Proposal aims to strengthen financial market rules

Revision aims to promote competition in the clearing of securities.

The latest of the European Commission’s crucial financial regulation reforms is expected to be unveiled today (20 October). The proposed revision of the markets in financial instruments directive (known as MIFID II) aims to promote competition in the clearing of securities, force derivatives on to trading platforms, and extend rules to include commodity and bond trading.

As European Voice reported on 8 September, the proposal will encourage the removal of obstacles that prevent investors from choosing where their securities should be cleared, one of the most contentious issues facing policymakers.

A later draft shows that the Commission wants to impose restrictions on high-frequency trading – where securities are traded by computer at lightning speed, requiring venues to “adopt appropriate risk controls to mitigate disorderly trading and ensure the resiliency of their platforms”.

There has been continued disagreement within the Commission on whether the proposal should include classifying the emissions trading scheme (ETS) as a financial instrument.

The publication of the proposal is likely to trigger a lengthy series of disputes between member states, amid intensive lobbying by banks and exchanges.

Much of MIFID II will be contained in a regulation, meaning that it will be directly binding on EU member states, preventing any attempt to water down the rules.

Changes in approach

The atmosphere has changed since the original MIFID, which came into force three-and-a-half years ago, and opened up venues for the trading of financial instruments to more competition, giving investors more choice.

The new proposal will say that the benefits from this increased competition “have not flowed equally to all market participants” and there has been increased market fragmentation, a risk that countries such as France are keen to minimise.