Brussels, 8 December 2010
Financial services: improving European rules for a more robust framework for all financial actors and instruments
As part of its work in creating a more transparent and stable financial system, the European Commission has today launched a consultation on the review of the Markets in Financial Instruments Directive (MiFID). In force since November 2007 (see IP/07/1625), MiFID provides a comprehensive framework for investment firms offering services in relation to financial instruments, as well as rules to protect investors. It allows trading venues and investment firms to operate freely across the EU. It has increased competition and integration in EU financial markets, and led to significant improvements in investor protection. However, rapid technological advances, the complexity and changing make-up of financial markets and the lessons of the financial crisis call for an extensive review targeted at addressing all of the areas where shortcomings have been revealed or improvements are needed. The purpose of this consultation is to gather input from all stakeholders in order to inform the legislative proposals due in the spring of 2011. The deadline for replies is 2 February 2011.
Internal Market and Services Commissioner Michel Barnier said: "The original aim of this key piece of European legislation, MiFID, was to create a robust common regulatory framework for Europe's securities markets. In many ways, it has been a success. But the world has changed. And we all know the current framework needs improvement. My objective is to ensure that the revision of MiFID will lead to a stronger regulatory framework, adapted to the new trends and players on financial markets. And a framework which leads to greater market transparency and efficiency, as well as more protection for investors."
MiFID is a central pillar of European regulation of financial markets. It provides for more competition, economies of scale, a greater variety of actors on the market, and thus better and cheaper services for investors. In turn, this leads to more integrated, more liquid, and better functioning financial markets. Included in MiFID are also rules for investor protection.
However, since MiFID came into force, financial markets have changed substantially. New actors (for example new types of trading venues) and products have come onto the scene and technological developments, such as high frequency trading, have altered the landscape dramatically. All these have revealed shortcomings in MiFID. This is why MiFID will be revised next year. Today's consultation will feed into that process.
Key elements of the consultation:
- Developments in market structures and practices. Financial markets are increasingly complex. There are now many more trading venues, participants and products available. The European framework needs to keep pace with changes to methods of trading and technological developments. The consultation asks how MiFID should be updated to provide a robust regulatory framework covering all investment services and activities in an appropriate manner to avoid risks linked to activities not covered.
- Transparency of markets. Transparency of market data (including pre- and post-trade data) is crucial so that all market participants have equal access to information on trading opportunities. This also facilitates price formation and promotes liquidity. Currently, MiFID transparency rules only cover shares. The consultation looks at how to limit derogations from the current framework (i.e. the issue of dark pools) and asks whether other financial products, such as bonds and OTC (over-the-counter) derivatives should also be subject to similar rules, in line with G-20 commitments. Measures to improve the availability, quality and consolidation of trading data are also proposed.
- Commodity derivative markets. The consultation also asks what measures could be taken to address concerns relating to the functioning of commodity derivative markets and their impact on commodity price volatility. It asks how to improve information flows, what reporting requirements might be needed and whether position limits should be considered. The MiFID review will complement other Commission initiatives in this field, such as the review of the Market Abuse Directive - scheduled for spring 2011.
- Investor protection. The consultation asks about measures needed to strengthen investor protection, so that investment firms treat all investors appropriately in light of their specific profiles.
- Supervision. The consultation asks where changes to the supervision of the various activities and participants may be needed, and in particular the precise role for the European Securities and Markets Authority (ESMA) to ensure a better supervision of these markets (see MEMO/10/434). This new Authority will be up and running in January 2011.
See also MEMO/10/659