Europe to tighten financial market regulations

January 16, 2014 - 12:06:32 pm
STRASBOURG, France: The Europe Union is to tighten regulation of financial markets under a deal to prevent any repetition of the rampant speculation which helped bring down banks and crash the global economy.

After two years of tough talks, the European Parliament and negotiators for the 28 member states agreed a deal in principle that sets new rules to regulate the market, known as MiFID II.

“These new rules will improve the way capital markets function to the benefit of the real economy,” said the EU’s Financial Markets Commissioner Michel Barnier.

“They are a key step towards establishing a safer, more open and more responsible financial system and restoring investor confidence in the wake of the financial crisis.”

Barnier first pushed for the new rules in 2011 at the height of the eurozone debt crisis which was sparked by the 2008 global financial crash.

They aim to curb speculative trading in commodities and to regulate high-frequency trading so as better to protect investors and make the markets less crisis prone.

They will apply to investment firms, market operators and services providing post-trade transparency information in the European Union, a parliament statement said.

They will notably force market players to buy and sell financial instruments on regulated markets comparable to stock exchanges to ensure that all trading is tracked by MiFID.

Another key provision covers high-frequency trading based on automatic algorithmic systems, forcing investment firms to stop trading if price volatility becomes too high.

To help limit speculation in food and energy, authorities for the first time will be able to limit the size of a net position that a person can hold in commodity derivatives.

International aid group Oxfam welcomed the deal but warned of the dangers of exemptions, especially for Britain which is home to one of the world’s largest financial markets in London.

“Today’s decision marks a good start in tackling ‘gambling’ on food prices which are a matter of life and death to millions,” Oxfam said.

But “the deal is far from perfect,” Oxfam said.” Unjustified exemptions were granted to powerful lobbies and limits will be set nationally, rather than at the European level.

“There is a real risk, particularly in the UK, of ineffective sky high limits triggering a regulatory race to the bottom between European countries,” it said in a statement.

In 2008 the global financial system nearly collapsed when speculative bets, especially in sub-prime US home loan debt, turned bad, bringing down Lehman Brothers and then a chain of other banks and investment houses.