Ahead of their summer exit from Brussels, European policymakers have set themselves a timetable for finalising the European financial transaction tax (FTT) and market reform rules under MiFID II, starting in September.
A final text for new market rules under MiFID II will be sought by Christmas as the European Parliament and Council of the European Union negotiate technical and political details of the regulatory regime.
An initial 4 July trialogue meeting set out future dates for the negotiating process. Future trialogues will be held on the 4, 11 and 25 September and 9 and 16 October, the Lithuanian presidency of the Council confirmed to theTRADEnews.com, as it aims to reach MiFID II agreement by the end of December.
Mid-March has emerged as the latest time by which agreement must be reached, as it will be the last plenary session before the 22-25 May elections.
If agreement is not cemented by then, a new balance of parties in the Parliament may force MEPs to agree a new position on MiFID II, delaying negotiations with the Council.
Flashpoints of debate between Council and Parliament on MiFID will include open access provisions for exchanges and clearing houses, defining the role of organised trading facilities and agreeing usage rules for equity market waivers that govern dark pool use.
Development of the European FTT, driven by 11 EU member states, will also face a significant push in the first half of September, when the Working Party on Taxation Questions of the Council will meet to discuss the tax. No date is yet set, but the meeting will include all 28 member states although only the 11 supporting the levy will decide its final terms.
The European Commission is currently working on a revised FTT proposal, expected before September, that will likely soften its February plan. The initial proposal set forth a global tax, with 0.1% levied on equity and fixed income instruments issued within one of the 11 member states regardless of where it would be traded, or on transactions involving entities based in one of the supporting states. Derivatives would be taxed at 0.01%.
“Overall, there has been a lot of controversy on the FTT and some central banks and market participants have suggested that the FTT as originally designed by the Commission will have damaging impacts to end investors and fail to achieve its desired objectives,” said Ana Costillas, managing director of European law and advocacy advisers Cos&Co.
Costillas believes a large degree of uncertainty remains over the FTT’s development, which has centered around differences between supporting states and pressure from industry over the levy’s scope.
“A more likely final outcome in my view is a less-comprehensive FTT which could be implemented at least a year later than planned i.e. in January 2015,” Costillas said.
Nation-based FTTs established in France last August and Italy in March led to a drop off in trading volumes and a growth in use of synthetic instruments. The Italian tax included a derivatives levy, implementation of which has been delayed from July to September.
The absence of an established FTT covering derivatives will emerge as a major concern for industry and policymakers looking to implement the European FTT, believes Diego Valiante, head of research for the European Capital Markets Institute.
“Defining a perimeter for derivative contracts will be a major issue for the FTT,” he said.
“The effects on the French and Italian markets show a clear drop of volumes and a widening of bid-ask spreads because market makers are less inclined to provide liquidity to the market,” Valiante said.