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.