Europe tightens up financial market rules

Strasbourg - The Europe Union is to tighten regulation of financial markets under a deal to prevent any repetition of the rampant speculation which helped bring down banks and crash the global economy.

After two years of tough talks, the European Parliament and negotiators for the 28 member states agreed a deal in principle that sets new rules to regulate the market, known as MiFID II.

"These new rules will improve the way capital markets function to the benefit of the real economy," said the EU's financial markets commissioner, Michel Barnier.

Financial crash

"They are a key step towards establishing a safer, more open and more responsible financial system and restoring investor confidence in the wake of the financial crisis."

Barnier first pushed for the new rules in 2011 at the height of the eurozone debt crisis which was sparked by the 2008 global financial crash.

They aim to curb speculative trading in commodities and to regulate high-frequency trading to better protect investors and make the markets less crisis prone.

They will apply to investment firms, market operators and services providing post-trade transparency information in the European Union, a parliament statement said.

They will notably force market players to buy and sell financial instruments on regulated markets comparable to stock exchanges to ensure that all trading is tracked by MiFID.

Financial markets

Another key provision covers high-frequency trading based on automatic algorithmic systems, forcing investment firms to stop trading if price volatility becomes too high.

To help limit speculation in food and energy, authorities for the first time will be able to limit the size of a net position that a person can hold in commodity derivatives.

International aid group Oxfam welcomed the deal but warned of the dangers of exemptions, especially for Britain which is home to one of the world's largest financial markets in London.

Intervention

"The decision marks a good start in tackling 'gambling' on food prices which are a matter of life and death to millions," Oxfam said.The global financial system nearly collapsed in 2008 when speculative bets, especially in sub-prime US home loan debt, turned bad, bringing down Lehman Brothers and then a chain of other banks and investment houses.

Many feared a repetition of the Great Depression of the 1930s and only massive US and EU government intervention helped limit the damage to a 'Great Recession' which still nearly broke up the eurozone.

Financial markets in Britain and the United States were largely deregulated from the 1980s on the view that free flowing capital systems were more efficient and productive, with a reduced role for government.