Exchanges and asset managers square off over EU market rules

By Huw Jones

LONDON (Reuters) – Stock exchanges and asset managers have squared off ahead of European Union negotiations this week over how much information investors should be given to find the best deals on Europe’s fragmented stock markets.

The European Parliament and EU states begin negotiations on Tuesday on finalising reform of the bloc’s securities rules, known as MiFID, aimed at making its capital market more efficient now that if faces competition from a post-Brexit London.

It includes mandatory contributions from trading platforms to a “consolidated tape” or record of share prices, a longstanding feature of U.S. markets. Proceeds from selling the tape would be shared among the contributors.

In initial positions, parliament has backed a tape that provides prices of completed share trades in real-time – currently many investors only get delayed prices – and an in-depth view of pre-trade prices on offer.

EU states have also backed a tape with completed share trades in real-time, but with less comprehensive pre-trade data.

Exchanges, which earn money from market data, say parliament is going beyond transparency to give investors a trading tool.

“The inclusion of real-time pre-trade data, as per the European Parliament proposal… would only further distort EU market structure,” the Federation of European Securities Exchanges (FESE) said in a statement last week.

But the Association of Financial Markets in Europe (AFME), whose members include global banks and asset managers, said on Monday that an “ambitious real-time pre-trade” tape would help reverse the worrying trend of European stock markets being “markedly less dynamic” than their U.S. peers.

The European Fund and Asset Management Association (EFAMA) also backs parliament’s position, saying liquidity in European stock markets has contracted by 25% since 2013 compared with a 23% rise on U.S. markets, with a number of factors contributing to this.

“One of these is undoubtedly the absence of a consolidated equities tape without which a complex and fragmented EU27 market is put at a competitive disadvantage globally when marketing to international investors,” EFAMA said.

The negotiations will also seek to iron out disagreement over whether brokers should be banned from receiving commission for sending stock orders to a specific platform.