By Huw Jones
LONDON Oct 31 European Union rules being
finalised to regulate derivatives and bond trading are too
light-touch and will leave markets in the dark, EU financial
services chief Michel Barnier has said.
Barnier has told Markus Ferber, a German member of the
European Parliament who is leading negotiations on the new
rules, he was concerned about how they are evolving.
Parliament and EU states are finalising a revision of the
bloc's Markets in Financial Instruments Directive or MiFID to
apply lessons from the financial crisis, such as the need for
The vast majority of trading in derivatives takes place
among wholesale market participants - banks and trading
companies - through voice trading systems.
EU states and parliament have proposed exempting this type
of trading from stricter transparency requirements so that most
derivatives would continue to be traded in the dark, Barnier
said in his letter dated Oct. 30 and seen by Reuters.
"The same principles that apply to derivatives apply equally
to bonds: like derivatives markets, bond markets are dominated
by dark trading which hinder effective price formation and this
opacity protects from competition a handful of brokers."
"In the same way as for derivatives markets, the current
drafting would simply keep the status quo by allowing these
markets to continue working in total opacity," he said.
Ensuring that bond trading moved to electronic platforms
open to all would broaden investor choice, Barnier said.
Unless changes to the texts were made, the EU would not be
meeting pledges it and other members of the Group of 20 leading
economies made to improve transparency in markets, he said.
"Should the transparency regime, as finally approved, lead
to an increase of trading of derivatives instruments on dark
venues this would completely defeat the objective of the G20
commitment and undermine our common efforts to render the EU
financial sector more stable and solid," Barnier said.