Draft EU legislation to discourage insider trading and market manipulation was discussed for the first time in the Economic and Monetary Affairs Committee on Monday. MEPs focused on how best to define "insider information", ensure proper surveillance, encourage whistle blowers and punish offenders.

The draft market abuse directive is designed to tackle shortcomings observed in the markets during the financial crisis. It would impose EU-wide criminal and administrative penalties for insider trading and market manipulation. Some EU Member States do not currently impose criminal sanctions.


The draft market abuse regulation aims to harmonise Member States' existing rules and at the same time update them to suit new trading venues and financial instruments and keep pace with technological progress. Because of the growing integration of financial markets in the EU, market abuses can have cross-border effects that need to be tackled as such.


Sanctions


MEPs welcomed plans proposed in the directive to harmonise sanctions, but stressed that to make them effective, accurate definitions are needed, e.g. of "relevant insider information". Arlene McCarthy (S&D, UK), rapporteur on both the market abuse directive and regulation, added that both kinds of sanctions, administrative and criminal, should remain in use. For market players who are not deterred by financial sanctions, Pascal Canfin (Greens/EFA, FR), proposed banning them from the profession instead.


Whistle blowing


Shadow rapporteur Wolf Klinz (ALDE, DE), worried that the rules on whistle blowing proposed in the regulation could create the wrong kind of incentive for staff. Mr Canfin countered that whistle blowing would be vital to the success of the legislation.


Surveillance


MEPs shared Ms McCarthy's view that cross-border surveillance must be strengthened in order to capture orders placed and executed in markets of several Member States by multiple parties buying and selling financial instruments.


Shadow rapporteur Sirpa Pietikanen (EEP, FI), said that real-time, cross-border surveillance, together with access to transaction reports and order books, would be necessary to enforce the new law. Sylvie Goulard (ALDE, FR), stressed the need for EU-level oversight of abuses and shortcomings, and also EU-level supervision.


Scope


Mr Klinz welcomed the fact that using a regulation will ensure that the legislation is implemented exactly as intended, and stressed that it must take account of technological developments such as high frequency trading. Sharon Bowles (ALDE, UK), agreed, noting that in such trading, even order cancellations are a form of manipulation that should be recognized as such.


Next Steps


Ms McCarthy's draft report is to be tabled on 26 March. The deadline for amendments is 24 April, and the committee vote will follow in July.


In the chair: Sharon BOWLES (ALDE, UK) Date: 06-02-2012