The Association for Financial Markets in Europe (AFME), British Bankers Association (BBA) and International Swaps and Derivatives Association (ISDA), have said that they would back an extension to MiFID to deal with attempts at market manipulation.
The UK-based trade associations, which respectively represent sell-side trading firms, banks, derivatives dealers and associated participants, issued their support as part of a joint response to the European Commission's (EC) consultation on the Market Abuse Directive (MAD). The consultation is considered part of a wider review of MiFID to be completed by the EC before early 2011.
The proposed extension would mean that issuing orders to trade in an attempt to secure the price for financial instruments at an “artificial level” would now be considered market manipulation if no legitimate purpose for trading could be established, as would an “attempt to employ fictitious devices or any other form of deception or contrivance”.
The associations stopped short of agreeing that the term “abnormal” price levels should also be included as they considered the term too vague to be applied consistently.
Currently the directive applies to trades “which secure … the price of one or several financial instruments at an abnormal or artificial level.”
The change would mean that the intention to manipulate the market could be taken into account, regardless of whether or not it succeeded.
The submission also said, “We agree that European Securities and Markets Authority (ESMA) should endeavour to determine which conduct or practices by means of electronic trading may constitute market manipulation or an attempt to manipulate the market.”
The Committee of European Securities Regulators, a body designed to harmonise European regulation, is expected to become ESMA in early 2011. In this new form it will have more authority, and improved decision making capabilities.
The submission included further support for ESMA to create a harmonised regulatory framework regarding market abuse, dependent on discussions of its powers that are continuing outside of the MAD review.
The full set of responses to the EC's consultation is expected to be published before 10 August 2010.