EU won’t ban stock trading
2022.12.20 06:16
EU won’t ban stock trading
Budrignnews.com – As part of a comprehensive overhaul of the stock market to better compete with London after Brexit, member states of the European Union rejected plans on Tuesday to prohibit brokers from earning fees in exchange for directing share trades to specific trading platforms.
An avalanche of retail investors flocked to “meme” stocks on Wall Street last year, using brokers who advertised for business by charging zero fees and making money by sending orders to an agreed-upon venue for execution rather than looking for the best prices. This raised questions about payment for order flow (PFOF).
As part of its proposal to make it easier for businesses to raise funds on markets, the executive European Commission of the EU proposed a ban on such payments in MiFID II, a draft law updating the securities rules of the bloc.
However, an EU-wide ban was rejected by EU state representatives on Tuesday.
A statement issued by member states stated, “The regulation leaves a discretion to member states to allow this practice only on their territory.”
Recently, the U.S. Protections and Trade Commission likewise avoided a prohibition on PFOF and proposed more straightforwardness.
Currently, EU states and the European Parliament will negotiate a final agreement regarding the securities rules update, with additional modifications likely.
In order to lessen “the complexity and burden of the system,” EU states also agreed to relax restrictions on dark or off-exchange trading, which is preferred by large investors who wish to trade blocks of shares.
The EU’s cap on dark trading would be raised to 10% of a stock’s trading, up from about 8% before. This does not go far enough to avoid falling behind London, which has relaxed restrictions on dark trading.
Plans to create a series of close-to-real-time “consolidated tapes” of stock and bond trades, which have long been a feature of U.S. markets, were also supported by EU members. These tapes would help investors find the best deals across a variety of platforms.
According to EU states, tapes ought to publish prices of executed trades, as well as the best bids and offers that were available at the time of the trade and the European best bids and offers from the most competitive markets.
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The plans have been lobbied against by exchanges, which would be required to feed their market data to the tapes. They claim that the tapes only need to publish prices of executed trades with a delay.
In its most recent set of financial reforms, Britain has also suggested consolidating the tape.
