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(excerpt)
As a means to arrive at a level playing field, FESE has consistently advocated a 'functional approach' by legislation and by regulators to all those entities that provide the same or similar service, namely to operate a system to bring together supply of and demand for securities.
We understand that CESR, at this point of time, has made the decision to concentrate in its work solely on ISD-authorised operators of order-matching systems that are not regulated as an Exchange. This is regrettable since this restricted approach again is certain to create differences in the regulatory environment between Exchanges and other operators of systems with Exchange functions.
We urge CESR to insert into their document clear reference to the fact that the risks as correctly described and addressed by CESR are actually common to all operators of order-matching systems, Exchanges and others. CESR should in this context expressly refer to its earlier work on Standards for Regulated Markets and to the subsequent proposals issued by the services of the European Commission in their documents on the ISD Review.
CESR seems to find the ISD Review process to long a process to wait for results in this area; hence the adoption of the CESR Standards for Regulated Markets and the advanced discussion on the Standards for ATSs. The hesitation on the side of CESR to address now all forms of order-matching systems, including bilateral systems and all forms of internalisation, seems however in conflict with the regulators' evident and justified concerns about market integrity and investor protection.
See full FESE paper