|
|
The European Council will seek to finalise its position on the revision of MiFID I (Markets in Financial Instruments Directive). This Directive, which was adopted in 2004, changed Europe’s trading landscape by increasing the competition between trading venues. However, MiFID I also led to increased market fragmentation and complexity for investors and companies.
One of the most contentious issues that the Council will discuss is whether Europe needs yet another type of trading venue: Organised Trading Facilities (OTFs). The Commission initially proposed to introduce OTFs to capture banks’ internal crossing systems (Broker Crossing Networks ‐ BCNs) that currently operate outside MiFID on an over‐the‐counter (OTC) basis. BCNs are private clubs open for business to only a limited number of investors. They allow the operator to trade at discretionary prices. The latest changes proposed to the OTF category at the Council seek to further facilitate the business of these trading venues.
The European Parliament clearly understood the danger and decided to remove this new category altogether for the trading of equities from its final report. The Federation of European Securities Exchanges (FESE) agrees with the European Parliament because the current proposals fall short of what Europe needs to foster safe and liquid capital markets in Europe. Equity OTFs will not provide a fair or neutral environment for investors.
OTFs will be allowed to discriminate and give preferential treatment to certain clients to the detriment of others. This means small local players will increasingly have difficulties to provide services to SMEs.
A failure to improve the current Council proposals could radically change the way capital markets function today in the EU and in particular would:
FESE believes that a neutral, efficient and competitive trading environment is best promoted by requiring BCNs to qualify as MTFs. It urges the Presidency and Member States to follow the European Parliament’s approach and to delete OTFs for equities. If this is not the case, MiFID II would be worse than MiFID I for investors, issuers, SMEs and the real economy as a whole.
Guillaume Prache, Managing Director, EuroFinuse said: "The ability for retail investors to access capital markets will once again be weakened if the current 'OTF' proposal goes ahead".
Michael Sterzenbach, Secretary General, Bundesverband der Wertpapierfirmen, said: "The losers of this proposal would be SMEs which do not have the same opportunities as the larger companies do to use global market players".
Helle Søby Thygesen, Manager, Danish Bankers' Association/Danish Securities Dealers Association, said: "The OTF category will make the current situation worse. It will hurt Europe's equity markets because it will direct order flow away from the current neutral trading venues: Regulated Markets and MTFs."
Judith Hardt, Secretary General, FESE said: "OTFs will give new players and market participants an additional incentive to use this less regulated environment. MiFID II was supposed to solve the problems of MiFID I. This objective became particularly important as a result of the financial crisis. It is surprising that the Council is not solving the problems of MiFID I, but making them worse."