| Author (Corporate) | European Commission: DG Communication |
|---|---|
| Series Title | Press Release |
| Series Details | IP/11/1219 (20.10.11) |
| Publication Date | 20/10/2011 |
| Content Type | News |
|
See also: Brussels unveils tougher Mifid proposals Brussels has unveiled a series of wide-ranging and tough measures designed to crack down on high frequency trading and extend its regulation of the equities, commodities and vast off-exchange derivatives markets. The European Commission, which crafts laws for the European Union, published on Thursday long-awaited proposals through which it aims to tighten regulation of the region’s financial markets in the wake of the 2008 financial crisis, and amid a regional debt crisis. The Commission wants to increase transparency in trading and give strengthened powers to regulators and said that super-fast and automated trading posed “possible systemic risks”. However the measures were given a lukewarm response by banks, brokers and financial institutions, who warned that they could potentially damage important daily market functions and ratchet up overall banking costs. The proposals will look to build on the original Mifid directive of 2007, which aimed to benefit and safeguard investors, especially retail investors. The new proposals – mirroring the US Dodd-Frank Act – will also look to incorporate pledges made by the G20 group of leading nations to reform the world’s vast over-the-counter derivatives market by introducing more transparency and securities clearing. “Financial markets are there to serve the real economy – not the other way around,” said Michel Barnier, commissioner for internal market and services. “The crisis serves as a grim reminder of how complex and opaque some financial activities and products have become. This has to change. Today’s proposals will help lead to better, safer and more open financial markets.” The Commission has proposed regulating a new type of trading venue, the organised trading facility (OTF). It defined such platforms as “currently not regulated but are playing an increasingly important role” in trading as standardised derivatives contracts were increasingly traded on these types of venues. By introducing the OTF category, the Commission aims to improve the transparency of trading activities in equity markets, including so-called “dark pools”, where trades are executed off-exchange and prices published after completion. The Commission proposed to continue to allow dark pools but “only as long as they do not cause competitive distortions and reduce the overall efficiency of the price discovery process”. Simon Lewis, chief executive of the Association of Financial Markets in Europe, a financial services lobby group, said some of the proposals could affect customer choice, services and costs. “Blanket transparency obligations across non-equity markets are not the correct starting point, as these fail to take account of the high levels of transparency that already exist and are likely to damage liquidity, “ he said. “The definition of organised trading facility needs to be carefully considered so it does not unduly restrict various types of important market making and trading activities.” The Commission also wants to force all algorithmic traders to become properly regulated, to provide appropriate liquidity and wants rules to prevent them from adding to volatility by moving in and out of markets. Computerised trading has proved to be highly controversial. It relies on efficient software and super-fast connections to trade securities in fractions of seconds. Critics have questioned the utility of the practice, but supporters argue it reduces volatility and lowers spreads in the market. The Commission estimated the Mifid review would result in one-off compliance costs of €512m-€732m per year, with annual costs of between €312m-€586m. “Our fear, however, is that the costs of implementing this regulation have been significantly underestimated and come at a time when financial institutions are already under enormous regulatory, profitability and cost pressures,” said Giles Williams, co-head of KPMG’s regulatory centre of excellence in Europe. Copyright The Financial Times Limited 2011 Mifid II proposals: early reaction A round-up of the initial reactions from market participants to the publication of the proposals to update the Mifid directive governing European financial markets The European Commission on Thursday unveiled a series of wide-ranging and tough measures designed to shake-up financial markets, crack down on high frequency trading and extend its regulation of the equities, commodities and vast off-exchange derivatives markets. Michel Barnier, commissioner for internal market and services, European Commission Dominique Cerutti, president and deputy chief executive of NYSE Euronext Andreas Preuss, deputy chief executive of Deutsche Börse and chief executive of Eurex “The higher the degree of organized trading, the higher the likelihood that these products can be facilitated by central clearing and trading infrastructures and the lower the degree of systemic risk,” he added. Guy Sears, director, wholesale at the Investment Management Association For ordinary investors: “There could be improved costs certainly with the [consolidated] tape and the data. If they get this right that may lead to reduce costs and better visibility of the market.” Simon Lewis, chief executive of the Association of Financial Markets in Europe “The definition of organised trading facility needs to be carefully considered so it does not unduly restrict various types of important market making and trading activities.” Conrad Voldstad, chief executive of International Swaps and Derivatives Association “If you want to protect end users’ ability to access these markets, then you need a suitable range of venues on which to trade; limiting what you class as an eligible trading platform for OTC derivatives is not a good move.” Matthew Fell, Confederation of British Industry, director for competitive markets Munib Ali, director at PwC “Investment banks, particularly their fixed income businesses, will feel the effects of Mifid II the most. Severe strain will also be placed on the business models of high-frequency trading and commodities firms, who will incur higher implementation and operating costs in order to meet the heavy control and reporting requirements. High-frequency trading firms will be particularly concerned by having to provide liquidity on an ongoing basis like market makers, revisiting their trading strategies and sharing these with the regulators. Oscar Reyes, Carbon Trade Watch Peter Green, partner, capital markets practice, Morrison & Foerster law firm “The move to regulate OTFs is a huge shift as it will put a wide range of broker crossing systems under the spotlight and significantly extend the scope of Mifid over certain financial transactions. A politically charged proposal which is likely to be hotly debated is that clearing houses must accept trades executed on any venue. Equally, trading venues will be required to provide open access to any central counterparty that wants to clear financial transactions executed there, breaking provider strongholds on both sides.” Damian Carolan, regulatory partner, Allen & Overy Fragmentation of liquidity and pricing sources, which was an unintended consequence of Mifid the first time round, must continue to be a concern as Mifid II adds yet more classes of regulated venue (the new OTF) and applies regulated trading structures to more markets. Integrated vertical trading and clearing silos are best placed to profit from the push towards regulated trading, even if attempts to force open up access survive in the final legislation.” Imogen Garner, senior associate at Norton Rose Matteo Cassina, president, Citadel execution services What is important is that the cost of pan-European data does not remain beyond the reach of ordinary retail investors and thus continue to prevent them from understanding whether best execution is being achieved.” Alex McDonald, chief executive of Wholesale Market Brokers’ Association Sharon Bowles MEP, chair of the European Parliament’s Economic and Monetary Affairs committee Copyright The Financial Times Limited 2011. These proposals consist of a Directive and a Regulation and aim to make financial markets more efficient, resilient and transparent, and to strengthen the protection of investors. The new framework will also increase the supervisory powers of regulators and provide clear operating rules for all trading activities. Similar discussions are taking place in the United States and other major global financial centres. |
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| Source Link | http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1219&format=HTML&aged=0&language=EN&guiLanguage=en |
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| Subject Categories | Business and Industry |
| Countries / Regions | Europe |
