New rules have finally been introduced to make European Union financial markets safer, more transparent and avoid a repeat of the financial crisis of more than a decade ago happening again.
The roll-out of the changes that aim to boost investor protection happened on Wednesday, January 3, and has, so far, been glitch-free, according to the EU’s markets watchdog, although it cannot rule out any disruptions in the near future.
Under the new regime, banks, asset managers and financial traders must now provide detailed information on trillions of euros in transactions.
All of the major banks across the European Union have spent an estimated US$2 billion collectively in the last 12 months upgrading IT systems in preparation for the introduction of the new rules that will boost transparency.
“What we can see for our part, is no glitches so far,” Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA) told Reuters hours after its launch. “It will be the first time we have a complete overview of all financial instruments in the EU.”
Bankers will work through the night to iron out last minute hitches before Wednesday’s launch of a major reform of European Union financial markets that aims to apply lessons from the financial crisis nearly a decade ago.
Early trading in European stock and bond volumes were, however, relatively light, possibly allowing the new systems to bed in properly.
“So far (there is) no difference compared to a regular day,” Markus Huber, a trader at City of London Markets, as quoted bu Reuters. “Volume isn’t expected to be massive or back to normal either due to not everybody being back from holidays, and not much going on in regard to major news or economic data.”
Some bankers worked through the night on January 3 to iron out last-minute hitches before its introduction.
Due to the complexity of the new rules, the change was delayed by a year, while regulators had to issue 11th hour guidance to banks and financial firms to avoid freezing up trades as well as calm nerves of those not yet full compliant.
More losers than winners
Credit rating agency Standard & Poor’s warned, however, there would likely be more losers than winners from the changes brought in in the wake of the 2007-2009 financial crisis.
Under the new rules fund managers and others must for the first time fill in a transaction report with up to 65 bits of data within 15 minutes of a trade — or risk being fined. They will revamp previous directives and broaden scope to take in more financial products.
Less than half of the EU’s 28 member states have adopted the change into national law, although financial firms can carry on trading even if their home state has not completed the legislative process.
Germany, France and Britain, home to the EU’s top financial centers in Frankfurt, Paris and London, are among those nations whose laws are up to speed, with big banks likely to be ready.
Everyone who pays in, or draws a pension, will be affected by the changes as traders will in future have to be able to justify investment decisions to investors. The European move is being eagerly watched in the United States where traders have been under pressure to introduce a similar arrangement.