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Germany, France, Britain call for rethink of new EU securities rules

Reuters , Tuesday 1 Sep 2015
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Germany, France and Britain are seeking amendments to new EU rules that aim to increase transparency in bond trading, arguing that the current proposals could have negative unintended consequences for investors and markets.

In a joint letter to the European Commission, seen by Reuters on Tuesday, the three countries said the rule changes now proposed could result in "significant negative implications for the proper functioning of these vital markets".

Conversely, some financial instruments that should face greater transparency have not been included, they said in the letter dated Aug. 25. It was also addressed to the EU securities watchdog, the European Securities and Markets Authority (ESMA).

The rule changes are due to come into effect in January 2017. They are part of a revamp by the European Commission and ESMA of the EU's Markets in Financial Instruments Directive (MiFID II), to set new standards for trading financial instruments that take into account lessons from the financial crisis and advances in trading technology.

Germany, France and Britain said the proposals "do not reflect the agreement" made by member states and the European Parliament in the framework law that has been approved.

Many bonds are traded bilaterally but ESMA has proposed that traders should publicly display the offered and traded prices for "liquid" or heavily traded debt.

The three countries believe that too much transparency could be harmful and cause investors to pull out.

Banks say too much transparency would see bond markets dry up at a time when policymakers already worry liquidity is too low to cope with stresses such as expected rises in interest rates.

Brussels is also launching a "capital markets union" to raise more funds for growth from bonds and stocks to ease the continent's heavy dependence on banks.

The three countries also expressed concern in their letter that ESMA's draft rules would lead to a "de-facto ban on non-independent investment advice as commonly practiced today throughout numerous member states".

The rules would also introduce a "new ban" on investment research being paid from trading commissions, which the countries said was "not foreseen" in the framework law.

Draft rules on access of trading platforms to clearing houses, and the need to take into account physical trading activity when deciding which firms come under the scope of MiFID, also need revisiting, they said.

The three countries said their points should be addressed before the draft rules are submitted to member states for approval.

The European Parliament has also raised concerns about the potential consequences of ESMA's draft rules. 

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