The New EC Financial Markets Legislation and the Emerging Regime for Capital Markets

Abstract

The EU regulatory regime for capital markets undergoes radical changes as a result of the implementation of the Action Plan for Financial Services ('FSAP'). The new EC Directive on Financial Instruments Markets ('FIMD'), which is the successor of the ISD, constitutes the most central component of the Action Plan for Financial Services. FIMD and its 'implementing measures' will provide the 'constitutional' framework for the organisation and operation of the EU financial markets and investment services industry from 2006 and beyond. It marks a radical departure from the previous regime in a number of areas. Through the introduction of a number of provisions regulating the operation of 'regulated markets', Multilateral Trading Facilities ('MTFs') and investment firms and of a new core service in connection with the operation of MTFs the Directive intends to create an integrated capital market in the EU and raise the standards of investor protection. FIMD creates a comprehensive regulatory framework governing the organized execution of investor transactions on exchange, through MTFs or internally by investment firms. It abolishes the 'concentration rule' increasing thus competition between different order execution systems and facilitating cross-border transactions. On the other hand, the implementation of the very voluminous FIMD and of its 'implementing measures' and the increased costs of compliance imposed by the new regime will, arguably, lead to the creation of a highly concentrated and oligopolistic securities industry in the EU reducing competition and restricting consumer choice. In addition, FSAP related legislation, such as the FIMD, the Market Abuse Directive and the Public Offers and Admissions Prospectus Directive, creates a self-standing regime for the regulation of capital markets in the EU whose supervision and enforcement is entrusted to, at least, twenty five competent national authorities. Therefore, the issue of regulatory fragmentation and of the establishment of a single EU securities regulator emerges stronger than ever in the context of the new regime.