Mifid II was a compromise, but the UK will lead the way with Mifid III says politician Kay Swinburne

Lucy White
Welsh Conservatives Hold Spring Party Conference
Swinburne has been named as a successor to former London Stock Exchange boss Xavier Rolet (Source: Getty)

The UK's voice of the City in the European parliament, Conservative politician Kay Swinburne, has said that legislators are already planning to overhaul a massive new piece of regulation which came into force earlier this month.

The second Markets in Financial Instruments Directive, or Mifid II, aims to increase transparency across all areas of financial markets across Europe and hit the City on 3 January.

Yet Swinburne said that the multi-party nature of negotiating legislation in Europe mean that huge concessions were made, and some elements of the new rules will not work in practice.

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"The worst and one of the last compromises that we always said didn't work is the double volume caps for dark trading," Swinburne told City A.M.

Dark pools, where investors can trade without having to reveal what they are buying or selling, were originally designed so that large deals could be executed without immediately affecting the market price of the stock.

But in recent times, dark pools have been increasingly used for smaller trades by asset managers and investors simply seeking privacy, so Mifid II put a cap on the volume of a stock which can be traded off-venue.

"This was a French ask, and it just suddenly came out of the blue. They asked for those limits – originally they wanted them to be very low," said Swinburne. "The caps chosen were arbitrary numbers, not done on any form of analysis. Nobody had looked to see what it meant."

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She asked Michel Barnier, who was arguing the French case, what the caps meant in practice. "The comment that came back was: 'We'll work it out.' They haven't worked it out and now the double volume caps have been thrown on the back burner for another few months. We've never understood how they could calculate them in the first place," said Swinburne.

A third Mifid, which will iron out these creases, is already being discussed in the European Parliament and the Council. Even the European Commission is "finally acknowledging that not everything is hunky dory", Swinburne said.

Yet she believes that, since the UK will no longer have a seat in the European institutions post-Brexit, it could pre-empt the changes to legislation and become a driving force in regulation.

"London has always been able to make these things work," she said, adding that without the contrarian views and protectionist ideals of other European states, the UK could be a much more nimble regulator.

Read more: Mifid II set to slash analyst jobs and shake up the economics of broker research, according to a new report

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