Brussels, 29/10/2007 (Agence Europe) - On Thursday 1 November 2007, the Markets in Financial Instruments Directive (MiFID) (2004-39/EC) and its two implementing texts (Directive 2006-73/EC and Regulation 1287/2006/EC) (see EUROPE 8677 and 9125) came into force. On Monday 29 October, David Wright, Director of Financial Services at the Commission, said the legislative package on investment services in the EU marked a sea-change or even a revolution. The cornerstone of the European Commission's Financial Services Action Plan (FSAP), it will introduce more competition in the cross-border trading of securities and provide greater protection for investors, whether professionals or small fry. The new legislation will have a huge impact on financial practices and the economy in Europe and could even serve as an example for other parts of the world in these days of a global village market.
Incomplete transposition. Following postponement, the deadline for transposition of the MiFID Directive was set at 31 January 2007 for implementation on 1 November 2007. In April 2007 the European Commission launched infringement proceedings against 24 member states which failed to transpose the directive within the deadline (see EUROPE 9413). David Wright said the situation was improving but was not yet wholly satisfactory. The countries lagging behind are Spain, Hungary, Poland and the Czech Republic, which were being urged by the Commission to speed up the transposition process. Wright hoped that the four member states would be ready for 1 January 2008 but could not be one hundred percent certain they would be. Of the 23 other EU member states, he said that seven would be ready for 1 November 2008 and six, Estonia, Greece, Latvia, Portugal, Slovenia and the Netherlands, should be ready by the end of the year. The new EU legislation will cover 92% of deals and 88% of turnover on the markets in question, explained Wright. He explained that the Committee of European Securities Regulators (CESR) recently introduced new transitional guidelines to help investment companies established or investing in member states that have not managed to scrap their old legal system on time in order to enable them to continue with their business.
What will the European Commission's job be? Firstly, to focus on implementation and respect of the MiFID Directive, explained David Wright, adding that the Commission would take a very firm line towards member states which failed to respect the rules, and companies continuing with anti-competitive practices. In the first quarter of 2008, the Commission will be publishing a report on whether to extend the pre and post-trade transparency rules to other financial instruments (like bonds) rather than keeping them just for shares as at present. Another area the Commission will be looking into is exporting the new legal framework outside the EU, basically selling the MiFID Directive internationally. Wrights said regulatory dialogue had been launched or would be launched with China, Japan, emerging economies and even the United States. Wright explained that the Chinese and Japanese had already taken some areas of the EU legislation on board, describing this as a good argument in favour of the EU rules. He said such examples could have a positive ripple effect. Recognising that the US takes a different approach, particularly when it comes to executing orders, he said that differences of opinion would not stand in the way of transatlantic cooperation in the field of financial services.
Background. The new legislative package on the financial instruments markets introduces a series of innovative measures. Firstly, it abolishes the so-called 'concentration rule' whereby some member states (France, Italy, Spain and Belgium) were able to keep a monopoly over regulatory stock exchanges. These member states will now be exposed to competition from multilateral trading facilities (MTFs) like Chi-X and the Turquoise consortium in the future, i.e. broadly non-exchange trading platforms, and 'systematic internalisers', i.e. banks or investment firms which systematically execute client orders internally on own account (rather than sending them to exchanges). The new players will be subject to the same pre and post-trade transparency rules as the exchanges. Secondly, the legislative package updates the 'single passport' for investment firms, whereby investment firms authorised in one member state can do business in other member states. The list of services has been extended (adding investment advice, for example), as has the list of financial products covered by the single passport (like derivatives). In exchange, the service suppliers will be subject to uniform investor protection rules for their ever more complex range of products. These protection rules govern the publication of fair, clear and non-abusive pre and post-trade information; the obligation for financial firms to seek the best execution of orders for their clients; portfolio management in line with the holder's level of experience; the writing of reports by supervisory authorities; and combatting conflicts of interest, explained David Wright. (M.B.)