MEPs today voted by 296 for to 74 against (96 abstentions) to adopt the European Parliament's 1st reading on the new EU Investment Services Directive (ISD).
The directive aims to modernise current ISD legislation dating from 1993 which established a "single passport" for investment firms operating in Europe. The new proposal puts an end to the "concentration rule" (which allows national authorities to require that retail share orders be executed via the national stock exchange) and instead introduces common norms for the execution of orders in the financial markets.
Execution-only services (i.e. carrying out transactions without providing advice), which are popular in the UK, would not be burdened by extra requirements, according to the amendments passed today. Suitability tests prior to conducting business would apply only where advice is being given.
MEPs also limited the firms obliged to make public bid and offer quotes to those which practise 'systematic internalisation'
Overall MEPs supported the European Commission proposal, but adopted amendments aimed at limiting red tape, distinguishing between retail and professional investors and preventing the new rules increasing the cost of share dealing.
This is the codecision procedure where the European Parliament has equal decision-making powers with the Council of Ministers. If the Council does not accept all the amendments passed today, the proposal will return to the European Parliament for a 2nd reading.
Introducing her report, Theresa Villiers (Cons, London) said:
(excerpt) - The goals of the ISD should be competitive, integrated, liquid, transparent and efficient markets with a high level of investor protection. The ISD should not prescribe a particular market structure. It should recognise and be adaptable to the diversity of the different European market structures. It should properly distinguish between retail and professional investors. The type of regulation that is absolutely essential for consumers can be damaging, disruptive and unnecessary if applied to professionals. Rules should always be risk-based, they should be properly costed and they should be proportionate to the harm they seek to avoid.
I very much support the emphasis in the Commission's proposal on country of origin, with a qualification that in many cases and in many areas the host country is suitable to deal with branches. I also agree with the Commission's overall aspiration to abolish concentration rules and open up the business of executing share trades to competition between exchanges, between MTFs (Multi-Lateral Trading Facilities) and between the internal execution platforms of investment firms. Exchanges are not public utilities and they should not be granted a monopoly. Allowing firms to compete with exchanges will lead to more choice for investors, more liquidity, narrower spreads, better prices and lower costs.
Finally, it is vital that we accept the committee's amendments on execution-only business. The Commission proposal needs alteration, otherwise it would drive execution-only business out of business by making it uneconomic. I believe investors should continue if they wish to be able to take their own decisions about their investments. They should not be forced to buy professional advice they neither need nor want. This is unnecessary regulation and I would appeal to MEPs to reject it in the same way as the Committee did.
Peter Skinner (Lab, South East) also spoke:
(excerpt) - Mr President, this House is fast demonstrating that it can solve things that even the Council cannot solve. Maybe that suits us for what may happen in the very near future. I hope, Commissioner, you will take note of that.
But if the financial services plan is to work, this directive has to be in place. There is no point in acting on the issues of barriers of national protectionism if we look backwards. If we do not look at what is happening with the global financial position then Europe, its investment, its potential for growth, all the risk capital action plan issues of the Lisbon European Council go by the by.