EU set for battle over rules for securities markets

Fri Nov 15, 2013 11:49am EST

* EU's Barnier tries to stop dilution of planned rules

* Barnier wants fewer exemptions for bonds, dark pools

* Ireland, Czech Republic, Dutch, Slovakia have concerns

* EU presidency attempts compromise on commodities

By Huw Jones

LONDON, Nov 15 (Reuters) - A battle over the rules governing Europe's stock, bond, commodities and derivatives markets rachets up next week when the EU's financial services chief pushes for stricter controls which some member states say risk driving business away.

European Union commissioner Michel Barnier fired a first shot last month when he warned the European Parliament and member states not to dilute his sweeping reform of the bloc's securities trading rules known as Markets in Financial Instruments Directive or MiFID.

Barnier said opaque markets like derivatives helped deepen the financial crisis of 2007-09. Industry officials say too much transparency will make it costlier for institutional investors to trade, as others in the market would see their position and trade against it.

Britain, by far the EU's biggest securities market, will be vigorously defending the City from any intervention which it thinks will drive investors to other parts of the world.

Parliament and EU states will meet next Thursday to decide how transparent trading should be, and who should be in charge of capping trading positions in commodities.

They agree that "dark pool" or anonymous, off exchange share trading should be curbed but have yet to decide how.

The lawmakers propose reducing some of the existing exemptions to publishing prices in advance of trade, while EU states prefer some sort of cap on dark trading volumes. Barnier has proposed combining the two in a double crackdown, an EU paper seen by Reuters showed.

Member states meet on Monday to prepare for the negotiations and Ireland, the Netherlands, the Czech Republic and Slovakia signalled their opposition on Friday in a joint response.

"We do not support inappropriate restrictions on waivers as a means of protecting price formation, especially so where there is no impact assessment to support any such restrictions," they said.

Although the final decision on the law rests solely with the lawmakers and member states, the industry worries that Barnier's intervention could tip the balance in favour of slightly tougher rules than had been anticipated.

Parliament goes to the polls next May and a deal is needed in coming weeks to avoid a serious delay on rules the EU and other leading economies have pledged to introduce.

BONDS AND COMMODITIES

Proposals from Barnier also want to reduce current exemptions from transparency rules in bond and derivatives trading.

"Like derivatives markets, bond markets are dominated by dark trading which hinder effective price formation and protects a handful of brokers from effective competition," it said.

But so far parliament and EU states don't want to change how the government and corporate bond markets operate.

"If these proposals are implemented in the way envisaged in the European Commission paper then it's not immediately apparent what the benefit to investors would be," said John Serocold, a senior director at the International Capital Market Association, a bond market trade body.

MiFID will also reshape commodities trading but there is no consensus yet on who should have the power to determine caps on trading positions, a new rule backed by policymakers who blame "speculation" on pushing up energy and food prices.

EU states want national regulators to police positions while parliament wants the European Securities and Markets Authority to take on this role. The bloc's residency Lithuania has proposed a combination of the two approaches.

The presidency is also siding with lawmakers in only including netted trades for totting up a commodity position and is also proposing to apply caps to some types of commodity derivatives traded off an exchange.

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