The European Parliament, the Commission and the Lithuanian Council Presidency are making good progress on the crucial aspects of the reform of financial markets (MiFID II-MiFIR). At three-way talks, on 21 November, they found common ground on rules for the new organised trading facility (OTF) and on limiting exemptions from pre-trade transparency rules applying to equity markets. The aim of this measure is to reduce so-called "dark pools"(1). Discussions are now continuing at technical level.

These "preliminary political compromises" still have to be validated by the member states. However, nothing will be set in stone until all the aspects of this MiFID II-MiFIR reform (see box) have been agreed.

The Commission proposed the OTF to ensure that all trading venues or places of execution for financial products are regulated. It will exist in parallel with multilateral trading facilities (MTFs - created by the Markets in Financial Instruments Directive - 2004/39/EC) and regulated markets (exchanges).

Negotiations on the rules for OTFs have been tough in both the Council and EP. The subject is sensitive.

The first issue at stake is the type of financial instruments that will be traded on this facility. The parties seems to be heading towards the exclusion of shares, which would therefore be traded only on the other two venues (MTFs and exchanges). This exclusion is fiercely defended by the EP, which considers that the OTF will be subject to less regulation than the others. The OTF would thus be used for trading other financial instruments, such as bonds and derivatives.

In return, the EP can accept, under some conditions, the authorisation for an OTF operator to trade its own capital for the sole purpose of facilitating the execution of clients' orders, introduced by the Council after fierce battle between member states. This is known as matched principal trading. This practice should only ato certain financial productsaand only cases where the client has been informed, foreseen the member states compromise.

According to its proponents, this practice facilitates liquidity on markets (and thus the execution of clients' orders). For its opponents, however, it will necessarily give operators the opportunity to engage in proprietary trading and thus make profits (see Europolitics 4609).

Other aspects related to the use of the OTF and, more broadly, the modification of the structure of the markets, are also beinga discussed.

Theprovisions for...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT