Draft legislation and directives to be published by the European Parliament in October were leaked in Sept. A draft copy of the Markets in Financial Instruments Regulation, the new European legislation covering the financial markets will significantly increase the regulation of derivative trading in Europe. Read the full text of the draft directive here. Read the full text of the draft regulation here. The regulation, an update on Mifid will mandate open access to clearing and expand current equities transparency regulation to include all financial instruments. The draft regulation centralises and enhances the ability of the new European regulator, Esma, to take action to curb market practices. Under the legislation, local regulators in co-ordination with Esma have the power to set permanent bans on financial products or activities and impose position limits.

EC Press release:

Thursday 20 October: Commission proposes measures on securities markets and insider dealing

The news: As part of its ongoing work to create a safer, sounder, more transparent and more responsible financial system, the Commission will propose new rules for securities markets by amending the 2004 Markets in Financial Instruments Directive (MiFID). Over the years, financial markets have become increasingly complex due to the use of new types of financial instruments and new ways of trading.

The new rules aim to:

- ensure that the legislation is fully up-to-date concerning the latest technological developments and market developments, such as the emergence of new trading platforms and high frequency trading, in the interests of fair competition and efficient markets;

- implement important G20 commitments in the field of derivatives and commodity market transparency and oversight, complementing the ongoing work on regulating OTC derivatives trading as well as credit default swaps and short selling;

- repair specific shortcomings revealed by the financial crisis, whether in the field of investor protection or enforcement and supervision, including through the new European Financial Markets Authority (ESMA).

In addition, the Commission is to propose a revision of EU rules in order to better tackle market manipulation and insider dealing. The new framework would ensure that regulation keeps pace with market developments, strengthens the fight against market abuse across commodity and related derivative markets, reinforces the investigative and sanctioning powers of regulators and reduces administrative burdens on small and medium-sized issuers.

The background: Adopted in 2004 by the European Parliament and the Council, the Markets in Financial Instruments Directive came into force in 2007. Considered a boon for financial investors, it enabled competition among financial actors by giving them a financial passport to operate throughout the EU and eliminating the concentration rule for regulated markets, It also ensured high levels of investor protection. The Market Abuse Directive was adopted in 2003 and introduced a framework to harmonise core concepts and rules on market abuse and strengthen cooperation between regulators.  The Commission will propose to revise both Directives to bring them in line with the G20 commitments made in London and Pittsburgh. The proposals are part of the legislative framework the EU is building to restore confidence in financial institutions and markets - including for example the newly created financial supervisors at EU level (MEMO/10/434), the regulation of OTC derivatives markets (IP/11/1125) as well as shorts selling and credit default swaps (IP/11/1126) and the revised capital requirements for banks (IP/11/915).

Some links: Commissioner Barnier's web site: http://ec.europa.eu/commission_2010-2014/barnier/headlines/topics/financial_services/investment_services/index_en.htm; Commission web site on securities (including MiFID and market abuse): http://ec.europa.eu/internal_market/securities/index_en.htm.