FINANCIAL SERVICES: COMMISSION WARNED NOT TO OVER-REGULATE SECURITIES.

The Centre for European Policy Studies (CEPS) has published a report on the European Commission's November 2002 proposals to overhaul the 1993 Investment Services Directive (ISD). Released on April 24, the report "Competition, Fragmentation and Transparency: Providing the Regulatory Framework for Fair, Dynamic and Efficient European Securities Markets" is written by CEPS Research Fellow Mattias Levin based on discussion from a Task Force launched in 2002. His report concludes that competition is the best regulator in the securities market, and the Commission should delegate more of its regulatory powers to national implementing committees. Competition is a "precious good" in securities trading because of the market tendency towards centralisation, he adds, and this should provoke EU legislators to "stress the overarching aim of promoting fair competition".

The report also warns the Commission against over-legislating: "The risk of excessive details in a Directive that will last for at least 15 years calls for further discussions on the appropriate level of delegation". It also calls for the Commission to redraft proposals to impose pre-trade transparency rules on securities firms, saying that this is "premature" and likely to damage liquidity provision. Regulators could use other instruments to keep the market in shape, Mr Levin believes. Rules on best execution, order-handling, conduct of business and conflict of interest, in combination with post-trade transparency would provide a "rigorous regime for protecting investors", he says. Finally, the report points out that the more "educated" an investor is, the less regulation is needed, and calls for Community-wide co-ordination...