EU to update market transparency law


A law designed to shine a light on securities trading, badly burned by the credit crunch, will be revamped by the new European Commission.

MiFID 2 will be unveiled in mid-2010, according to the deputy director general of the EU's internal market, David Wright.

The review of MiFID is in sync with US President Barack Obama's recent crackdown on proprietary trading – the sale and purchase of debts and equities between banks.

Under the law, traders and brokers inter alia are obliged to tell investors as much as possible about their investments pre- and post-trade, including pricing, bidding and the volume and trade time of listed shares.

Post-trade problems

The deputy director was speaking to a conference of investment bankers, traders, brokers and academics at London's Stock Exchange yesterday (1 February) on MiFID and the loopholes that had presented themselves after its implementation in member states.

The Committee of European Securities Regulators (CESR), which helped the Commission to draft MiFID, said there were still problems with the valuation of assets and the timing of information post-trade, even though the law had delivered trading transparency pre-trade.

Greater enforcement

Wright hinted at greater enforcement of the markets law, saying that brokers should not be able to waive trade reporting rules and called for countries that had not implemented the law to be sanctioned.

Investment bankers and brokers at the event seemed to agree that MiFID needed greater enforcement, though some disagreed whether that should happen at an EU or national level.

"All the brokers that have not bothered drafting execution policies [how they reach investment data] should do so and all the investors who have not read them should read them," Richard Balarkas, CEO of agency brokerage Instinet, argued at the conference.

Interoperable terminals

Improving MiFID’s implementation is a question of interoperability, Xavier Rolet, CEO of the London Stock Exchange (LSE), told bankers.

"We need to ensure that central clearing houses can swap and manage collateral," Rolet added.

He was referring to the disparate technological standards of the terminals used to transfer market data.

In response to Rolet's comments, Wright said he would not regulate technology but would think about whether some technologies were hurting trading.

Bundled commissions

Balarkas added that bundled commissions, whereby brokers throw in additional services for a fixed price, prevent competition.

"Until the European executive does something to regulate bundled commissions, MiFID will not work," Balarkas said.

However, Wright admitted that the EU's system of sanctions was in an imperfect state and needed to be rethought.

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.

The law 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.

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