-The Federation of Securities Exchangers (FESE) advocates functional regulation that focuses on the activities performed by companies and/or business units rather than on their legal structure or history. The principle should indeed be 'same rules for the same business'. At the same time, we agree with Commission officials that trying to transplant blindly the regulatory regime for one type of order-execution methodology to market functions that are clearly distinct would be falling into a trap.
Together with fostering competition and removing barriers, investor protection is one of the key targets of securities markets regulation. Europe's Regulated Markets agree that there are three focal elements to this:
the depth of liquidity in the markets,
the quality of the price formation process,
the efficiency and effectiveness of Conduct of Business Rules.
European and national legislators, regulators and market operators should foster the development of high-quality Conduct of Business Rules and their implementation and enforcement in a harmonised way across Europe. Such Conduct of Business Rules should particularly emphasise the following issues:
best execution as a core element,
the effective management of conflicts of interest,
order handling,
appropriate and fair avenues of recourse against unfair treatment.
Market models differ between purely order-driven systems and pure market-maker models with a host of hybrid forms between. While the 'European' order-driven market model prevails in most markets on the European continent, legislators and regulators should not take it as the standard to which best execution rules and enforcement should be tailored.
With regard to the high-level principles for Regulated Markets, we emphasise that it is important for the operators of Europe's Regulated Markets, but also for the European Market as a whole that the right balance is found between the formulation of general high-level principles and proper guidance to regulators as to how to fill these general principles with life. The principles as enshrined in the ISD should in no case hinder flexibility and development. At the same time, regulators should not feel compelled or invited to interfere with technical and/or commercial details of market operation or market design where such details and their changes do in no way jeopardise the overall objectives of market competitiveness, safety, reliability, investor protection etc.
FESE response to the Second Round of Consultation on ISD
Annex I presents the views of FESE and its Members with regard to the overall market structure, the regulatory classification, and the issues of transparency and best execution.
Annex II makes several more detailed proposals as to the high-level principles.
© FESE
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