Directive 2004/39 - Markets in financial instruments

official title

 

Legal instrument	Directive
Number legal act	Directive 2004/39
Original proposal	COM(2002)625
CELEX number225	32004L0039

Avis juridique important

|

Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC

Official Journal L 145 , 30/04/2004 P. 0001 - 0044

Directive 2004/39/EC of the European Parliament and of the Council

of 21 April 2004

on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 47(2) thereof,

Having regard to the proposal from the Commission(1),

Having regard to the Opinion of the European Economic and Social Committee(2),

Having regard to the opinion of the European Central Bank(3),

Acting in accordance with the procedure laid down in Article 251 of the Treaty(4),

Whereas:

• (1) 

  Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field(5) sought to establish the conditions under which authorised investment firms and banks could provide specified services or establish branches in other Member States on the basis of home country authorisation and supervision. To this end, that Directive aimed to harmonise the initial authorisation and operating requirements for investment firms including conduct of business rules. It also provided for the harmonisation of some conditions governing the operation of regulated markets.

• (2) 

  In recent years more investors have become active in the financial markets and are offered an even more complex wide-ranging set of services and instruments. In view of these developments the legal framework of the Community should encompass the full range of investor-oriented activities. To this end, it is necessary to provide for the degree of harmonisation needed to offer investors a high level of protection and to allow investment firms to provide services throughout the Community, being a Single Market, on the basis of home country supervision. In view of the preceding, Directive 93/22/EEC should be replaced by a new Directive.

• (3) 

  Due to the increasing dependence of investors on personal recommendations, it is appropriate to include the provision of investment advice as an investment service requiring authorisation.

• (4) 

  It is appropriate to include in the list of financial instruments certain commodity derivatives and others which are constituted and traded in such a manner as to give rise to regulatory issues comparable to traditional financial instruments.

• (5) 

  It is necessary to establish a comprehensive regulatory regime governing the execution of transactions in financial instruments irrespective of the trading methods used to conclude those transactions so as to ensure a high quality of execution of investor transactions and to uphold the integrity and overall efficiency of the financial system. A coherent and risk-sensitive framework for regulating the main types of order-execution arrangement currently active in the European financial marketplace should be provided for. It is necessary to recognise the emergence of a new generation of organised trading systems alongside regulated markets which should be subjected to obligations designed to preserve the efficient and orderly functioning of financial markets. With a view to establishing a proportionate regulatory framework provision should be made for the inclusion of a new investment service which relates to the operation of an MTF.

• (6) 

  Definitions of regulated market and MTF should be introduced and closely aligned with each other to reflect the fact that they represent the same...

This text has been adopted from EUR-Lex.

This page is also available in a full version containing the summary of legislation, de geconsolideerde versie, the legal context, de Europese rechtsgrond, other dossiers related to the dossier at hand, the related cases of the European Court of Justice and finally consultations relevant to the dossier at hand.

• 1. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 2. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 3. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 4. 

  London Economics: 2002. Quantification of the macro-economic impact of integration of EU financial markets.
  
   
• 5. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 6. 

  For example, Member States which allow off-exchange execution of client orders have been forced to develop more sophisticated 'best execution' policies, whereas this have, to a large extent been unnecessary in Member States which require concentration of retail investor orders on a 'regulated market'.
  
   
• 7. 

  COM(729) 2000, Upgrading the ISD.
  
   
• 8. 

  In performing this function, large dealers represented an alternative point of liquidity for market participants. The use of the term 'market-making' in respect of this activity highlights the extent to which dealers could substitute for on-exchange trading. Therefore, the marketplace/intermediary distinction was by no means watertight.
  
   
• 9. 

  The term 'alternative trading system' (ATS) has entered into common parlance as a catch-all term for a wide range of new trading support facilities whose shared characteristic is that they are not licensed as exchanges. Some respondents to the consultation have noted that this terminology is not suitable for a legal text and does not capture the specific functionality of the entities which its is proposed to authorise as a new core service. In view of this, the term 'alternative' has been replaced by 'multilateral'. The word 'system' is replaced by 'facility' - to avoid confusion with a well-established bond-trading outfit.
  
   
• 10. 

  J.P. Morgan (2002).
  
   
• 11. 

  The effective spread is the difference between the average buy and sell price that an investor actually paid. The effective spread can be defined as EPS = 2
   
• 12. 

  Source International Federation of Stock Exchanges and FESE (2002).
  
   
• 13. 

  There is a negative correlation between Turnover (-0.11) and Market capitalisation (-0.543) and Trading costs. Domowitz, Glen and Madhavan - Liquidity, Volatility and Equity Trading Costs across countries and over time - January 2000.
  
   
• 14. 

  OTC trading, upstairs trading, large block trading either on or off-exchange.
  
   
• 15. 

  Operate on-exchange block trading facilities, or appoint specialist liquidity providers.
  
   
• 16. 

  Liquid markets allow transactions to be undertaken without triggering large price movements against the interests of the trader. In markets which are efficient from a price-formational perspective, prices quoted in the markets will embody all relevant and up-to-date information relating to the 'real value' of an instrument
  
   
• 17. 

  London Economics 2002: The London Economics research highlights the opportunity costs associated with fragmentation of current levels of liquidity between leading EU exchanges.
  
   
• 18. 

  IOSCO (2001): report from TC on 'transparency and market fragmentation' (p. 3).
  
   
• 19. 

  Idem, p. 13.
  
   
• 20. 

  Bilateral trading or internal order-execution do not involve the same trading processes as on-exchange or MTF-based trading. Dealing centres on the provision of quotes on a bilateral/selective basis. Dealer discretion is needed to protect its proprietary capital from exposure to position risk. Regular/continuous position-taking by dealers and broker-dealers (against their own capital) provides liquidity support to the market, which can help to smooth price fluctuations and ensure a permanent counterparty to trade with investors. These considerations do not materialise in the case of exchanges or MTFs: there is no capital of the market/system operator at stake, and market participants/system users are voluntarily and knowingly making use of the system to advertise the terms at which they are willing to trade.
  
   
• 21. 

  Evidence from EU markets which allow off-exchange retail order execution suggests that fears regarding the degradation of price-formation are overstated. Bid-ask spreads on the London SE electronic order-book (SETS) have narrowed in recent years despite the widespread execution of investor orders outside the rules of the exchange (subject to post-trade reporting requirements). There is no obvious pattern in effective and quoted spreads between Member States which take a restrictive stance on off-exchange order execution and those which are more liberal in this respect. In some Member States which enforce a concentration rule, spreads are as high or higher than spreads in Member States which do not.
  
   
• 22. 

  Euronext (2002): Internalisation. 'Large financial conglomerates that already act in various capacities are setting their sights on another role which will enable them to expand their activities. After performing the role of stockbroker, market marker, analyst and portfolio manager, they now want to start playing at being exchanges.' (p.12). cf. also A. Murray (2002): Key issues facing European securities exchanges. ("the increasing ability of banks to act as quasi-exchanges.." (p.17).
  
   
• 23. 

  The proposed transparency rules seek to create the conditions in which traders and intermediaries are able to identify the trading arrangements which offer the best terms for transacting a trade in any given equity instrument and to move liquidity in response to price differences. This will allow orders to be executed at the venue which offers price improvement or best outcome for the end-investor, and assist the overall market system in converging on a price that reflects the full extent of price-relevant information across the entire market.
  
   
• 24. 

  Competition from SEAQ forced many continental exchanges to revolutionise trading methods and systems in early 90s. Fear of competition from TradePoint led LSE to introduce SETS order-book trading in 96.
  
   
• 25. 

  To the extent that MTF are not vested with regulatory/self-regulatory responsibilities for screening the 'quality' of instruments traded on the system, ATS need not be subjected to 'regulated market'-type obligations on admission of instruments to trading.
  
   
• 26. 

  ECB survey or European equity markets, August 2001.
  
   
• 27. 

  Some of the principal particularities of 'regulated markets' when compared to a pure trading facility include the following: 'regulated markets' have assumed an important role in vetting the quality of instruments admitted to trading/the public quote. The continued role of regulated markets in verifying the conformity of securities/instruments with rules governing the constitution and issue, provides a 'quality labelling' for instruments which are publicly traded. Only marketplaces which are willing to assume these obligations should have the possibility of authorisation as a 'regulated market'. 'Regulated markets' involve a distinct organisational form: they have assumed much autonomy and self-regulatory role in vetting members and policing activity on the market. 'Regulated markets' also embody particular trading features: they guarantee efficient finalisation/settlement of transactions executed on the markets - although pure trading systems may also offer this level of functionality.
  
   
• 28. 

  Already have been episodes which highlight the high levels of inter-linkage between EU stock-markets. Earlier this year, trading error on DBAG stoxx index led to immediate and important disruption for trading of same index on other EU markets - but also for trading in substitute stock indices.
  
   
• 29. 

  In UK, some 29 entities are thought to fall within the scope of the MTF definition. DE is also home to a large number of these systems, while IT, BE, IRL, FR also have granted authorisations to MTF. These systems are active in a range of asset classes - particularly bonds and foreign exchange swaps but also equity. Experience from US suggests a period of consolidation (at least for bond systems) may follow the first phase of market development.
  
   
• 30. 

  A number of respondents have challenged the need to introduce a new authorisation regime for MTF. They argue that the activities of a MTF are adequately catered for by a combination of authorisation to provide 'reception and transmission' and 'execution' of client orders. The Commission does not concur with this analysis. The fundamental innovation represented by ATS is that they provide a non-exchange venue which users/clients can employ for dealing/trading at their discretion and for their own-account. This form of functionality means that MTF possess many of the features and give rise to the same regulatory issues as exchanges/marketplaces.
  
   
• 31. 

  The revised orientations, published as a basis for open consultation in March 2002, envisaged a distinction between entities which systematically internalise client orders and those which do so on an incidental basis. A quantitative threshold (10% of client order flow internalised over preceding 4 quarters) was proposed as basis for dividing line. This distinction has been widely criticised on 2 counts: first, the rationale for the distinction is unclear. Internalisation implies a conflict of interest between client and broker/dealer interests irrespective of the scale of internalisation. Secondly, the proposed threshold was condemned as being unworkable, and resulting in different market consequences across large/small national markets. In view of these cogent criticisms, the Commission proposal abandons this distinction and seeks to create a general regulatory framework within which conflicts of interest related to all internalisation activity can be managed.
  
   
• 32. 

  Market structures where the client brokerage function and the dealing against client order are functionally separated, or undertaken by different entities do not give rise to the basic conflict of interest at issue. The Retail Service Provider regime in operation in the UK whereby a retail broker routes client orders to a different entity for execution against a proprietary position of the latter would not be considered 'internalisation' in the sense of this proposal.
  
   
• 33. 

  The reasoning underlying this section has been developed more extensively in a related working paper of the Commission services, in order to do justice to the many complex facets of the debate.
  
   
• 34. 

  LSE charges 2p for filing of each off-exchange trade reported to it by its members.
  
   
• 35. 

  M. Auguy and D. Davydoff, the European Market model, July 24. 2002.
  
   
• 36. 

  NASD rule 4710: rules of practice and procedure for the small order execution system. Cf. NASD manual pp. 2303-2308 and NASD notice to members 97-90 on changes to SOES tier-size levels Dec. 97)
  
   
• 37. 

  Host authorities shall be notified of the operation of partner country firms on their territory through the existing notification mechanism, have the possibility to request the home authority to intervene, and to intervene itself as a precautionary measure where circumstances demand it.
  
   
• 38. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 39. 

  Entities recognised as 'eligible counterparties' by the national competent authority under this option will be able to trade as such with investment firms from throughout the EU. Investment firms in the same jurisdiction will not necessarily be able to presume that similar entities in other jurisdictions can also be dealt with as 'eligible counterparties'.
  
   
• 40. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 41. 

  The term 'alternative trading system' (ATS) has entered into common parlance as a catch-all term for a wide range of new trading support facilities whose shared characteristic is that they are not licensed as exchanges. Some respondents to the consultation have noted that this terminology is not suitable for a legal text and does not capture the specific functionality of the entities which its is proposed to authorise as a new core service. In view of this, the term 'alternative' has been replaced by 'multilateral'. The word 'system' is replaced by 'facility' - to avoid confusion with a well-established bond-trading outfit.
  
   
• 42. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 43. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 44. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 45. 

  OJ C , , p. .
  
   
• 46. 

  OJ C , , p. .
  
   
• 47. 

  OJ C , , p. .
  
   
• 48. 

  OJ L 141, 11.6.93, p.27 Directive as last amended by European Parliament and Council Directive 2000/64/EC (OJ L 290, 17.11.2000, p.27)
  
   
• 49. 

  OJ 56, 4.4. 1964, p. 878/64; Directive as amended by the Act of Accession of Denmark, Ireland and the United Kingdom.
  
   
• 50. 

  OJ L 228, 16.8.1973, p.3; Directive as last amended by European Parliament and Council Directive 2002/13/EC ( OJ L 77, 20.3. 2002, p. 17).
  
   
• 51. 

  OJ L 63, 13.3.1979, p. 1; Directive as last amended by European Parliament Directive 2002/12/EC ( OJ L 77, 20.3.2002, p.11).
  
   
• 52. 

  OJ L 141, 11.6.1993, P. 1; Directive as last amended by European Parliament and Councild Directive 98/33/EC ( OJ L 204, 21.7.1998, p.29).
  
   
• 53. 

  OJ L
  
   
• 54. 

  OJ L 184, 6.7.2001, p. 1.
  
   
• 55. 

  OJ L 115, 17.4.1998, p.31.
  
   
• 56. 

  OJ L 184, 17.7.1999, p. 23.
  
   
• 57. 

  OJ L 375, 31.12.1985, p.3; Directive as last amended by European Parliament and Council Directive 2001/108/EC ( OJ L 41, 13.2.2002,p.35).
  
   
• 58. 

  OJ L 126, 26.5.2000, p. 1; Directive as amended by Directive 200/28/EC ( OJ L 275, 27.10.2000, p.37).
  
   
• 59. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 60. 

  OJ L 348, 17.12.1988, p. 62.
  
   
• 61. 

  OJ L 193, 18.7.1983, p. 1.
  
   
• 62. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 63. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 64. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 65. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 66. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 67. 

  OJ L 84, 26.3.1997, p.22.
  
   
• 68. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 69. 

  In performing this function, large dealers represented an alternative point of liquidity for market participants. The use of the term 'market-making' in respect of this activity highlights the extent to which dealers could substitute for on-exchange trading. Therefore, the marketplace/intermediary distinction was by no means watertight.
  
   
• 70. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 71. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 72. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 73. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 74. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 75. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 76. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 77. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 78. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 79. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 80. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 81. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 82. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 83. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 84. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 85. 

  OJ L
  
   
• 86. 

  OJ L 166, 28.6.1991, p.77.
  
   
• 87. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 88. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 89. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 90. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 91. 

  In performing this function, large dealers represented an alternative point of liquidity for market participants. The use of the term 'market-making' in respect of this activity highlights the extent to which dealers could substitute for on-exchange trading. Therefore, the marketplace/intermediary distinction was by no means watertight.
  
   
• 92. 

  In performing this function, large dealers represented an alternative point of liquidity for market participants. The use of the term 'market-making' in respect of this activity highlights the extent to which dealers could substitute for on-exchange trading. Therefore, the marketplace/intermediary distinction was by no means watertight.
  
   
• 93. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 94. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 95. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 96. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 97. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 98. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 99. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 100. 

  OJ L 126, 12.5.1985, p.20.
  
   
• 101. 

  OJ L 222, 14.8.1978, p.11.
  
   
• 102. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 103. 

  London Economics: 2002. Quantification of the macro-economic impact of integration of EU financial markets.
  
   
• 104. 

  OJ L 191, 13.7.2001, p.45.
  
   
• 105. 

  COM(729) 2000, Upgrading the ISD.
  
   
• 106. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 107. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 108. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 109. 

  Equivalent to those foreseen for MTFs.
  
   
• 110. 

  Study by London Economics in association with PriceWaterhouseCoopers and Oxford Economic Forecasting.
  
   
• 111. 

  Static effects.
  
   
• 112. 

  COM(729) 2000, Upgrading the ISD.
  
   
• 113. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 114. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 115. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 116. 

  London Economics: 2002. Quantification of the macro-economic impact of integration of EU financial markets.
  
   
• 117. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 118. 

  For example, Member States which allow off-exchange execution of client orders have been forced to develop more sophisticated 'best execution' policies, whereas this have, to a large extent been unnecessary in Member States which require concentration of retail investor orders on a 'regulated market'.
  
   
• 119. 

  COM(729) 2000, Upgrading the ISD.
  
   
• 120. 

  In performing this function, large dealers represented an alternative point of liquidity for market participants. The use of the term 'market-making' in respect of this activity highlights the extent to which dealers could substitute for on-exchange trading. Therefore, the marketplace/intermediary distinction was by no means watertight.
  
   
• 121. 

  The term 'alternative trading system' (ATS) has entered into common parlance as a catch-all term for a wide range of new trading support facilities whose shared characteristic is that they are not licensed as exchanges. Some respondents to the consultation have noted that this terminology is not suitable for a legal text and does not capture the specific functionality of the entities which its is proposed to authorise as a new core service. In view of this, the term 'alternative' has been replaced by 'multilateral'. The word 'system' is replaced by 'facility' - to avoid confusion with a well-established bond-trading outfit.
  
   
• 122. 

  J.P. Morgan (2002).
  
   
• 123. 

  The effective spread is the difference between the average buy and sell price that an investor actually paid. The effective spread can be defined as EPS = 2
   
• 124. 

  Source International Federation of Stock Exchanges and FESE (2002).
  
   
• 125. 

  There is a negative correlation between Turnover (-0.11) and Market capitalisation (-0.543) and Trading costs. Domowitz, Glen and Madhavan - Liquidity, Volatility and Equity Trading Costs across countries and over time - January 2000.
  
   
• 126. 

  OTC trading, upstairs trading, large block trading either on or off-exchange.
  
   
• 127. 

  Operate on-exchange block trading facilities, or appoint specialist liquidity providers.
  
   
• 128. 

  Liquid markets allow transactions to be undertaken without triggering large price movements against the interests of the trader. In markets which are efficient from a price-formational perspective, prices quoted in the markets will embody all relevant and up-to-date information relating to the 'real value' of an instrument
  
   
• 129. 

  London Economics 2002: The London Economics research highlights the opportunity costs associated with fragmentation of current levels of liquidity between leading EU exchanges.
  
   
• 130. 

  IOSCO (2001): report from TC on 'transparency and market fragmentation' (p.
  
  3).
  
   
• 131. 

  Idem, p. 13.
  
   
• 132. 

  Bilateral trading or internal order-execution do not involve the same trading processes as on-exchange or MTF-based trading. Dealing centres on the provision of quotes on a bilateral/selective basis. Dealer discretion is needed to protect its proprietary capital from exposure to position risk. Regular/continuous position-taking by dealers and broker-dealers (against their own capital) provides liquidity support to the market, which can help to smooth price fluctuations and ensure a permanent counterparty to trade with investors. These considerations do not materialise in the case of exchanges or MTFs: there is no capital of the market/system operator at stake, and market participants/system users are voluntarily and knowingly making use of the system to advertise the terms at which they are willing to trade.
  
   
• 133. 

  Evidence from EU markets which allow off-exchange retail order execution suggests that fears regarding the degradation of price-formation are overstated. Bid-ask spreads on the London SE electronic order-book (SETS) have narrowed in recent years despite the widespread execution of investor orders outside the rules of the exchange (subject to post-trade reporting requirements). There is no obvious pattern in effective and quoted spreads between Member States which take a restrictive stance on off-exchange order execution and those which are more liberal in this respect. In some Member States which enforce a concentration rule, spreads are as high or higher than spreads in Member States which do not.
  
   
• 134. 

  Euronext (2002): Internalisation. 'Large financial conglomerates that already act in various capacities are setting their sights on another role which will enable them to expand their activities. After performing the role of stockbroker, market marker, analyst and portfolio manager, they now want to start playing at being exchanges.' (p.12). cf. also A. Murray (2002): Key issues facing European securities exchanges. ("the increasing ability of banks to act as quasi-exchanges.." (p.17).
  
   
• 135. 

  The proposed transparency rules seek to create the conditions in which traders and intermediaries are able to identify the trading arrangements which offer the best terms for transacting a trade in any given equity instrument and to move liquidity in response to price differences. This will allow orders to be executed at the venue which offers price improvement or best outcome for the end-investor, and assist the overall market system in converging on a price that reflects the full extent of price-relevant information across the entire market.
  
   
• 136. 

  Competition from SEAQ forced many continental exchanges to revolutionise trading methods and systems in early 90s. Fear of competition from TradePoint led LSE to introduce SETS order-book trading in 96.
  
   
• 137. 

  To the extent that MTF are not vested with regulatory/self-regulatory responsibilities for screening the 'quality' of instruments traded on the system, ATS need not be subjected to 'regulated market'-type obligations on admission of instruments to trading.
  
   
• 138. 

  ECB survey or European equity markets, August 2001.
  
   
• 139. 

  Some of the principal particularities of 'regulated markets' when compared to a pure trading facility include the following: 'regulated markets' have assumed an important role in vetting the quality of instruments admitted to trading/the public quote. The continued role of regulated markets in verifying the conformity of securities/instruments with rules governing the constitution and issue, provides a 'quality labelling' for instruments which are publicly traded. Only marketplaces which are willing to assume these obligations should have the possibility of authorisation as a 'regulated market'. 'Regulated markets' involve a distinct organisational form: they have assumed much autonomy and self-regulatory role in vetting members and policing activity on the market. 'Regulated markets' also embody particular trading features: they guarantee efficient finalisation/settlement of transactions executed on the markets - although pure trading systems may also offer this level of functionality.
  
   
• 140. 

  Already have been episodes which highlight the high levels of inter-linkage between EU stock-markets. Earlier this year, trading error on DBAG stoxx index led to immediate and important disruption for trading of same index on other EU markets - but also for trading in substitute stock indices.
  
   
• 141. 

  In UK, some 29 entities are thought to fall within the scope of the MTF definition. DE is also home to a large number of these systems, while IT, BE, IRL, FR also have granted authorisations to MTF. These systems are active in a range of asset classes - particularly bonds and foreign exchange swaps but also equity. Experience from US suggests a period of consolidation (at least for bond systems) may follow the first phase of market development.
  
   
• 142. 

  A number of respondents have challenged the need to introduce a new authorisation regime for MTF. They argue that the activities of a MTF are adequately catered for by a combination of authorisation to provide 'reception and transmission' and 'execution' of client orders. The Commission does not concur with this analysis. The fundamental innovation represented by ATS is that they provide a non-exchange venue which users/clients can employ for dealing/trading at their discretion and for their own-account. This form of functionality means that MTF possess many of the features and give rise to the same regulatory issues as exchanges/marketplaces.
  
   
• 143. 

  The revised orientations, published as a basis for open consultation in March 2002, envisaged a distinction between entities which systematically internalise client orders and those which do so on an incidental basis. A quantitative threshold (10% of client order flow internalised over preceding 4 quarters) was proposed as basis for dividing line. This distinction has been widely criticised on 2 counts: first, the rationale for the distinction is unclear. Internalisation implies a conflict of interest between client and broker/dealer interests irrespective of the scale of internalisation. Secondly, the proposed threshold was condemned as being unworkable, and resulting in different market consequences across large/small national markets. In view of these cogent criticisms, the Commission proposal abandons this distinction and seeks to create a general regulatory framework within which conflicts of interest related to all internalisation activity can be managed.
  
   
• 144. 

  Market structures where the client brokerage function and the dealing against client order are functionally separated, or undertaken by different entities do not give rise to the basic conflict of interest at issue. The Retail Service Provider regime in operation in the UK whereby a retail broker routes client orders to a different entity for execution against a proprietary position of the latter would not be considered 'internalisation' in the sense of this proposal.
  
   
• 145. 

  The reasoning underlying this section has been developed more extensively in a related working paper of the Commission services, in order to do justice to the many complex facets of the debate.
  
   
• 146. 

  LSE charges 2p for filing of each off-exchange trade reported to it by its members.
  
   
• 147. 

  M. Auguy and D. Davydoff, the European Market model, July 24. 2002.
  
   
• 148. 

  NASD rule 4710: rules of practice and procedure for the small order execution system. Cf. NASD manual pp. 2303-2308 and NASD notice to members 97-90 on changes to SOES tier-size levels Dec. 97)
  
   
• 149. 

  Host authorities shall be notified of the operation of partner country firms on their territory through the existing notification mechanism, have the possibility to request the home authority to intervene, and to intervene itself as a precautionary measure where circumstances demand it.
  
   
• 150. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 151. 

  Entities recognised as 'eligible counterparties' by the national competent authority under this option will be able to trade as such with investment firms from throughout the EU. Investment firms in the same jurisdiction will not necessarily be able to presume that similar entities in other jurisdictions can also be dealt with as 'eligible counterparties'.
  
   
• 152. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 153. 

  The term 'alternative trading system' (ATS) has entered into common parlance as a catch-all term for a wide range of new trading support facilities whose shared characteristic is that they are not licensed as exchanges. Some respondents to the consultation have noted that this terminology is not suitable for a legal text and does not capture the specific functionality of the entities which its is proposed to authorise as a new core service. In view of this, the term 'alternative' has been replaced by 'multilateral'. The word 'system' is replaced by 'facility' - to avoid confusion with a well-established bond-trading outfit.
  
   
• 154. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 155. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 156. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 157. 

  OJ C , , p. .
  
   
• 158. 

  OJ C , , p. .
  
   
• 159. 

  OJ C , , p. .
  
   
• 160. 

  OJ L 141, 11.6.93, p.27 Directive as last amended by European Parliament and Council Directive 2000/64/EC (OJ L 290, 17.11.2000, p.27)
  
   
• 161. 

  OJ 56, 4.4. 1964, p. 878/64; Directive as amended by the Act of Accession of Denmark, Ireland and the United Kingdom.
  
   
• 162. 

  OJ L 228, 16.8.1973, p.3; Directive as last amended by European Parliament and Council Directive 2002/13/EC ( OJ L 77, 20.3. 2002, p. 17).
  
   
• 163. 

  OJ L 63, 13.3.1979, p. 1; Directive as last amended by European Parliament Directive 2002/12/EC ( OJ L 77, 20.3.2002, p.11).
  
   
• 164. 

  OJ L 141, 11.6.1993, P. 1; Directive as last amended by European Parliament and Councild Directive 98/33/EC ( OJ L 204, 21.7.1998, p.29).
  
   
• 165. 

  OJ L
  
   
• 166. 

  OJ L 184, 6.7.2001, p. 1.
  
   
• 167. 

  OJ L 115, 17.4.1998, p.31.
  
   
• 168. 

  OJ L 184, 17.7.1999, p. 23.
  
   
• 169. 

  OJ L 375, 31.12.1985, p.3; Directive as last amended by European Parliament and Council Directive 2001/108/EC ( OJ L 41, 13.2.2002,p.35).
  
   
• 170. 

  OJ L 126, 26.5.2000, p. 1; Directive as amended by Directive 200/28/EC ( OJ L 275, 27.10.2000, p.37).
  
   
• 171. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 172. 

  OJ L 348, 17.12.1988, p. 62.
  
   
• 173. 

  OJ L 193, 18.7.1983, p. 1.
  
   
• 174. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 175. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 176. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 177. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 178. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 179. 

  OJ L 84, 26.3.1997, p.22.
  
   
• 180. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 181. 

  In performing this function, large dealers represented an alternative point of liquidity for market participants. The use of the term 'market-making' in respect of this activity highlights the extent to which dealers could substitute for on-exchange trading. Therefore, the marketplace/intermediary distinction was by no means watertight.
  
   
• 182. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 183. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 184. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 185. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 186. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 187. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 188. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 189. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 190. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 191. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 192. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 193. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 194. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 195. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 196. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 197. 

  OJ L
  
   
• 198. 

  OJ L 166, 28.6.1991, p.77.
  
   
• 199. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 200. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 201. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 202. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 203. 

  In performing this function, large dealers represented an alternative point of liquidity for market participants. The use of the term 'market-making' in respect of this activity highlights the extent to which dealers could substitute for on-exchange trading. Therefore, the marketplace/intermediary distinction was by no means watertight.
  
   
• 204. 

  In performing this function, large dealers represented an alternative point of liquidity for market participants. The use of the term 'market-making' in respect of this activity highlights the extent to which dealers could substitute for on-exchange trading. Therefore, the marketplace/intermediary distinction was by no means watertight.
  
   
• 205. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 206. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 207. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 208. 

  Schleiffer, Vishny etc (2000), Black (2000).
  
   
• 209. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 210. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 211. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 212. 

  OJ L 126, 12.5.1985, p.20.
  
   
• 213. 

  OJ L 222, 14.8.1978, p.11.
  
   
• 214. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 215. 

  London Economics: 2002. Quantification of the macro-economic impact of integration of EU financial markets.
  
   
• 216. 

  OJ L 191, 13.7.2001, p.45.
  
   
• 217. 

  COM(729) 2000, Upgrading the ISD.
  
   
• 218. 

  Notably, publication of details of transactions completed on the exchange.
  
   
• 219. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 220. 

  Both time-series analysis and international comparisons confirm the powerful contribution that efficient financial markets can make to wealth-creation. Levine
   
• 221. 

  Equivalent to those foreseen for MTFs.
  
   
• 222. 

  Study by London Economics in association with PriceWaterhouseCoopers and Oxford Economic Forecasting.
  
   
• 223. 

  Static effects.
  
   
• 224. 

  COM(729) 2000, Upgrading the ISD.
  
   
• 225. 

  Deze databank van de Europese Unie biedt de mogelijkheid de actuele werkzaamheden (workflow) van de Europese instellingen (Europees Parlement, Raad, ESC, Comité van de Regio's, Europese Centrale Bank, Hof van Justitie enz.) te volgen. EURlex volgt alle voorstellen (zoals wetgevende en begrotingsdossiers) en mededelingen van de Commissie, vanaf het moment dat ze aan de Raad of het Europees Parlement worden voorgelegd.
   
• 226. 

  EUR-lex provides an overview of the proposal, amendments, citations and legality.