The European Union’s market regulator proposed new regulations that would apply equity trading templates to other asset classes and put limits on the use of dark pools.
The technical standards were released Monday by the European Securities and Markets Authority under Markets in Financial Instruments Directive II and Markets in Financial Instruments Regulation. If ultimately approved by European Union member states, they would also require bonds traded in the EU to be looked at individually by regulators to determine whether they fall under new pre-trade and post-trade disclosure rules.
Among the regulations:
- Pre- and post-trade transparency will be extended to equity-like instruments, bonds, derivatives and structured finance products;
- Some assets other than stocks, including certain derivatives, will be barred from trading over-the-counter, instead trading only on regulated platforms and with market-makers; and
- Firms must take what the ESMA calls “reasonable” steps to get best execution for a client, including “price, cost, speed, likelihood of execution and likelihood of settlement.”
Dark pools would face a six-month ban on trading a company’s stock if a total of 8% of its volume is traded on those venues during the previous 12 months, and dark pools that trade 4% of a given stock for a year will be banned from trading it for six months.
Steven Maijoor, ESMA chairman, said in a summary of the new rules on ESMA’s website that the rules “will notably change the way Europe’s secondary markets function. … But the past has taught us that change is needed in order to make markets more transparent, efficient and safer to invest in. This will entail a certain cost, but we should not forget the other side of this equation, which is the great benefits safer and sounder markets will bring to everybody.”
The standards are posted on ESMA’s website.
The rules are scheduled to take effect in 2017, but they must be approved by the European Commission, the European Parliament and the 28 EU member states.