A CRACKDOWN on Europe’s share, bond and derivative markets has been proposed by the European Commission as it believes current market regulation needs updating.
Private trading platforms in banks should be more transparent and regulated directly, a draft consultation on the EU’s Markets in Financial Instruments Directive (MiFID) obtained yesterday shows.
The paper says the directive requires “significant extensions” as part of global efforts under the G20 “to tackle less regulated and more opaque parts of the financial system.”
It calls for tougher regulation of trading facilities, technologies and methods of execution to tackle the increasing complexity of markets and diversity in financial instruments.
It wants to tackle trading inside banks or brokers, which exchanges have criticised as too opaque, proposing “a new sub-regime for crossing systems within the family of organised trading facilities,” covering equities and other financial instruments.
Derivatives contracts that can be centrally cleared and are “sufficiently liquid” should be traded on an electronic platform such as an exchange, a multilateral trading facility (MTF) or a new category of trading platform to be defined, it said.
“At a minimum this would imply that trading on exchanges and electronic platforms becomes the norm when the market in a given derivative is suitably developed,” it said.
The proposed changes are similar to recent US legislation to improve market transparency.
There is also a backlash against automated high-speed trading, which can threaten “the orderly functioning of markets,” and against high-frequency trading. It proposes a specific regime for automated trading and requirements such as risk controls.
The EC should release the final document next week when the two-month consultation period begins.