EU legislators take long-term view over euro crisis

Crisis? What crisis? As far as the European Commission is concerned, the drama surrounding the Greek debt crisis is merely a sideshow to the main theatre of events, which is the work being carried out to build the financial regulatory infrastructure of the future European Union.

Work continues unaffected by the media reports of an apparently i­mminent unravelling of the EU. While the Greek crisis is being played out on the streets of Athens and Madrid, in ­Brussels the legislators are hard at work on a pipeline of some 30 different directives that will cover everything from cross-border bank resolution to shadow banking and asset management.

Focus on directives

They are working on a daunting programme of legislation destined to form the foundations for the newly integrated EU and which down the years will come to be regarded as a monument to their faith in its future.

Much of the regulation seen so far will come to be viewed as an initial version always destined for revision. Perhaps the most high profile of these reforms has been the review of the Markets in Financial Instruments Directive (MiFID), the proposals for which were ­published last October.

The proposed reforms include the introduction of pre- and post-trade transparency for non-equity instruments and the creation of an organised trading facility to cover firms’ electronic trading platforms. The European Parliament and the European Council have to approve the proposal before it is adopted into law.

Of particular interest has been the views expressed by the rapporteur Markus Ferber MEP, the person responsible for guiding the proposals through the legislative process in p­arliament.

A paper by Deutsche Bank says: “It seems that Ferber intends to ­significantly increase transparency requirements for non-equities and expand the trading obligation for OTC instruments.”

Ferber’s proposals include:

• A ban on investment firms ­providing direct electronic access to trading venues

• The introduction of a detailed definition of high frequency trading (HFT) and strategies (to “avoid the risk that firms with insufficient ­controls in place create disorderly market conditions and to ensure market ­participants can be ­identified and held accountable for any ­disorderly conditions for which they are responsible”)

• The use of organised trading ­facilities to be restricted to bonds, structured financial products, emission allowances or derivatives

• an expanded number of instruments are subject to pre-trade t­ransparency requirements, and

• a more extensive obligation for OTC products to be traded via systemic internalisers.

While these are merely proposals so far, it is highly likely most of them will make it to become ­legislation, which is why Ferber’s initial ­comments are worth noting.

Working separately, the European Council of Ministers will also ­discuss these issues, though it is not clear whether the council will conclude at the same time as Ferber – by July.

The Financial Transactions Tax is a particularly controversial proposal. Former French President Nicolas Sarkozy had led the charge for its introduction and got the backing of some countries, including Germany. Sarkozy was opposed by the UK and Sweden among others, while the Dutch tabled proposals for an ‘­alternative’ tax.

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