EU regulators propose tougher off-exchange rules

April 13, 2010

By Huw Jones

LONDON, April 13 (Reuters) – Banks and brokers in the¬†European Union that manage share trades for clients in-house to avoid the cost of using a stock exchange face a crackdown under reforms proposed by the bloc’s regulators on Tuesday.

Bourses have been lobbying supervisors for months to impose tougher rules on their off-exchange trading rivals, particularly crossing networks inside big banks that match share orders even though it represents a fraction of the market.

The EU is reviewing its markets in financial instruments directive, or MiFID, which has sparked cross-border competition in trading since its introduction in 2007 but at the cost of fragmenting share prices for investors.

The Committee of European Securities Regulators (CESR)

launched a consultation on three sets of draft advice to the EU for reforming MiFID later in the year.

“Ensuring that the regulatory framework keeps pace with the changing shape of financial markets is key,” CESR Chairman Eddy Wymeersch said in a statement.

“We are also seeking to make progress on convergence to ensure that market participants can effectively benefit from the single market and that retail investors have greater certainty dealing on a cross-border basis,” Wymeersch said.

It dovetails with a broader push by the G20 group of countries to apply lessons from the financial crisis by shining a light on all parts of the market and encouraging more trading on exchanges.


For CESR draft advice on investor protection:

For CESR draft advice on transaction reporting:

For CESR draft advice on equity markets:



CESR said to ensure a level playing field, it envisages “tailored additional obligations” for firms operating crossing networks.

“Similar to the U.S. approach, CESR also consults on the possibility of requiring investment firms operating crossing systems/processes to set up multilateral trading facilities for their crossing activity once they have reached a certain size on their own or in combination with other crossing systems/processes with which they have a private link,” it said.

Exchanges and MTFs must comply with a string of transparency and reporting rules but crossing networks say if they are forced to comply with much tougher rules, liquidity will be lost to the detriment of the overall stock market.

Exchanges argue that crossing networks have grown to become so significant they threaten to damage how bourses “form” share prices for everyone, a view the networks dispute.

CESR said in the final quarter of 2009, crossing networks trading totalled 55.7 billion euros or 4 percent of the OTC market and just 1.4 percent of all EU share trading.

CESR also wants to strengthen how transactions from all the different trading venues are reported so that investors get a coherent, speedy and accurate overall picture of the market.

But it stops short of recommending a “consolidated tape,” such as in the United States, whereby all trading venues must feed transaction data into a single pipe for the market.

(Reporting by Huw Jones, editing by Neil Stempleman)

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