LONDON, Nov. 8 /PRNewswire/ -- The European Commission should propose only
targeted, limited revisions to the Investment Services Directive, The Bond
Market Association says in a recent comment letter, contending that wholesale
rewriting of the Directive might impede innovation and the development of
efficient markets.
Urging the Commission to rethink particular aspects of its proposals, the
Association's paper says it strongly supports measures aimed at furthering a
true, single financial services market in the EU, but cannot support the
organised market or trade reporting proposals currently contained in the
Directive because they will increase costs, distort competition and inhibit
the development of electronic trading.
"The Commission should propose only a targeted, limited set of revisions
to the ISD in order to achieve the key changes required to liberalise European
Union (EU) markets by removing the principal barriers to cross-border
business, promoting competition, removing restrictions and providing clarity
with the aim of achieving the public policy objective of establishing a
genuine, single financial market by 2005," the Association writes.
To meet the key priorities, the Association urges amendments to the ISD
that would remove the ability of host states to impose rules and requirements
on cross-border business. It also suggests the concentration rule should be
eliminated because it impedes competition and the ability of investors to
participate in more efficient markets.
The EU should also adopt the principle that member states should
differentiate in their rules between the protection required for retail
investors and for professional investors.
The Association says it supports the implementation of measures designed
to create a true, single financial services market for the EU, in accord with
the Commission's objectives, and also supports the broad concepts of the
Financial Services Action Plan. To further that goal, the Association would
welcome a revised ISD that merely clarifies and amplifies provisions of the
existing ISD and contains only necessary amendments to such provisions.
Among those provisions the Association supports are those that:
* Remove the ability for host states to impose rules and requirements on
cross-border business (home state control)
* Remove the concentration rule
* And include within the ISD a definition of professional investor,
recognizing the validity of a "light touch regime" for dealings between
professional investors.
If implemented correctly, the Association contends, the proposals would
remove some of the existing barriers to the creation of a more efficient,
single financial market in the EU.
However, the Association has significant concerns with the organised
market and trade-reporting provisions in the ISD proposal which the
Association believes would be "a radical departure from the principles of the
existing ISD and could have serious unforeseen consequences for the fixed
income markets.
"The Association recognises that the Commission is concerned that the
growth of electronic trading systems and crossing networks may lead to market
fragmentation and adversely impact the centralised price formation function
provided by regulated markets for instruments whose trading is largely
concentrated on such markets," the Association notes.
However, this should not be a concern relating to fixed income trading
because they are overwhelmingly a professional, over-the-counter market,
conducted by phone and increasingly electronically. Since the information is
readily available, the fixed income market already benefits from price
transparency, the comment letter states.
"The development of electronic trading systems for fixed income securities
has been a positive market evolution and is naturally leading to pools of
liquidity and price transparency within these pools," the Association says.
"Order driven systems also provide order depth and thus transparency in a
market that had, before the evolution of such systems, been largely opaque."
Forging a "bright line" distinction between organised markets and
requiring them to report OTC transactions to a regulated market could have the
effect of forcing multilateral electronic systems to become regulated markets
or cease operating in the EU.
While prodding the market to a regulated approach may seem to offer
benefits, in reality, the Association says, it will merely lead to higher cost
burdens and act as a disincentive to the development of electronic trading
systems.
The Bond Market Association represents securities firms and banks that
underwrite, trade and sell bonds in the international and domestic U.S.
markets.
SOURCE The Bond Market Association
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Related links:
http://www.bondmarkets.com
CONTACT:
Michael Dorfsman, +1-212-440-9426, or Myra L.
Dandridge, +1-202-434-8421, both of The Bond Market Association;
or Tristan Peniston-Bird of Gavin Anderson, + 44 20 7457 2345,
for The Bond Market Association
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