European Commission urges ‘cautious approach’ to MiFID II liquidity rules

Commissioner Jonathan Hill has said asset managers have voiced concerns about the MiFID II liquidity rules.

The European Commission has written to the European Securities and Markets Authority (ESMA) calling for a more cautious approach to liquidity rules under MiFID II.

Commissioner Jonathan Hill explained in a speech that asset managers had voiced their concerns about the constraints on banks' balance sheets reducing liquidity.

Hill said the European Commission are considering “the concerns that our rules are making it harder for banks to play their role as market makers, reducing liquidity in some securities markets.”

He added that he believes the Commission should be more “proportionate in the way legislation is applied, more cautious before doing anything that might reduce liquidity, and more ambitious about reducing reporting and disclosure requirements where it's appropriate.

Asset managers told Hill they have been asked to report the same data in different forms to comply with different legislations.

Global concerns about liquidity in markets have been well documented in the financial media in recent years, but fixed income has been further impacted by the prospect of harsher regulation to enhance transparency.

Hill concluded: “At the moment the biggest threat to stability is the lack of growth itself.

“It's from a financial stability point of view that we need to look at the combined effort of our regulations and ask whether we are striking the right balance between micro and macro prudential considerations.”