Welsh Conservatives in the European Parliament
Dr Kay Swinburne MEP

Markets in Financial Instruments Directive, ICI New York, 08.12.10

The Markets in Financial Instruments Directive of 2007 was probably the most influential piece of EU legislation for a European single market in financial services and sought above all else to promote competition, increase transparency and provide fair and equitable markets for all participants. To this end, it has been a successful project.
As market practitioners you will all appreciate the important role the financial markets play in the real economy, particularly the role the equity markets play in raising capital for corporations to fuel our economic growth. Therefore, given their vital importance, we need to ensure that our market structures are resilient, stable and efficient and above all else, are fair and equitable so that regulators can provide adequate investor protection.
There have been significant changes in the market structure post MiFID implementation, with an increase in the number of trading venues across the spectrum including the traditional exchanges which in Europe means at least one in most countries of the EU, 138 new Multilateral Trading Facilities – MTFs, the equivalent of a US ATS, an increasing number of BCSs and several Systematic Internalisers. Concurrently, there has been an exponential increase in trading volume, a significant reduction in average transaction size and the emergence of ultra high speed automated trading technology.
The electronic market structure has opened the door for entirely new types of professional market participants. The traditional specialist Market Makers have largely disappeared as the new market structure has evolved.
In Europe, as in the US, proprietary trading firms now play a dominant role in providing liquidity through highly sophisticated trading systems capable of submitting many tens of thousands of orders per record.
I have researched and written a report for the European Parliament evaluating the functioning of the equity markets post-MiFID implementation, which will set the direction for future legislation next year. Although there has been agreement amongst European politicians that increased competition between venues has led to decreased execution costs and higher bid/offer spreads, there were also a number of concerns and questions raised particularly with respect to the quality of the price discovery process, and whether the changes in the market structure have undermined the fair and level playing field that is essential to investor protection, capital formation and resilient capital markets. Overall, my original report called for data to be collected and analysed ahead of any regulation in the MiFID review.
The May 6th flash crash was a significant market failure. The European Union only escaped as it happened after EU markets closed - so the market needs a system of co-ordinated circuit breakers. In the EU, they should be standardised across all 27 countries and all trading venues. It is clear that all market structures including trading venues and all technological systems need to be tested for resilience. Rules that govern our equity markets need to keep pace with changes in the market so that investors and corporate confidence is retained.
Over the last 9 months, I have been looking into the many issues raised in the lead up to the MiFID review or MiFID II as it now seems to be called. Terms like 'co-location', 'sponsored access', 'spoofing' and 'pinging', now actually mean something to me, and to my colleagues in the European Parliament - yet, after having gone through the acronyms and had all of these terms explained and understood, I found myself going full circle. All of the Broker Dealers, trading venues and proprietary trading firms have explained how they provide liquidity and make markets, yet while all of the technology makes all of their activities more sophisticated, the question remains whether they actually facilitate the primary purpose of financial markets - converting capital into finance for businesses?
As legislators we need to assess all of the platforms and innovation in terms of their primary market purpose, ensuring that we do not inadvertently create markets which only serve financial intermediaries but provide a real market place for finance to be raised and investors to be rewarded.
Fundamentally, speed in the market place should lead to more efficient markets, tighter spreads and increased liquidity - all clearly beneficial for investors. Yet many investors are choosing to avoid the lit markets in favour of dark pools often broker crossing systems (BCSs) - paying a premium not to interact with market players who employ ultra-high frequency trading strategies.
In this scene, it seems it is not the speed in which the transactions are taking place that is the problem but possibly the strategies that certain traders are undertaking, and the limited capacity of regulators to oversee them, including the ability to monitor for potentially abusive practices.
This is where the focus of MiFID II should lie - improved market surveillance mechanisms so supervisors actually know what is going on.
How is it possible to know what market practices are beneficial if there is no real evidence? How can we investigate whether co-location provides an unlevel playing field when it is used in completely different ways at different exchanges? How do we assess the nature of available liquidity in the market and how do we therefore improve the quality and the ability of investors to access the market?
This is why I am pleased to learn of innovation serving the buy side of the market - investors looking for market solutions to the problems they experience on a daily basis and demanding more from infrastructure providers.
I have been watching the development of NASDAQ OMX's latest US equity platform that has a minimum size order threshold, rewarding size not frequency of trade, as well as the progress of buy-side only MTFs like Liquidnet that choose to build in latency to their systems in order to filter participants wishing to access their systems.
Both of these methods have been discussed by regulators on both sides of the Atlantic, yet thankfully, no one has looked to impose blanket solutions to entire markets. The more market solutions and options for investors that spring up to fill the gap between the perceived weaknesses in the market and its ability to serve its primary purpose, the less regulation we will need to come up with to fill the void.
Whereas MiFID was primarily about investor protection, MiFID II will be primarily about reducing systemic risk. Large European investors have expressed reservations about the current functioning of EU equity markets; in particular they have suggested that the lit trading venues are currently unable to meet their needs to trade efficiently and fairly in large size. Their reasons for concern include the activities of other professional financial intermediaries.
Markets need to have the full confidence of investors and listed companies and legislation needs to provide a market framework which provides a fast reliable and resilient environment.
The European Parliament proposes that action needs to be taken as a matter of priority on:
-          improving the quality, consistency and standardisation of post-trade data which will allow the formation of a European consolidated tape or its equivalent. Questions about whether this should be a single utility or a competitive solution remain open to debate. Though the necessity of such a data source is now widely accepted
-          Structural changes are needed to prevent unfiltered sponsored access, to prohibit flash orders, ensure that co-location is on a non-discriminatory basis and ensure that all direct market participants are regulated entities. Current exemptions for proprietary houses need to be eliminated especially as they are responsible for significant volumes of trade.
-          The introduction of standardised circuit breakers across all venues should be accompanied with the stress testing of all technology platforms and all algorithms should be submitted to the regulator for approval ahead of their introduction.
-          MEPs have also called for measures to encourage more transactions on lit venues.
However, a lack of data and information has led to the reports' focus on dark pool and HFT. Why are investors choosing to use dark venues and why is the trend to trade in BCSs increasing exponentially, albeit from a low base in Europe?
As legislators, we need to ensure that, given the role of price discovery on the lit venues, that non-transparent trading does not undermine all investors in the long-run by compromising the essential price discovery function of the markets.
MiFID and the new EU market structures have undoubtedly brought competitive advantages and although the advent of technological advances is welcomed, we must ensure that the legislative framework keeps pace with the new trading environment.
We need to assess to what extent our current market structure is meeting its goals of fair, efficient and transparent markets and how we, during the MiFID Review process in 2011, can ensure a level playing field for all participants.
The European Commission's consultation paper for MiFID 2 was launched yesterday and contains 143 questions, many of which relate to the structure of the equity markets but also refer to the extension of MiFID transparency requirements to other asset classes including bonds and derivative products. It also includes the whole field of commodities and the trading of derivatives instruments – questions about what a European SEF should look like – and the Packaged Retail Investment Products proposals, assessing how MiFID can apply to this investor group.
The consultation will run for 8 weeks until the 2nd of February and I urge you to provide evidence and data to the Commission during this period. Typically the EC will receive a fraction of the responses of an equivalent US consultation, given the global implications we need a comprehensive response from buy-side institutions to balance the contributions.
I urge you all to get involved and help shape the new market structures in Europe over the coming months.
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Welsh Conservatives

The European Commission has today designated European Protected Geographical Indication (PGI) status to the well-known Pembrokeshire Early Potato from West Wales.
The Pembrokeshire Early Potato was one of only three quality farm products whose applications for PGI status were approved today.
The EU PGI schemes protect product names against misuse and under these schemes more than 1200 products are already protected.
Commenting on this announcement from the European Commission today Dr Kay Swinburne MEP – who is from West Wales - said:
"I am delighted to see that this application to have "Pembrokeshire Earlies" added to the register of PGI products has been approved by the European Commission today."

"Achieving this prestigious status is a clear acknowledgment of the high-quality and distinctive produce we continue to deliver in Wales. Pembrokeshire Early Potatoes thoroughly deserve their place alongside the well-known food and drink products from right across the EU which already feature on the PGI register."


Kay was delighted to host an event to celebrate Higher Education, Science and Innovation in Wales last night in the European Parliament.  The event builds on the British Council’s “Strategic Analysis of the Welsh Higher Education Sector, Distinctive Assets”.  A number of experts spoke to share their views of Welsh HE at the event and how it can develop in the future.

In advance of the 'Fox-Hafner Report' vote on the single seat for the European Parliament, Kay and the other UK Conservative MEPs feel it is right to draw attention to the fact that the seven-year cost of the dual-seat arrangement comes to £928,000,000. Since her election to the European Parliament in 2009, Kay has strongly supported bringing the monthly Parliamentary meetings in Strasbourg to an end and therefore saving taxpayers a considerable sum of money.


Kay was delighted to meet Malala Yousafzai, who was awarded the EU's Sakharov Human Rights Prize at the European Parliament today.

Following Malala’s speech to the European Parliament, Kay said, “What an inspirational speech Malala gave to the Members of the European Parliament today. As a mother of young children myself, I hope that they can also aspire to achieve like her. Malala is an exceptional young lady who has overcome adversity by tremendous force of character and a passionate belief in the right of everybody to enjoy and benefit from education.”   


Kay was very pleased to meet with members of the Advanced Manufacturing Research Group at the European Parliament in Brussels, one of four groups set up in key Welsh research strengths to engage with EU research funds. The delegation visiting Brussels included representatives from Cardiff University, Bangor University, Swansea University and Trinity St.Davids University.

In advance of tomorrow's European Council meeting of leaders, Dr Swinburne has echoed the recommendations made in a recent report published by a number of business leaders, which highlights the importance of removing barriers to business competitiveness in Europe and getting rid of burdensome legislation by cutting EU red tape.

Last year Dr Swinburne encouraged businesses in Wales to highlight to the European Commission which over-burdensome regulations they would like to see slashed, by writing to small businesses all over Wales and asking them to tell her their red-tape problems.

Electronic cigarettes no longer face being taken off the shelves by the EU after Conservative MEPs were successful today in amending EU legislation on tobacco labelling.

Conservative MEP's led the amendment to defeat proposals that would have classified e-cigarettes as medicinal products, meaning they would have to undergo an overly burdensome and costly authorisation procedure, which would go beyond the procedures for traditional tobacco products... (Read more under 'Articles')



Welsh Conservative MEP Kay Swinburne has been sitting down with leaders in Europe's biotech field to choose the top five candidates to compete in this year's EuropaBio Most Innovative EU Biotech SME Award.

As a member of this year's judging committee, Kay is once again supporting the EuropaBio award, which has attracted applications from all three sectors of biotechnology - healthcare, industrial and agricultural, from across the EU... (Read more under 'Articles')


WELSH Conservative MEP Dr Kay Swinburne today hailed a vote in the European Parliament as a "wake-up call" in the battle to save Europe's endangered languages.

MEPs meeting in Strasbourg backed a report which calls on governments across the EU to develop action plans to encourage continued linguistic diversity.

The report, written by Corsican MEP François Alfonsi, also says governments should be "more attentive" to threats which may lead to languages becoming extinct.

Dr Swinburne, who was a shadow rapporteur for the report, has argued that Welsh can be seen as a positive example of language revitalisation which communities across the EU should follow... (Read more under 'Articles')

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Dr Kay Swinburne MEP
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