(Bloomberg) —Traders face a push by European Union regulators againstdark poolsand other concealed trading amid warnings from the financial industry that the transparency drive could hamper the functioning of markets.
EU regulators recently published more than 1,000 pages of draft standards for fleshing out an overhaul of financial market legislation that was agreed on earlier this year. In addition to the tougher transparency standards, the technical rules also cover areas from regulation of high-frequency trading and commodity derivatives speculation to broker research.
The rules will have a significant impact on the EUs securities markets, its users and infrastructure providers, said Steven Maijoor, head of the European Securities and Markets Authority. It will bring greater transparency and improve the overall functioning of markets thus strengthening investors trust in the financial sector.
The draft ESMA plans are part of work to update the EUs regulations in the wake of the turmoil that followed the 2008 collapse of Lehman Brothers Holdings Inc. While governments and EU lawmakers have already agreed on revised legislation, technical standards are needed to clarify key points before the rules begin taking effect in 2017.
Although the rules will not apply for another two years, firms need to start planning now to ensure that they will be in a position to comply by 2017, said Harry Eddis, a financial regulation partner at law firm Linklaters in London.
Boosting market transparency is one of the key goals behind the new regulations, which amend the EUs Markets in Financial Instruments Directive, or MiFID.
Major Change
Regulators say the new standards, which seek to cap equity trading indark pools, push more swaps trades on to regulated platforms and boost the transparency of fixed-income trading, will make markets more resilient during crises and less prone to abuse. Some brokers counter that the move will backfire by making trading too expensive.
On equities, the plans amount to a major change to the framework for trading these instruments in the EU, ESMA said.
The draft standards include clarifications how the EU will apply new limits on waivers that currently allow some equities trading to escape normal pre-trade transparency rules. They also include an exhaustive list of equity transactions that dont have to be traded on regulated platforms.
The ESMA blueprint also covers steps to boost investor protection in Europe, including draft rules on how fund managers can receive research from brokers and other third parties.
ESMA shares responsibility for developing the technical rules with the European Commission, the 28-nation EUs executive arm. For some of the draft technical plans, ESMA will seek views until March 2 before publishing updated texts; on others it will hand over guidance to the commission for further rule development.
