25 October 2007

CITIZEN OF EUROPE: Is EU really so socialist?

A couple of weeks ago, we wrote that the EU is going to regulate financial markets more tightly and make them more transparent...

Nothing new on that topic, but something definitely interesting is happening in EU international financial markets...

The new EU legal act MiFID (the Markets in Financial Instruments Directive) is due to be introduced soon.

For people not knowing the EU law: a directive is not a set of directions - it is a fully binding legal act that needs to be, nevertheless, transposed into national legal systems by member states parliaments before a set deadline.

I am now doing my homework on the EU institutional law and what's more the MiFID is not new to me: while working in corporate banking this summer, I heard many discussions on MiFID... And I must admit that he EU directive is surely a very interesting piece of legislation. As the Economist writes:

"Big Bang” or not, expect dramatic changes. The new rules end the monopoly (albeit a waning one) of national stock exchanges over share trading and throw open the field to newer electronic exchanges and even the big investment banks. Until now, some countries (such as Poland, the Czech Republic and Hungary) still required trading to take place over the national exchange. Others, such as Britain, have long been more liberal.

Handed an effective monopoly like the utility companies of yore, the protected exchanges took full advantage, charging everything from fat fees on membership to hefty tariffs on each trade. Even in more liberal regimes, over-the-counter trades have had to be reported to the exchanges. The exchanges charge members for the privilege of doing so and then, to add insult to injury, levy members again for access to those data in “real time”.

The new law dismantles each one of those monopolies at a stroke. "'

What is even more important:

"Under MiFID, these off-exchange markets will in effect become more regulated, because they will have to disclose more pricing information. They will also be freer to tempt business away from the traditional exchanges. This should encourage the traditional marketplaces to lower fees and increase the speed of transactions to become more attractive, which could make for leaner markets and larger trading volumes. On the other hand, it could “balkanise” trading; one of the tests of the new law's effectiveness will be whether it adds to overall liquidity or channels it in so many directions that it evaporates."

So as we can see: a new EU legislation piece means more markets and more transparency.

This is largely in contrast to what many of my Polish libertarian friends think of the EU. It's strange, but for some guys in my country, the EU is first and foremost a 'socialist federation', stiffling markets and spreading statism... Just look at the picture (scroll down, to the very bottom)

Bizarre... At least to some extent.

Not that I am a lover of Brussels, but still: a partially pro-market character of the EU cannot be denied...

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