FESE recommends that the EU regulation should ensure price formation, fair and orderly markets, and a level playing field. These are very important objectives laid out by MiFID which in some cases need re‐strengthening.
The most important challenge to confront in the MiFID review concerns the regulatory boundaries and requirements among the different execution venues.
CESR’s Consultation Paper includes an estimate of OTC trading – a figure which was yet to be confirmed by an official source - and it also discusses some aspects of the business models used by OTC platforms. This is a welcome step in the right direction. Going forward, EU decision-makers should ensure that the principle ‘same business same rules’ is applied. Regulation must deliver efficient price formation, fair and orderly markets and a level playing field.
These concepts need to be re-strengthened in MiFID; to uphold these principles means re-installing much needed investor confidence in equity markets.
As a general matter, FESE supports CESR’s recommendation in favour of a more rule‐based approach. FESE is grateful that CESR has included a section entitled ‘regulatory boundaries and requirements’.
FESE believes that this is the most important challenge to confront in the revision of MiFID. Since this is complex and critical, FESE provides detailed views on the market structure in a separate section.
FESE especially wishes to stress the following:
· It is very important for EU regulation to be exhaustive in the sense that all trading in equities is captured by proper regulation, wherever the trading takes place.
· There has been a lot of discussion on OTC and its components over the last year, some of it concerning figures, some of it business models. CESR’s CP is a welcome step in the right direction in that it includes as estimate of OTC trading and also discusses some aspects of the business models of crossing networks. FESE urges CESR to shed more light on the OTC activities both during the MiFID Review and as part of its Level 3 process.
· There may be a number of alternative ways to ensure that the framework is comprehensive and regulates all like activity with like rules. FESE is in principle open minded about the specific methods chosen. FESE’s principal recommendation is that the EU regulation should ensure price formation, fair and orderly markets, and a level playing field. These are very important objectives laid out by MiFID which in some cases need re‐strengthening.
Moreover, in the context of the ongoing financial crisis, it is very important to uphold these principles if we want to re‐install investor confidence in equity markets.
© FESE
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