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The Danish Bankers Association and the Danish Securities Dealers Association would welcome new rules on securities markets (MiFID II)

16 January 2014

​January 14 2014, EU reached agreement on a new framework for the securities markets, the so-called MiFID-Directive (Markets in Financial Instruments Directive)*.

The directive has gone through a complete overhaul since the first edition of MiFID came into force in November 2007. The revision was intended to remedy the inconveniences the directive has caused while addressing the G20's trading obligation for OTC derivatives.

It covers virtually all matters in the securities industry. The Danish Bankers Association and The Danish Securities Dealers Association has particular interest in the areas of market structure, transparency and investor protection.
 

Market structure for shares

We are pleased that the organised trading of shares in the future must be on multilateral and well-regulated trading platforms. This means that the unregulated trading platforms, which since 2007 have attracted a growing proportion of share turnover, must either be closed or converted to regulated trading platforms.
 
The new rules mean that regulated trading platforms in fair competition can ensure well-functioning stock markets to support the capital requirements of businesses (also for SMEs) and investors' location needs.
 

Market structure for bonds and derivatives

The G20 trading obligation is sought met by introducing a new type of trading platform (Organised Trading Facility (OTF)) on which OTC derivatives and other instruments other than shares can be traded. We recognise the need for a new type of trading platform for OTC derivatives, but we also believe that the new trade rules may hinder trade volume and consequently hinder customers' ability to identify risks.
 
The new directive extends the securities dealer's obligations to continually make buying and selling prices available to customers. Today, the obligation includes liquid shares up to a certain order size, typically 7,500 euros. Prospectively, this also includes selected bonds and other instruments.
 
We would welcome the new commitment, since it has been taken into account that, for example, stocks and bonds are fundamentally very different instruments traded in different ways, in different sizes and with different types of counterparties.
 

High Frequency Trading

It is positive that companies offering High Frequency Trading (which so far has been excluded from the MiFID regulation), now becomes subject to MiFID II and in the future must meet the same requirements as securities dealers.
 

Transparency

In the implementation of MiFID in 2007, the stock markets were subject to considerable transparency. With MiFID II, transparency is extended to other instruments such as bonds and derivatives. We recognise the need for greater transparency.
 
In Denmark we already have a comprehensive transparency regime for bonds, so no great changes will be experienced. Transparency rules on derivatives are, however, new and precise detail rules for both bonds, and derivatives must now be designed taking into account the instrument’s characteristics.
 

Investor protection

Investor Protection is increased in MiFID II. It introduces i.a. major requirements for registration of trades executed through phone calls and client meetings as well as limitations on access to the use of commissions. By this, the new rules are met with the need to update the investor protection rules in order to follow developments in the securities markets.
 

 

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* The final text is not yet available. In addition, a number of the provisions should be further developed in the so-called level 2 rules, which will happen in the near future.

 

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