01 July 2002

FBE statement on revised ISD

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The European Banking Federation (FBE) states among others that the appropriate policy response with respect to ‘internalisation’ will consist of a combination of well-targeted post-trade transparency rules taking into account block trades, and a reaffirmation of the best execution rule focusing on the customers classified as 'retail' in the ISD framework.

Given the complexity and importance of ensuring a smooth adoption of the eventual Directive proposal, the FBE asks for third round of consultation before the Commission submits its definitive proposal to the European Parliament and the Council.

Executive Summary

The European Banking Federation (FBE) welcomes in the Commission's new draft the following elements:

The return to the existing regulated market/investment firm distinction and the abolition of the organised market concept;

The adoption of the definition an ATS as a multilateral system, as defined by CESR;

The widening of the definition of investment advice to include non-fee remunerated advice;

The replacement of the quarterly reports on execution venues by a more proactive policing of best execution;

Abridging of the detail of the transaction reports to the regulator;

Limiting of post-trade reporting requirements to equities;

Recognition of the need for a special regime for block trades and trades in illiquid securities;

Commission's request for input before reaching a decision on the important question of pre-trade transparency;

Commission's attempt to find an alternative to reporting of off-market transactions to a leading regulated market;

Commission's request for input before reaching a decision on whether a more active public role is warranted for integration of trade information.

However, we are concerned about the following issues that have not fully been addressed in the new draft or problems linked to new proposals:

The lack of clarity regarding the principle that the duty of suitability will not apply to execution-only services;

The lack of clarity regarding the principle that the best execution rule will be interpreted as depending on multiple criteria (in addition to price, also costs, size, speed, etc.);

Disclosure of all conflicts of interest to the client at the outset;

The application of Chinese walls when cumulating dealing and internalisation (which we consider to be a re-entry of the concentration rule);

The incidental and systematic internalisation distinction, which does not yet solve the problem of limiting post-trade reporting to the cases where there is a concrete net benefit;

The continuing advantage that might be created for 'reference regulated markets' with the proposed post-trade reporting rules;

The possibility of pre-trade reporting for internalisation and the proposal for pre-trade reporting for ATSs;

Aspects of the regulated markets regime that may not be consistent with the proposed Single Prospectus; and

Inadequate clarity on the status of tied agents.

FBE Statement on Revised ISD

© FBE