AT A GLANCE: EU PLANS FOR TRADING OVERHAUL

MARKET STRUCTURE
- Introduce a new regulatory category of organised trading facility for all trading outside current MiFID categories.
- This should become a fully fledged regulated multilateral trading facility if volumes are above a certain threshold.
- A new sub-regime for broker crossing networks inside banks to cover all types of financial instruments.
- If a specific derivative is eligible for clearing but no clearer is willing to clear it then trading could be banned until clearing is possible.
- Supervisors should have powers to intervene at any stage during the life of a derivative contract.
- Supervisors could require any holder of a contract to provide a full explanation for the position, provide all relevant documentation, reduce the size of the position in the interest of an orderly market and investor protection.
- EU regulators to propose standards for setting position limits for derivative contracts traded on and off exchanges and define when such limits should be triggered.
- Curbs on HFT firms allowing others to use their systems.
- HFT trading would require new risk controls like circuit breakers, stress testing to ensure resilience of systems.
- Operators of HFT trading venues would have to give equal and fair access to high speed trading.
- Regulators would have powers to impose minimum tick sizes on HFT orders.
- New multilateral trading facilities would have to put in place same market surveillance requirements as exchanges.

PRE- AND POST-TRADE TRANSPARENCY
- Remainder or stub of an order sent to dark pools could not remain in the dark.
- Post-trade share prices should be published “as close to instantaneously as is technically possible”; reduce deadline for real time reporting of executed prices from 3 minutes to 1 minute.
- Extend post-trade reporting rules to depository receipts, exchange traded funds, certificates issued by companies.
- A tailored pre and post-trade transparency regime should be introduced for all bonds, structured products with a prospectus, all derivatives eligible for central clearing off-exchange trades could be flagged and identified.

DATA CONSOLIDATION
- MiFID could be amended to set up a mandatory consolidated tape for post-trading transparency; to require all firms which execute transactions to report through an approved venue.
- Exchanges, trading venues would be required to “unbundle” prices data to cut costs of creating a consolidated tape of prices.

COMMODITY
DERIVATIVES MARKETS
- There is a need for a position-reporting obligation by categories for traders for contracts trade on all EU venues.
- If an off-exchange, physically settled contract is like an exchange traded contract and standardised then it should also be centrally cleared.
- Emission allowances would not be classified as a financial instrument and therefore come under MiFID.

TRANSACTION
REPORTING
- Transaction reporting to supervisors will likely be widened to all financial instruments traded on platforms.

SUPERVISORY ISSUES
- Stricter rules on introducing new financial products could be introduced such as stress testing.
- There should be mandatory recording of client orders for a minimum of three years
- A provision in MiFID letting a member state impose extra requirements exceptionally on an investment firm from another EU state.
- Supervisors should have powers to temporarily ban an activity, suspend or replace management of a firm.