Regulation of trading in financial instruments - 'dark pools', etc. (short presentation) 
President
The next item is the report by Mrs Swinburne, on behalf of the Committee on Economic and Monetary Affairs, on regulation of trading in financial instruments - dark pools, etc. (2010/2075 (INI)).
Kay Swinburne
rapporteur. - Mr President, I have difficulty explaining to those uninitiated in financial jargon precisely what my report on 'dark pools' refers to. The report formally refers to the trading of financial instruments, including dark pools, which are financial transactions and shares conducted without pre-trade transparency, otherwise referred to as non-displayed trades. The report, more broadly, is an assessment of the implementation of the Markets in the Financial Instruments Directive (MiFID) of 2007 with respect to equities and seeks to address structural issues currently apparent in the equities markets.
Despite this being a highly technical report, I am encouraged by the high level of debate that has occurred in the committee. I am glad that the hard work of my colleagues has managed to establish a broad base of support across political groups, turning 194 amendments into 26 compromises, which most groups were able to sign up to.
Given the timing of this own-initiative report and its culmination in a plenary vote this week, I also believe that the European Parliament has added significantly to the Commission's recently released consultation on the MiFID II review (MiFID II), which takes into account many of the issues raised in deliberations in the committee. The European Parliament, through this report, has asked for a number of investigations into the different trading venues that are currently regulated under MiFID and seeks a closer analysis to ensure that venues providing equivalent services are regulated to an equivalent level.
I believe that the Commission, in their consultation document, may have gone a step further in widening its definition of organised trading facilities to include all venues that bring together buyers and sellers. This means a significant loophole may be closed. Yet this solution ensures that proportionality can be maintained in allowing for significant differentiation within the categories for regulated markets, MTFs, SIs, BCNs and derivative platforms.
The new level of scrutiny being suggested for operators of dark pools should be welcomed by investors as, while they currently provide protection from the wider market, they at least have the potential for abuse. Allowing regulators full access to business models should ensure that they can continue as a venue for the discretionary crossing of client orders without allowing them to expand to proportions that will affect price discovery or to provide a cover for market abuse.
As well as this, in terms of MiFID waivers, the European Parliament and the Commission agree that these need to be redefined and their implementation needs to be standardised across the EU. The possibility currently to arbitrage across EU Member States to find the best interpretation of the same rule should no longer be a possibility. During the compilation of this report and its amendment, it was clear that the biggest deficit in MiFID implementation has been the lack of a market version of a European consolidated tape. Investors in the US cannot understand how we in the EU operate without such a tool. There has been general industry acceptance, particularly among investor groups, of its necessity but, for the three years since MiFID implementation, the market participants have failed to come together to provide a European consolidated tape. Like the Commission, the Committee on Economic and Monetary Affairs is reticent to go beyond mandating the approved publication arrangements, but if a market solution is not found, then legislation should be supported.
The micro-structural issues currently affecting the equity markets have been a topic of heated debate in committee. There has been agreement that practices like flash orders, spoofing and pinging are unfair or even abusive. However, the committee found it much harder to come to agreement on the role of certain market participants, in particular, the benefits or not of high-frequency trading strategies. In the absence of clear data, it is difficult to draw any solid conclusions on their role - positive or negative - and so, before we propose legislative actions, we need to make sure that we have data so that we do not impose legislation that may be detrimental to the effective functioning of European markets.
Fundamentally, we must ensure the integrity of our financial markets. They are not there for intermediaries or the interlopers to interact with one another. They are there to provide a market place for investors to channel capital to businesses and corporates who act in our real economy. This fundamental function of the markets must be kept centre stage in all of our minds as we go through the legislative process of MiFID II.
Philippe Juvin
(FR) Mr President, ladies and gentlemen, Mrs Swinburne, of course, this text is extremely complex but, basically, what is it about? Once again, it is a matter of learning the lessons from the crisis. No, we must not do as we did before, yes, we must change the rules of the game, and we must put order back into the system.
There are those people in the different countries of the Union who are now taking advantage of the crisis and of people's anxiety in order to put all the blame on Europe. Everywhere you hear people saying, 'it is because of Europe that things are not working, it is because of the euro, and here is the solution, we must get out of Europe, we must put an end to the euro...' To all those people, we have to keep on repeating that yes, we do need common rules, we have to keep on saying that if the countries of Europe were not united, if they were isolated, they would now be dead. Yes, we need regulation, common policy, common rules, and an overhaul of our rules and better functioning of the system.
Ladies and gentlemen, ultimately, the matter is quite straightforward: together we are strong, in isolation we are dead!
Csanád Szegedi
(HU) Mr President, I would like to thank you for allotting time so generously. From now on, I will pay particular attention to which sittings are conducted by you, and I will attempt to attend all of them. Mrs Swinburne's report is very important in that we are finally discussing the regulation of trade in financial instruments. The first and most significant mistake in connection with the report is that the report and the call for further regulations is a belated step. Secondly, if the regulatory framework has been unclear so far, we must explore retrospectively and in depth everything that has happened. I believe that the exclusion of major investments from the scope of stricter supervision is a meaningless and outright mistaken step. Not only the nature of trading, but also the derivatives issued need to be investigated, and new issues must be subject to stricter regulation.
Inflation is actually stimulated by derivative financial market products. The burden of this is borne by the population, while the profits are cashed in by various international legal entities, whose background is not always clear. Moreover, it would not be favourable to redirect profits pocketed in this manner into the real economy, as this may lead to the entire planet gradually slipping into the pockets of the wealthiest.
Elena Băsescu
(RO) Mr President, Mrs Swinburne's report focuses on ensuring that there is a level playing field between multilateral trading facilities. I think that it is also just as important to apply the same level of supervision to them. I would like to stress the need for more suitable legislation, with the aim of reducing systemic risk and ensuring fair competition on the market.
At the moment, there is a worrying lack of information available about trading strategies. The only way to really understand whether the market is operating properly is for the regulatory authorities to have sufficient information. ESMA should draw up common reporting standards and formats applicable to all data, both on organised trading venues and OTC.
I think it would be useful to carry out an investigation into the effects of setting a minimum order size for all dark transactions. It could therefore be established whether an adequate flow of trade is maintained.
Johannes Hahn
Member of the Commission. - Mr President, on behalf of the Commission and of Commissioner Barnier in particular, I will answer by saying that improving transparency in financial markets and ensuring that all relevant market actors are subject to appropriate levels of regulation are key aims of this Commission and of the G20.
I would like to congratulate Dr Swinburne and the Committee on Economic and Monetary Affairs for the report on trading in financial instruments, 'dark pools', etc. The report marks an important step in the context of the ongoing review of the Markets in Financial Instruments Directive (MiFID). Its recommendations are being closely integrated into the Commission's thinking as we prepare the proposal for amending the existing directive in 2011. The MiFID review is an important part of the Commission's agenda towards a more stable and transparent financial system working for society and the economy as a whole. Many pieces have already been put in place, not least, the launch of a new EU supervisory authority as of next month.
The Commission is committed to delivering proposals in the remaining areas by summer 2011. We count on the support of the European Parliament in moving swiftly to adopt the necessary reforms in order to ensure they are applied as soon as possible thereafter.
As you know, MiFID is a cornerstone of the EU regulatory framework for financial markets. It pre-dates the financial crisis but has, on the whole, proven to function well, even in the difficult and turbulent times of recent years.
Of course, some shortcomings have emerged. Technological progress and rapid developments in financial markets have also ensured that regulatory devices which were state-of-the-art some years ago are clearly outdated today.
On 8 December, the Commission published draft proposals for a consultation. We intend to be ambitious and comprehensive in tackling all challenges. While recognising that the original objectives of MiFID are still valid, the issues at stake are critical aspects of how our financial markets function, how open and transparent they need to be and how investors can gain access to financial instruments and investment opportunities.
Like the draft Economic Affairs Committee report, we perceive the need for improvements in the regulation of new types of trading platforms and trading methodologies. This should take proper account of the nature of the business with a view to ensuring a level playing field between actors and proper protection for investors as well as against disruptive market practices.
We also agree with the need to improve transparency rules applicable to trading in shares and to introduce new requirements for trading in other instruments. Another important area touched upon also in Dr Swinburne's report is to improve the functioning and regulation of commodity derivative markets in line with G20 principles.
Furthermore, we aim to introduce targeted improvements to the existing rules regarding investor protection. Ensuring all products and selling practices are suitably covered under equal rules is a vital component in restoring investor confidence.
Finally, this review will reinforce supervision and enforcement across financial markets with a key role foreseen for the new European Securities and Markets Authority. In taking the work forward, the Commission services are working closely with our international partners, notably with the responsible regulators in the United States who are looking at the same issues, to ensure international convergence and avoid any risk of regulatory arbitrage.
The report by Ms Swinburne comes at an important juncture in the process of regulatory reform. We are encouraged by the commitment shown by MEPs and by the fact that your analyses and recommendations coincide very closely with ours. This report reinforces the basis for our work ahead.
President
The debate is closed.
The vote will take place tomorrow at 12:00.
The next sitting will take place tomorrow, Thursday, 14 December 2010, from 09:00 to 13:00, from 15:00 to 20:30 and from 21:00 to 24:00.
The agenda has been published and is available on the European Parliament website.
The sitting is closed.
