EU in push for market clarity
EUROPEAN Union regulators proposed radical changes in the way the region’s securities markets operate yesterday so that investors have a complete snapshot of prices currently fragmented by fierce competition.
Heavy lobbying by bourses for their new rivals to face the same tough rules as themselves appears to have paid off. In-house trading by big banks also face tougher rules.
The EU’s executive European Commission is reviewing the Markets in Financial Instruments directive (MiFID), a set of EU rules introduced in 2007.
The Committee of European Securities Regulators (CESR) is advising the Commission on drafting amendments to MiFID and has recommended major changes that will change business models of stock exchanges, brokers, banks and new trading venues.
One key recommendation is the mandatory creation of a consolidated “tape” or “pipe” that contains all the prices from share trades across the whole market to give investors a comprehensive view.
The recommendations include lessons from the financial crisis on the need for more transparency and the demands on regulators to keep up with big advances in trading technology.
However, regulators have made no proposals on high-frequency trading or ultra-fast computer-aided trading that has come to represent a major chunk of volumes on exchanges.
CESR is due to become a more powerful pan-EU markets authority from next year and wants specific powers to issue binding guidelines to regulate any change in trading technology.
MIFID REVISED | THE NEW PROPOSALS AT A GLANCE
New trading facilities spawned by MiFID to be treated like exchanges, a step bourses have lobbied hard for.
Best execution rules improved though Portugal wanted more radical change to link all trading venues.
Extending MiFID’s transparency rules from shares to similar instruments like deposit receipts, exchange-traded funds and certificates.
Investors should not be forced to buy huge wads of bundled data but have the choice to buy subsets, a step exchanges may resist as data is a key moneyspinner for the.
Volumes at in-house share trading networks at big banks will be limited, beyond which they must become a formally regulated market with all the transparency rules that entails. CESR is eyeing whether a five per cent threshold used in the US is suitable for the EU too.
MiFID’s post-trade transparency rules should in future be applied to cover most of the bonds trading sector, sovereign as well as corporate.
Industry-wide mandatory taping of voice communications handling share orders, a step Germany opposed.
MiFID’s post-trade transparency regime should also apply to structured finance products and cover all asset-backed securities and collateralised debt obligations for which a prospectus has been issued.
All credit default swap contracts, corporate or sovereign, should
come under MiFID’s transparency regime if they are eligible for clearing.
A harmonised post-trade transparency regime for over-the-counter (off-exchange) derivatives should be developed quickly.
A compulsory pre-trade transparency regime should be required for all non-equity instruments traded on exchanges.