Tough rules needed on insider trading and market manipulation

Proposed legislation to tackle insider trading and market manipulation must not fragment markets, because this would make such abuses even harder to detect, said Economic and Monetary Affairs Committee MEPs debating them on Thursday. Cross-border trading calls for cross-border cooperation among regulators, and tiny financial boutiques with billion euro turnovers should not be exempted, they added.

"We need to be very tough on market abuse and market manipulation. Our purpose is to improve and clarify", said rapporteur Arlene McCarthy (S&D, UK), presenting her draft report on the proposed legislation

Limiting market fragmentation

Ms McCarthy believes that increased market fragmentation makes it more difficult to detect manipulation, and she won broad support from her colleagues for her wish to remove so-called "organised trading facility" (OTF), category from the Commission proposal.

MEPs felt that this category - of facilities operated by investment firms or market players, that bring together buyers and sellers or orders relating to a financial instrument - was not well enough defined and would enable yet another type of player to enter a market that is already complex and hard to control.

"It will be nevertheless very useful to have a clear definition of OTF" said Sirpa Pietikäinen (EPP, FI). Wolf Klinz (ALDE, DE), countered that removing the OTF category would contradict the proposal's aim to cover all kinds of financial markets.

SME players must comply with the rules

The idea that small and medium-sized enterprises (SMEs) could be exempted from the market abuse legislation so as to reduce their administrative burdens was also criticised. "There are small "financial boutiques" with less than 10 employees with a turnover of billions of euros" stressed the rapporteur. "SMEs that are financial players should play by the rules and principles, to protect investors", she added.

Effective data exchange

Cross-border and cross-venue trading makes manipulation easier to do and harder to detect, so cross-border collaboration and data-sharing among competent authorities should be mandatory, MEPs said.

High-frequency electronic trading to take advantage of short-term opportunities, which is large in scale and hard to detect could also be better controlled by cross-market order book surveillance, they added.

Sanctions, rules for managers and whistleblower protection

"Sanctions have to correlate with the abuse and they must be deterrent" stressed Pascal Canfin (Greens/EFA, FR).

"Administrative sanctions cannot replace criminal regimes, they must exist separately, and the possibility of criminal proceedings has to be envisaged", added Ms McCarthy.

The proposed €20,000 threshold above which managers must report their transactions "needs to be justified," said the rapporteur. "Managers hold insider information that they should not use at any time, but they must also have clear rules on when they can trade on their own account".

Whistleblowers should be protected in the workplace, and internal reporting mechanisms should be established, she added.

Next Steps

The deadline for the amendments is 8 May and the committee vote will follow in July.