Brussels, 25/09/2012 (Agence Europe) - MEP's on the European Parliament's Economic and Monetary Affairs Committee will be voting on Wednesday on the draft MiFID II legislation to change the EU's rules on investment in financial instruments (brokerage, consultancy, negotiation and portfolio management) to catch up with developments in the financial industry (see EUROPE 10478). They will be adopting a position on issues like high-frequency trading, investor protection and organised trading facilities (OTF), a new type of trading platform proposed by the European Commission. If the outcome of the vote gives a clear mandate, rapporteur Markus Ferber (EPP-ED, Germany) will have a strong position for the inter-institutional talks with the EU Council of Ministers once the member states have decided on their own negotiating mandate in October or November.
To take account of changes in technology, MiFID II includes provisions on automated trading (done by computer without human intervention). One such type of deal, high-frequency trading (HFT), increases the speed of transactions to such an extent that it can undermine the stability of the financial system by sparking massive and unpredictable volatility.
MEPs believe that HFT must be regulated. Ferber suggests that orders placed in HFT must be valid for at least 500 milliseconds, but some MEPs believe that this would be tough to implement and above all, tough to monitor. Others are concerned about the value-added of such a rule. Other ways of restricting the negative impact of high-frequency trading have been suggested, such as introducing fines when orders are withdrawn for no valid reason. The Commission suggests that HFT systems should be obliged to implement a circuit-breaker to halt trading whenever erratic price fluctuations are detected.
OTF. A compromise amendment to the draft report says that organised trading systems should not be allowed to process deals not allowed on traditional trading platforms. Ferber believes that as many deals as possible should be traded on regulated systems, and organised trading facilities should therefore cover complex structured products and derivatives along with simpler trades.
Consumer protection. Political parties at the Paliament want stronger consumer protection in MiFID II and for financial products to be designed to meet retail investors' needs. Financial intermediary payment systems should minimise conflicts of interest and the MEPs may endorse a ban on commission payments for the sale of financial products, a measure which consumer organisation BEUC would be delighted with, but which would face hostility from the European Federation of Financial Intermediaries and Advisors (FECIF).
MEPs will endorse the Commission's idea of introducing caps on raw materials derivatives in order to try and combat raw material price volatility due to speculation. (MB/transl.fl)