EU market regulation pinching small investors


An EU regulation aimed at making stocks trading more transparent and competitive has done the opposite and is penalising small investors to boot, according to the EuroInvestors trade body which represents small investors. 

Smaller retail investors are not getting value for money when they buy stocks because their brokers cannot see all the data needed to make an informed move, argue trade bodies in Brussels, who blame EU regulation for fragmenting financial markets.

A 2007 EU regulation called the Markets in Financial Instruments Directive (MiFID) was designed to allow stock trading venues, like the London Stock Exchange, and investment firms to operate freely across the EU.

MiFID aimed to widen investors' access to electronic data on the trade history of stocks, or as it is called in financial jargon, consolidated tape, so that they would get the best price on the market on any given trading day. But EuroInvestors argues that MiFID has instead fragmented European markets.

Market data 'too narrow'

EuroInvestors and Equiduct, a trading platform, argue that stock brokers will not be able to get the best price for retail investors because they can only access data on their home market.

"Your broker probably almost certainly, statistically, will not be able to do that," Peter Randall, CEO of Equiduct, argued at a conference in Brussels yesterday (24 February).

Equiduct claims it gives investors access to a single source of pan-European stock price data. 

EuroInvetsors examined four European stock markets – AGEAS, ENI, Siemens and SocGen – and concluded that each gave brokers access to only five trading venues, limiting investors' chances of getting the best deal by about 10%.

In total, 20% of trades done on EU home markets miss the best price available, according to data collated by the trade body.

Randall argued that retail stock prices should be just as transparent as comparing the price of petrol at local gas stations.

Regulatory gaps

Regulators have struggled to police financial markets since the explosion of cheaper and faster trading venues called Multilateral Trading Facilities (MTFs). Chi-X is currently the largest MTF in Europe.

MTFs have been a thorn in the side of traditional financial markets since MiFID enabled more trading venues to compete with one another.

As a result, the European Commission is currently reviewing the 2007 regulation as an explosion of these trading venues and high frequency trading has exposed large regulatory gaps.

"What it [MiFID] really means is Many Institutions Find It Difficult," Randall joked.  

The European Commission's review of MiFID is scheduled for release by June 2011.


The Markets in Financial Instruments Directive (MiFID), a cornerstone of the EU's Financial Services Action Plan, was proposed in November 2002 to update the existing Investment Services Directive (ISD) of 1993.

Before the introduction of MiFID trading in stocks and shares was typically centred on large national exchanges, such as London Stock Exchange (LSE), Deutsche Börse and Euronext

The EU regulation was designed to cope with, and to further enable, an increased number of cross-border investment transactions.

It aims to set a comprehensive regulatory regime, impose higher standards and include commodities derivatives. It therefore seeks to produce greater European harmonisation of laws and encourage capital market integration in the EU.

The law was adopted in 2004 and replaced the EU's Investment Services Directive in 2007.

  • June 2011: Commission to release MiFID II.

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