Individual shareholding continued to gain momentum in France last year. How much do you put it at?
This is a question that seems simple but difficult to answer. The AMF has figures on transactions carried out on securities under its jurisdiction, ie companies whose main place of negotiation is the Paris Stock Exchange. From this, we estimate the number of active individuals at 2.5 million in the third quarter of 2021, but this includes foreigners who hold French shares.
We can also know the number of active individuals, i.e. having carried out a transaction in the third quarter of 2021, having their account with an intermediary established in France. That gives us a total of 800,000 people. But, by definition, this does not include all French clients who carry out transactions in securities over which we are not competent via neo-brokers, who are intermediaries established in other countries of the Union (the main neo-brokers are Trade Republic, registered in Germany, e-Toro, in Cyprus, or Degiro, in the Netherlands). The total number of active French individuals is therefore between the two.
Whichever method is used, we only have data on flows and active investors. To have a more global vision of shareholding, we carry out surveys with the Kantar Institute. The last dates back to March 2021. It indicated that 6.7% of French people over the age of 15 held shares, or around 3 million people. This study also revealed that the detention rate had clearly increased among young people, rising from 2.3% to 4.4% for those under 35 years of age.
Neo-brokers are gaining ground, especially among young people. How do you check the reliability of these intermediaries? What do you think of their commission-free rates?
We have no control over these intermediaries who are not established in France. It is the market authority of the place of approval of the company which is competent. The digitization of the economy and of transactions has resulted in the development of cross-border services, and our organizations are not yet fully organized to manage this. I am always perplexed when a service provider sets up in a country where he has no customers… If a French person has problems with an intermediary established in Cyprus, for example, he will therefore have to contact the mediator of our Cypriot counterpart or even to the local court in the event of a dispute, which is not necessarily straightforward.
These intermediaries often offer commission-free rates; it’s nice, but are we sure to benefit from the best execution? Often, these neo-brokers sell their order flow to a market maker, this is the payment for order flow. That causes a problem. The European Commission has proposed, as part of the revision of the regulation on markets in financial instruments, to prohibit this practice. The co-legislators must debate it. If this proposal continues, it could be completed in the course of 2023.
These brokers also offer trading 24 hours a day, 7 days a week, but what is the reference price chosen? Some offer to buy fractional shares to make investing easier, but what does the client really own? The answer is not necessarily the same from one broker to another, depending on the product offered. Esma, the European Financial Markets Authority, is watching these issues closely, both at the level of marketing and at the level of the impact on the markets.
ESG criteria are becoming more and more important in management, but we have the feeling of a great dispersion of ratings from one agency to another…
Extra-financial rating is not regulated and ESG covers very different concepts. The ratings can actually be very different from one agency to another. If we look at a related area, credit rating, we find, on the contrary, a great correlation between the assessments of the different agencies, but there is a justice of the peace: the probability of default of the issuer.
With our Dutch colleagues, we published an activist note to provide a regulatory framework for extra-financial rating agencies. This involves, first, displaying a detailed and public methodology and applying it. Then, to have strict conflict management, because some agencies also carry out the consulting business. Finally, there must be a certain geographical proximity, the agencies must be able to dialogue directly with the issuers. Esma took up our note and brought the subject to the European Commission.
Beyond that, it is essential to normalize and standardize the reporting issuers’ extra-financial rating on which the extra-financial rating is based. This is the case for credit rating, which is based on accounts. Legislators are currently discussing the future Directive on the reporting of sustainability (CSRD), and, at the same time, there is work to detail these standards. It will then be necessary to transcribe this in the 27 countries of the Union. We can hope to have something for the accounts for the 2023 financial year.
I also feel that ESG probably encompasses too many topics. At some point, it will be necessary to put one forward, and I think that the climate must be the priority objective.
The “Orpea affair” highlighted flaws in the ESG rating, because the company boasted of displaying very good scores in this area…
It is important to have standardized information, this is the whole point of the CSRD directive, and verification by a third party. The auditors seem to me reasonably well placed to fulfill this mission and thus ensure the continuum between the financial and the non-financial. The type of assurance that they will give will be gradually reinforced to arrive at something close to what we have for the financial accounts. We can see the path that is emerging, it may take four or five years to get there, but things will gradually ramp up.
At the AMF, we have already defined, in 2020, a doctrine for funds. It first applied to new funds and now, since March 2021, to all funds under French law. It aims to say that, when ESG is put forward as the main marketing argument, it is then necessary to commit to demanding and verifiable points. For example, you must at least have the SRI label.
Still on this issue, how do you react to the accusations of insider trading against the previous CEO, who allegedly sold securities after being made aware of the existence of the book denouncing acts of abuse?
We do not comment, at the AMF, on specific cases, but we can recall the principles. Privileged information is non-public information that is sufficiently precise and which, if made public, would have a significant influence on the stock market price.
It can come from within the company or be external. It is then necessary to date it, to know who had knowledge of it and who carried out transactions, and to know if these were illegitimate, because the regulations provide for cases where transactions can be legitimate, for example when they are programmed. Everything is case in point and needs to be looked at closely to avoid too hasty judgments.
After diamonds, bitcoin… Have you detected any new “scams”?
What develops is the combination of an impersonation of an existing intermediary and the sale of a fictitious product. This usurpation makes the commercial offer more credible.
How do you manage to control transactions on new assets: cryptocurrencies, NFT…?
Let’s leave aside the possible scams on crypto-assets. The world of crypto-assets is a very diverse world. There are stablecoins, which are still very underdeveloped in Europe; we are nevertheless very careful because the term “stable” can be misleading. Then there are the unbacked coins, like Bitcoin and others backed, that rely on future services or virtual objects, such as NFTs.
On these products, what needs to be regulated are the service providers. It is through this that we can see the problems of money laundering, poor marketing and cyber risk. Today, there are neither global regulations nor European regulations. Some national frameworks exist. In France, we register intermediaries, around thirty today, who wish to offer their services on crypto-assets to French nationals.
But the registration is not the approval with the associated supervision. We mainly check two things: the competence and good repute of the managers, and the existence of anti-money laundering procedures. But we are not going any further, pending European regulations currently under discussion. It should happen fairly quickly with stronger supervision and significant supervisory power. The texts should be known this year for an application in the course of next year.
The year was marked by a return to IPOs, and the balance between IPOs and exits was positive for the first time in a long time. Do you think that your efforts to energize this compartment have paid off?
We fought on several fronts. First of all, the renewal of the liquidity contract systems. Despite the negative opinions of our colleagues at Esma, who believe that this distorts the market, we have maintained this accepted market practice, these opinions not being binding. Our studies showed that this did not disrupt the proper functioning of the market and that it provided useful liquidity.
The second element is research. It is clear that the long-term trend of reducing financial analysis on mid caps has been amplified by MiFID 2. We have carried out two actions. First, go back on theunbundling, “unbundling”, ie the fact of charging specifically for research. We have been able, for capitalizations of less than 1 billion, to obtain a complete “package” between research and transactions. This was decided last year and will be implemented very soon. We stick to this threshold of 1 billion, clearly higher than that of 200 million which appears in the current regulations, because it makes it possible to properly integrate all SMEs.
The second subject is that of “sponsored” research. The analysis is not paid for by the clients, the management companies, but by the issuer. We note with satisfaction that this has developed. Now, for this sponsored research to be credible, admissible, it must be framed by principles ensuring its independence. A charter, which the AMF will support, has been drawn up by the various stakeholders. It’s almost finished, it’s a matter of weeks. At the same time, we are trying to introduce this notion of sponsored research into European regulations.