Welsh Conservatives in the European Parliament
Dr Kay Swinburne MEP

Trade Tech - Stockholm, 08.11.11

Good afternoon from Stockholm where I have just finished a Q&A session on the current EU legislative agenda including the benefits and drawbacks of High Frequency Trading (HFT) and the real cost to Europe of introducing an Financial Transaction Tax (FTT). The demand for information and guidance on what is driving the changing regulatory environment is global and I will try and explain the context in which the European Parliament and therefore the EU legislators are currently operating.
Your sessions this morning have explored in detail some of the current proposals for financial data regulation in the context of the EMIR legislation for derivative instruments and of the very broad proposals being debated in the MiFID (Markets in Financial Instruments Directive) review.
MiFID 2 will review MiFID 1 with respect to market structure and current practices in the equity space and seek to extend many of the original MiFID objectives to all other asset classes, namely: improved investor protection, increased transparency and increased competition with the aim of facilitating a more competitive single market across the EU for financial services.
The main challenges I will try to cover are firstly, how do we ensure effective regulation both at the national and EU level and what tools are needed to achieve this and where are the regulatory gaps? Secondly, in the context of market regulation, how are our markets currently operating? Are they serving the primary purpose of allowing investor capital to flow to businesses and sovereigns to fund economic growth? And are they serving all market participants equally?
The EU Commissioner for the single market, Michel Barnier is driving the legislative agenda in Europe and he has the mantra that no market, no product and no participant should remain unregulated in light of the recent financial crisis.
A conclusion reached by many in the aftermath of the financial crisis is that the opacity and lack of oversight of financial markets contributed to an unforeseen web of interconnections which became a global systemic crisis. The most basic solution proposed to overcome this, which lies at the heart of most pieces of EU financial services legislation is improved market and regulatory transparency.
There is a strong belief amongst political institutions globally that, if new bodies such as the European Systemic Risk Board and the US Financial Stability and Oversight Council, function as they are intended, they will have an overview of the financial world and the wider economic space, and therefore see risks as they build up over time. They are structured to avoid regulators being too close to any particular part of the financial system and therefore not be too involved so as to be blinded to the obvious. They will work closely with financial supervisors in member states, who do have that day to day supervisory role, but from a much broader overarching perspective.
Following recent regulatory failures, it is clear that national supervisors will need to take a much more intrusive approach to supervision and be given a mandate to intervene earlier and more strongly when things are going wrong.
In the EU, you are probably aware we have established the European Supervisory Authorities who will further co-ordinate supervision and establish a single rule book in financial services for the 27 member states. However, beyond looking at individual firms and trading entities, the new focus on systemic risk and transparency means looking at all parts of the picture in much deeper granularity than ever before.
The computerisation of the markets should assist regulators in this task but it is not so straightforward. In theory the data is collected in one place and the financial supervisor is able to monitor this and see exactly what is taking place. However, this is not the current European situation particularly when we consider the millions of transactions taking place per minute. Even in areas that market participants agree with the regulators and politicians that more transparency is required, there can be a gap between what we think we want, what we actually want and what is technically possible to get. There is so much data involved it is hard to know which parts are actually relevant and important.
In EMIR, the European Markets Infrastructure Regulation, we establish new trade repositories for collecting the details of all derivative trades. Currently, at the high level of the regulation being negotiated by politicians, we are looking at what indicators these reports should contain whether straight through processing should be mandatory and whether open industry standards or ISOs should be used. As politicians negotiating these new rules we need to fully understand these concepts, but understanding the risks involved in financial products themselves is difficult enough, yet I suspect those negotiating at this stage, including myself, do not understand the IT infrastructure required to facilitate it.
The question being asked is whether the data that ends up in the trade repositories will in fact be of any use to anyone. Will the supervisors have the capacity to interrogate the data? This is not a new question for the financial services industry, while you routinely use data in your business and use the information advantage it gives you, the regulators need to ensure data is useable to them as an information overload helps no one. As users of high volume data most market practitioners have already developed tools to overcome this data problem, the challenge is how we equip our regulators nationally and the European supervisory authorities across markets with these appropriate tools for data analysis.
The only way to avoid politicians and regulators stepping in and banning products and activities in the financial markets is by giving them more than just data. They also need the tools and the ability to understand and interpret that data.
As part of MiFID 2 regulators are starting to look at market structure and integrity and the new financial players, especially HFT firms who currently operate as proprietary trading houses. They would like to open the black box that currently legitimately hides their strategies from the rest of the market, but also currently excludes regulatory oversight. I suspect that a lot of the extremes of the regulation threatened could be avoided if firms were more wiling to explain what they do, and help supervisors do their job of monitoring the market. Supervisors are justifiably nervous when trading can happen at a rate of 33,000 trades per second, especially when they have a significantly reduced capacity to interpret the data being generated. 
The fact that it took the CFTC and the SEC more than 4 months to collect and interpret the market data surrounding the flash crash of May last year, an event that took place over minutes, has shocked regulators and politicians alike. I find myself having some sympathy for those who call for a return to simpler times, if the regulator cannot understand what is going on in the markets, then what chance does the end investor have? What chance does the issuer have to understand who may be impacting their stock valuations and why?
Industry needs to help regulators and supervisors understand what is going on or expect to have their behaviour curbed through legislation.
Concepts like the European consolidated tape would help oversight by regulators and investors. Currently there are 4 or 5 different industry groups working to come up with standards for this, it is disappointing that the sector has not come forwards sooner to develop a market solution as was envisaged in MiFID 1. Now a regulatory threat is imminent to fill this perceived void. Regulations will likely develop the formats and write standards on what all of this will need to cover, they may be the most efficient standards or the cheapest solutions but they will nevertheless streamline the process.
Having asked the industry to provide solutions to the problems that regulators face, it seems fair to try to explain the EU legislative process. Much as your world of blades, bytes and data processors is alien to politicians, I suspect Brussels and the process we go through in writing and agreeing legislation feels equally alien to many of you.
At the first stage called level 1, the Commission produces a text which the European Parliament and the Council, made up of the 27 member states, work on separately. Both groups amend the draft text before reaching internal decisions on an agreement which forms the basis of a final negotiating position. Next the parliament and Council come together with the Commission in a process known as trialogue, and negotiate, often at length, until we have one final agreed text. This then goes back to the Parliament and Council for a final vote before being accepted directly into law if a Regulation, or for Implementation into national law in each member state if a Directive.
While a lot of the detail is included in level 1 text, many of the technical details are then passed on to the European Securities and Markets Authority, ESMA, to draft technical standards, a process known as level 2. At this level, no political or policy decisions are supposed to be taken. ESMA does not have the power to make discretionary decisions, but it deals with the technical and operational details. For example, at level 1 we will agree that a common reporting format must be used and must cover all relevant information. ESMA will then mandate what that format is and the precise pieces of information it must cover.
As politicians we establish the framework and then call in the experts to sort out the details. However, the Parliament and the Council retain the right to sign off on the rules that ESMA and the Commission write. We have 3 months to accept or reject each rule if we think they do not reflect the level 1 political decisions accurately. While this is not a power we have used yet, ESMA was only set up last year and the procedure came in via the Lisbon Treaty, it is not something that we will be afraid to do if we feel the rules are not correct.
Both MiFID and EMIR are hugely technical dossiers and will require a huge amount of work to get right. If we start early and get the procedures and framework right, as well as the right information to the right people in ESMA, there is no reason why this should place an unmanageable burden upon the market. Transparency will ultimately be good for all market players and supervisors, but only if accompanied by the necessary tools to understand what is going on.
Stable and well functioning markets are the ultimate goal of all of this market legislation. At this turbulent economic time we need to be looking at the best ways for capital to reach companies that desperately need it in order to facilitate economic growth and recovery, we must keep this in mind in all that we do over the coming years.
Ultimately, any EU legislation in financial markets needs to work in a global context, be proportionate and seek to ensure efficient, resilient and fair markets for investors and issuers. Much of EMIR and MiFID 2 as proposed seeks to achieve these goals and with appropriate evidence based intervention by industry we will hopefully end up with European equity, FX, derivatives, commodities and fixed income markets which operate in a more transparent and therefore safer and more equitable way.
Regulation should facilitate not hinder this market improvement.
I look forward to your positive interventions in the legislative proposals over the coming months as Shadow Rapporteur on the markets dossiers and hope that collectively we can deliver EU financial regulation that delivers stability and new opportunities for the financial markets
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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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