure financial stability, market integrity and consumer protection, and to continue to ensure the UK remains a world leading financial centre”.

It’s fantastic to know that the UK government is looking to drive the financial sector, berated by so many outside it’s immediate circle, but crucial to the country as a whole as an independent entity. Simply following Europe would have defeated the point of Brexit and thrown away a perfect opportunity to allow the city and therefore the rest of the UK to flourish.

So, how will removing this particular piece of legislation free the UK for better things? Well, if the European markets continue to implement the framework as planned, their market participants and the firms that decide to publicly list in those markets, rather than head down the private equity route, will face the same issues that so many in the UK have highlighted. Namely, potential liquidity issues, lack of market maker support and therefore reduced capacity in the small cap space, so important for the creation of a healthy market ecosystem. This creates an opportunity for the UK to become a hub for new market entrants under a small cap friendly regime. Venues such as the LSE and Aquis Stock Exchange have an opportunity to attract more business, which will serve to strengthen the UK position globally.

Hopefully the removal of CSDR is just the beginning of reforms that will keep the UK at the forefront of capital markets. Monitoring the regulatory environment, questioning the relevance of each piece as it applies specifically to the UK, whilst looking for more opportunities is becoming more important than ever.