Commission presents its proposals for revision of financial markets regulation

Despite previous regulation on the provision of investment services in financial instruments facilitated a higher degree of competition and more choice for consumers, the financial crisis has underlined some of the shortcomings of such regulation. In order to overcome this deficiency and achieve more efficient, robust and transparent European financial markets, the European Commission has presented its proposals for revision of the Markets in Financial Instruments Directive.

By putting forward its proposals for reform of the Markets in Financial Instruments Directive (MiFID), the European Union meets the commitment made at the G-20 summit held in Pittsburgh in 2009, which highlighted the need to increase transparency and oversight in less regulated markets, such as financial derivatives.

The measures proposed by the Commission are to be developed in a Directive and a Regulation whose main objective is to provide greater security for investors and combating excessive volatility in derivatives markets, such as commodity derivatives. This regulations will bring into the monitoring system of the MiFID a new type of trading venue, the Organised Trading Facility (OTF), with the aim to unify the rules of transparency applied in all trading systems.

The new regulation places particular emphasis on the need for increased transparency in order to facilitate decision-making by investors. The incorporation of the OTF trading venue to MiFID will contribute to improve efficiency in trading platforms. In addition, exceptions will only be accepted in certain circumstances. Furthermore, safeguard rules for algorithmic trading activities and high frequency trading activities will be introduced, including the requirement to provide sufficient liquidity and establishing standards to prevent their rapid volatility of market inputs and outputs, in order to avoid systemic risk.

The proposals provide for stronger supervisory powers, reinforcing the role and power of regulators, who will have the possibility to ban products, services or specific practices in coordination with the European Securities and Markets Authority (ESMA), whenever the represent a threat to the protection of investors, financial stability or the orderly operation of the markets. The proposal also envisages increased supervision of commodity derivatives markets and establishes reporting requirements based on the category of operators.