European Union lawmakers clinched a deal that overhauls the bloc’s financial-market rulebook in a bid to toughen requirements and remedy deficiencies laid bare in the 2008 financial crisis.
The bill includes curbs on high-frequency trading and commodity-derivative speculation, as well as measures to push more activity onto regulated platforms. The accord follows more than two years of work on the plans since they were presented by Michel Barnier, the EU’s financial services chief.
“These new rules will improve the way capital markets function to the benefit of the real economy,” Barnier said in an e-mailed statement. “They are a key step towards establishing a safer, more open and more responsible financial system and restoring investor confidence.”
The EU’s bid to revamp its market legislation, known as Mifid, is a key piece of the 28-nation bloc’s work to implement agreements reached by the Group of 20 nations in the wake of the turmoil that followed the 2008 collapse of Lehman Brothers Holdings Inc. Members of the European Parliament and officials from Greece, which holds the rotating presidency of the EU, resolved outstanding differences on the law over more than seven hours of negotiations that concluded late Tuesday.
The accord must still be formally approved by the assembly and by national governments to take effect. While the law is set to apply 2 1/2 years after it’s published, some individual measures have longer transition periods.
Banks “remain concerned about the impact of the new rules on the real economy by limiting market liquidity and hurting the competitiveness of European firms,” Gergely Polner, a spokesman for the British Bankers’ Association, said in an e-mailed statement. “However, we look forward to working together with the European authorities on technical standards and the implementation” of the measures.
Key issues going into the final meeting included to what extent the revamped law should cover derivatives linked to energy markets and also what investor protection rules should be included in the legislation.
The rules for commodity derivatives include an “effective system” of position limits that will “curb speculation and help decrease price volatility and inflation,” Arlene McCarthy, a U.K. lawmaker in the parliament’s Socialist group, said in an e-mailed statement.
“High and volatile food prices have a devastating impact” on poorer countries, she said.
Under the accord, it will fall to the European Securities and Markets Authority, an EU agency based in Paris, to provide guidance to regulators on how the position limits should be calculated.
The rules on high-frequency trading, which include a so- called tick size regime limiting the minimum size of price movements on financial markets, will “slow down the pace of trading, increase transparency and ensure prices reflect current market conditions,” McCarthy said.
Other open issues were the setting of rules on how clearinghouses can get access to trade-feed data from rival service providers, and conditions for how non-EU based companies can offer services in the bloc.
“Transitional rules will ensure the smooth application” of the provisions on trade-feed data, the European Commission said in a statement.
The deal also links market access for non-EU based firms to assessments by the European Commission of whether countries apply regulations that are as rigorous as those enforced in the bloc. This system would apply to investment services targeted at institutional rather than retail clients.
“This is one of the most important legislative reforms of Europe’s capital markets with the potential to enhance transparency, improve price formation, and increase fairness and confidence across a range of markets,” said Simon Lewis, chief executive officer of the Association for Financial Markets in Europe, a group that represents lenders including Credit Suisse Group AG, BNP Paribas SA and Deutsche Bank AG.
Once adopted, the revised rules will update legislation from 2004. This earlier law focused mainly on the equities markets and measures to break down monopolies enjoyed by national exchanges.
The deal closes “loopholes and ensures that trading, wherever appropriate, takes place on regulated platforms,” the Commission said.