Parliament to discuss Mifid II proposals but banks have been critical of Commission’s plans.
The European Parliament will toughen up some of the proposals made by the European Commission on the most important and wide-ranging piece of financial legislation this year, according to an MEP dealing with the topic.
Mifid II – the revision of the European Union’s Markets in Financial Instruments Directive – will transform the way that financial instruments are traded and will extend the scope of existing regulation.
The Parliament’s report on the Commission’s proposal, compiled by Markus Ferber, a centre-right German MEP, will be presented to the economic and monetary affairs committee before the end of this month, at a meeting either on 20-21 March or 26-27 March.
The plans have already sparked intense debate between brokers, investor groups and banks. Many of them criticised the Commission’s proposal when it was published in October, claiming that some of the new rules would disrupt the smooth functioning of markets and push up costs. MEPs are expected to come under intense lobbying pressure.
Ferber said that among the proposed rules, which are designed to clamp down on high-frequency trading and close existing loopholes, the protection of consumers was one of his highest priorities.
The proposal builds on the original Mifid legislation implemented in 2007, which introduced greater competition among trading venues, and reduced costs. But the directive had the side-effect of pushing trading into unregulated areas. This, together with technology that allows trades around the globe to take place in seconds, prompted the Commission to propose new legislation that widens the scope of the directive, bringing in more regulation in the trading of commodities, equities and off-exchange derivatives trading.
“Transparency is a big issue [in the new legislation], but it is not all about that,” said Ferber. “It is also about consumer protection, as well as how to organise commodities markets.”
Under the proposals, the pan-EU regulator, the European Securities and Markets Authority (ESMA), would be given greater powers of intervention in national markets – something that many member states have already indicated they will oppose.
The Commission also wanted to cut the time it takes to report equity trades. EU policymakers want to make it easier to monitor where trades are taking place and by whom, in order to catch the build-up of risk before it is too late. Banks and investor groups fear that the changes could significantly increase costs.
“The Parliament will use the opportunity to strengthen some proposals of the Commission, to organise more transparency but more rules as well,” said Ferber, who said there needed to be extra monitoring of cross-border trades.
Under the Commission’s plan, a ‘consolidation tape’ recording each day’s trades would be set up. “At the moment, we are looking carefully at what is going on, member state by member state, but ESMA has no chance of looking at arbitrage via various member states,” said Ferber. “Therefore we need as soon as possible consolidated tapes so that ESMA can take a look at what has gone on during a trading day.”
Because of the wide-ranging and complex nature of the legislation, it will take months to be finalised. MEPs have a provisional target of 9 July to vote on Ferber’s report, but agreement with member states – necessary before the legislation can be adopted – is not expected before the autumn.