The British House of Lords has condemned Brussels’ treatment of electronic trading in the current “poorly drafted” MiFID II, labelling it detrimental to Europe’s financial markets and the whole legislative review process too rushed.
The UK Parliament’s second chamber has joined industry voices in their concerns that some elements of the Commission’s electronic trading measures may prove counterproductive.
“The scope of the Commission’s proposals is too broad, and the distinction between algorithmic trading and high-frequency trading needs to be more carefully drawn,” the House wrote in a review of MiFID II it released today.
The Lords agree with many brokers, buy-side institutions and some MEPs, that the controversial proposal to require algorithmic trading strategies to be in operation throughout the trading day in all likelihood will be detrimental to financial markets.
“We urge that careful attention be given to the proposals and their likely implications in this complex and controversial field,” the Lords wrote.
The House of Lords is urging the UK Government, the European Commission, Council of the European Union and European Parliament to ensure the legislation is “fit for purpose” before it comes into force.
“It is more important to get the legislation right than to get it passed quickly,” the House wrote. “The consequences of poorly drafted legislation could be damaging for the EU financial sector, and for the economy as a whole.”
In addition, MiFID II’s creation of a new trading venue category – the organised trading facility (OTF) – for the purposes of bringing OTC trading onto more organised electronic venues has raised concerns with the Lords that the expansion of organised electronic venues would lead to an “overly complex regulatory framework which does not distinguish clearly between organised venues and OTC”.
The House also fears the more “onerous” pre-trade transparency requirements for asset classes other than equities contained in MiFID II may do little to enhance price formation and may also negatively impact sovereign and corporate bond markets in the current economic climate.
“The pre-trade transparency proposals are flawed. It is important to acknowledge the markedly different characteristics of each sector of the market, in particular in terms of their liquidity,” wrote the Lords. “A one-size-fits-all approach to pre-trade transparency must therefore be avoided.”
The European Parliament has postponed its vote on MiFID II until after the summer.