Brussels, 15/01/2014 (Agence Europe) - The Greek Presidency and representatives of the European Parliament reached agreement on Tuesday 14 January on revision of the rules governing financial instrument markets (MiFID II) to boost transparency and investor protection, reduce speculation on commodity prices and catch up with technological changes.
Delighted at the agreement, the EP rapporteur, Markus Ferber (EPP, Germany) pointed out that the EU is the first global player to introduce such updated and detailed reforms. In a press release, EU Internal Market Commissioner Michel Barnier said the rules were a key step towards introducing a safer, more open and more responsible financial system and restoring investor confidence after the economic crisis.
The revised directive provides for the creation of organised trading systems (OTF), new trading platforms that will process deals in financial products other than shares (unit trusts, standardised derivatives and CO2 emission quota). Arlene McCarthy (S&D, UK) warned, however, of possible distortions of competition because the OTF will not be as regulated as traditional bourses.
Barnier said that strict transparency rules will ban anonymous trading of shares and other capital instruments, because anonymity makes it difficult to set fair, effective prices. One aim is to tackle the excessive use of “dark pools”, or un-regulated trading platforms that process large numbers of deals anonymously without any transparency about price until the deals are closed.
In order to increase competition, a harmonised system will ensure non-discriminatory access to trading platforms and central counterparties, along with benchmarks used for negotiating and clearing. A central clearing house (CCP) in the United Kingdom, for example, will be able to pay for deals carried out on a German trading platform. This particular measure has a 30-month transition period, conditionally renewable for a further 30 months.
HFT. High-frequency trading (HFT) is suspected of increasing market volatility and will now be subject to new prudential rules, with monitoring of trading, appropriate liquidity requirements for operators doing market making and rules on the supply of direct electronic access to the market. The EP had to give up on the idea of introducing a minimum time (half a second) that orders must be kept. On a daily basis, HFT generates nearly 90% of all orders but is only responsible for 20% of deals that go through to clearing, explained McCarthy.
Using a methodology drawn up by the European Securities Markets Authority (ESMA), member states will be allowed to introduce limits on small positions (but not on all contracts) held by an investor in commodities such as wheat, soya or sugar, because of their potential to artificially hike up food prices. Olivier Herman of Oxfam said this was good news for millions of people in developing countries, but the measures are far from perfect because of the unfair exemptions granted to wholesale derivative contracts for gas and electricity.
Countries outside the EU. The Commission will examine legislation in countries outside the EU to establish the equivalence of their systems with the new EU rules. If, for example, US law is deemed equivalent to the EU rules, then US operators will be given a European passport to offer services to professional investors registered in the EU. Rules on the supply of services by suppliers outside the EU to retail investors in the EU have not been changed. Each member state is therefore free to decide whether a Swiss supplier registered in their country, for example, will be able to supply services to retail investors.
The MiFID II package aims to give investors greater protection. Barnier said that investment companies will have to meet stricter rules in order for investors to be sure that they are being offered products that suit their needs and that their assets are well protected. Likewise, he said, investors will be able to rely on objective and independence advice when they desire it, and the structure of fees and other payments for advisers will not be allowed to interfere with this.
The European Parliament is expected to endorse the deal at the March plenary, so that the legislation can be published in the EU Official Journal later this year and come into force towards the end of 2016. Meanwhile, a hundred or so implementing measures for MiFID II will need to be finalised. (MB/transl.fl)