04.26.2012
By Terry Flanagan

Protagonists Battle Over MiFID II Outcome

Lobbyists continue to fight their corner over MiFID II, as the proposals remain something of a work in progress as they wind their way towards a crucial deadline in the European parliament in a couple of weeks.

The European Commission put forward proposals for an updated MiFID, or Markets in Financial Instruments Directive, and a proposed regulation (MiFIR) last October and it is currently before parliament and the 27 member states for approval.

The next step in the MiFID II process sees the European parliament’s ECON committee debate the issues later this week ahead of a May 10 deadline for amendments to be tabled. Parliament has already warned in a report that the European Commission’s draft measures do not currently go far enough.

The European Commission was looking to remedy issues not included in the first document, as well as re-assert laws in the original directive. One of the major talking points in MiFID II revolves a possible clampdown of high-frequency trading.

Earlier this week, a European lobby group called Finance Watch—which is made up of consumer groups, retail investor associations, trade unions, think tanks, NGOs and others—called on the European Union to maintain a tough stance on high-frequency trading as well as commodity derivatives speculation and over-the-counter and dark trading.

“Financial markets play an essential role in supporting our economy,” said Benoît Lallemand, senior research analyst at Finance Watch. “We welcome the MiFID II proposals for increased transparency and supervisory powers and for measures to discourage harmful trading practices.”

A proprietary trading lobby group, based in Brussels, called FIA European Principal Traders Association (FIA-EPTA), set up under the auspices of the Futures Industry Association, has come out fighting against claims made by Finance Watch that high-frequency trading is bad for markets.

“High-frequency trading is clearly playing an unequivocal role in lowering transaction costs, which is of huge benefit to end users,” said Remco Lenterman, chairman of FIA-EPTA.

“We believe that the views on liquidity held by Finance Watch are not correct and are not supported by any empirical evidence,” added Lenterman, who pointed out that there was a solid body of academic research pointing to the validity of high-frequency trading.

Also in the MiFID II crosshairs are provisions relating to so-called third country provisions, as access of non-EU firms into European markets is not currently harmonized, but instead left to the discretion of member states. A push to increase pre and post trade transparency, which will see bond and derivatives markets likely face the same kind of disclosure that equity markets have been subjected to since the introduction of MiFID in 2007, is also on the agenda as is the European Commission’s push, backed by regulated exchanges, to classify less regulated broker crossing networks under either multilateral trading facilities or, more likely, as a systematic internalizer, a third type of trading venue originally introduced by MiFID that never really took off.

A final agreement between the legislative bodies in Europe on the level one proposals of MiFID II is expected by the end of this year with implementation of the new measures not expected until at least 2015.

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