The Committee of European Securities Regulators is proposing changes to its wide-ranging rules governing financial markets known as the Markets in Financial Instruments Directive (MiFID).

The CESR published its recommendations to the European Commission following a review of MiFID, which was introduced in November 2007 to overhaul regulation of the region’s markets. The proposed changes aim to improve pre- and post-trade transparency and the orderly functioning of the markets, strengthen investor protection, and ensure that securities regulators are equipped with tools which enable them to effectively monitor trading. The regulators say that if these changes are adopted, “they would impact many elements of securities market regulation and constitute a major change in the EU regulatory landscape.”

The advice published on Thursday by the CESR includes policy proposals on equity markets, non-equity markets transparency, transaction reporting, and investor protection and intermediaries.

It calls for the creation of a consolidated tape for reporting trading data, saying, “that significant barriers to the consolidation of post-trade data remain and that, without further regulatory intervention, market forces are unlikely to deliver an adequate and affordable pan-European consolidation of transparency information. CESR therefore recommends that a European consolidated tape be mandated and its main features outlined in MiFID.”

It recommends retaining the current framework for post-trade transparency, but calls for formal measures to improve the quality of post-trade data, shorten delays for data publication, and to reduce the complexity of the regime. It also recommends enhancing the scope of the MiFID transparency regime by applying transparency obligations to equity-like instruments such as depository receipts and exchange-traded funds.

It also proposes new requirements for the recording of telephone conversations and electronic communications; that trading venues be required to produce regular reports on execution quality; it proposes amendments for a more graduated risk-based approach to the distinction between complex and non-complex financial instruments; and it aims to clarify the investment advice that can be provided through distribution channels, among other things.

The CESR also singles out certain subjects for further study, such as issues related to high frequency trading. The CESR says that further work is necessary to better understand high frequency trading strategies and the risks that they pose to the orderly functioning of markets. It says that guidance on sponsored access is necessary, and it recommends that further work be done to develop specific guidelines. It also says that work should be done on possibly extending existing MiFID provisions to co-location services. And, it recommends that the commission consider a review of the systematic internaliser regime.

“The MiFID Directive is a cornerstone in the regulation of Europe’s financial markets; since its entry into force in November 2007, Europe’s single market has developed significantly. This very timely review of MiFID now provides an important opportunity to review the availability of pre- and post trade data in equity markets, which has become more complex with the development of multiple trading venues,” said Eddy Wymeersch, chair of CESR and chair of the supervisory board of the Belgian Commission Bancaire, Financière et des Assurances. “It also enables us to expand transparency to non-equity markets, which the financial crisis highlighted as being of critical importance.”

“The introduction of minimum harmonised rules on tape recording and the obligatory collection of client IDs when orders are transmitted will also greatly strengthen the tools supervisors have at their disposal to investigate misselling and market abuse,” he added. “The creation of a consolidated tape however, remains an area where it will be key to see concrete steps being taken in the very short-term as we remain convinced of its necessity.”

“The opportunity to review the MiFID at this juncture has also provided an important step forward towards convergence amongst supervisory practices and brings a single rulebook a step closer, which will be of benefit both to market participants and retail investors alike, strengthening certainty and greater confidence for all,” he concluded.

IE