030514_ISD

COMMENTS ON THE PROPOSAL FOR A COMMUNITY DIRECTIVE ON INVESTMENT SERVICES AND REGULATED MARKETS,

AMENDING COUNCIL DIRECTIVE 85/611/EEC AND DIRECTIVE 2000/12/EC

JOINT POSITION PAPER

ABI (Italian Bankers' Association)

ANIA (National Association of Insurance Companies)

ASSOGESTIONI (National Association of Funds and Assets Management Companies)

ASSONIME (Association of Italian Stock-Capital Companies)

ASSORETI (National Association of Financial Products and Investment services placing firms)

ASSOSIM (National Association of Financial Intermediaries)

BORSA ITALIANA (Italian Stock Exchange)

JOINT POSITION PAPER ON THE PROPOSAL FOR A COMMUNITY DIRECTIVE ON INVESTMENT SERVICES AND REGULATED MARKETS,

AMENDING COUNCIL DIRECTIVE 85/611/EEC AND DIRECTIVE 2000/12/EC

Introduction

In November the European Commission presented a proposal for an amended Investment Services Directive. The directive governs the ways in which investment firms may provide investment services and the organization and operation of regulated markets.

The present comments mainly bear on the proposed rules on the provision of trading services by investment firms and the organization and operation of systems for trading in financial instruments in both regulated markets and unregulated systems (multilateral trading facilities, MTFs).

In these areas, the Commission's approach to the revision of the ISD relies mainly on the principle of competition between trading venues, no longer limited solely to regulated markets. Under this approach, the liberalization of trading in listed financial instruments and the promotion of operational decentralization whereby intermediaries compete with marketplaces in executing orders would reduce entry barriers for the providers of trading services and in this way lower operating costs and improve the quality of services. In the final analysis, in this view competition serves as a spur to innovation and efficiency.

This approach is reasonable. We welcome those innovations, including regulatory changes, that can increase the efficiency of financial markets and result in sharper competition between different trading systems and venues. At the same time, however, it must be ensured that actions directed to that end do not jeopardize the levels of quality and investor protection attained under the present market organization and that that they do guarantee fairness to all competitors.

The generalized liberalization of trading activities, in fact, carries the risk of greater fragmentation of trading, which if regulations are lacking or inadequate will result in less efficiency for the "market system" (less liquidity, hence less representative prices) and a weakening of investor protection. Accordingly, the effort to create a more incisive competitive regime and achieve greater efficiency must not be allowed to expose investors, regulated markets and the organization of financial markets generally to certain risks that are currently managed by more and clearer division of responsibilities between markets and intermediaries. The intermingling of roles and functions, where the latter are not equally covered, can distort competition (diminishing the role of the stock exchanges and enhancing that of intermediaries, especially the large, multifunction ones), broaden the scope for possible conflicts of interest, and ultimately lower the degree of investor protection.

To deal with the risks stemming from fragmentation of trading and to create conditions of fair competition, the proposed reform provides for instruments to guarantee:

investor protection, through best execution and client order handling rules;

market integrity and the search for the best terms for customers, through pre- and post-trade transparency requirements for regulated markets, MTFs and investment firms that regularly trade listed financial instruments;

more equal operating conditions, by broader opportunities of access to the regulated markets.

In this area too we confirm our endorsement of the Commission's choices. We consider that the amendment proposed by the European Parliament rapporteur, EMP Villiers, is inopportune, as essentially it diminishes the safeguards announced earlier. We further hold that the proposed rules, though covering all the relevant areas, leave room for improvement in a series of areas, which we set forth below.

Pre-trade and post-trade transparency

Provision for sufficient transparency requirements not only for regulated markets and MTFs but also for investment firms that serve directly as counterparty or systematically match their customer orders (internalization) is essential to ensure the integrity of the market, to protect investors and to ensure fair competition among all trading system operators. Transparency facility comparison of terms and prices on different markets, thus permitting arbitrage and enhancing price discovery. At the same time it ensures that the competition between the venues (regulated markets, MTFs and internalizers) is conducted by rules that are the same for all.

On pre-trade transparency, Italian operators basically share the Commission's line. However, we would suggest amendments to simplify and clarify Article 25 and to extend the requirements jto all listed financial instruments, not just shares. At the same time, we consider that the rules proposed in Article 20.4 on limit orders not executive by an intermediary within an internalized trading system should be supplemented by a provisioni for immediate forwarding to another market where the order can be executed. Limit orders are fundamental to the operation of markets, because they are a source of liquidity and supply the information necessary to correct valuation of prices.

On post-trade transparency, our proposal is to extend the proposed rules to all financial instruments listed for trading.

Best Execution

The introduction of the best execution obligationi is essential in a trading environment characterized by a number of different trading systems and the possibility of intermediaries' acting directly as counterparty in customer trades, setting the price. These obligations alone are not enough to ensure market efficient and real protection of retail investors. What is more, the rules proposed do not offer a common definition of best execution, which complicatexs comparison and monitoring even after the trade. They also expose those assigned to enforcement to disputes.

The improvements suggested here on the one hand circumscribe the area for search for the best terms of execution, introducting as part of the contract with the customer the list of markets of which the intermediary is a member or to which it has access, and on the other they would introduce the principle that execution of an order on the market that is superior in terms of efficiency and liquidity should be the basis for defining a notion of best execution that can serve as a common standard. The proposal here is to adopt rules analogous to those already in being in some system, including Italy's, whereby best execution is deemed to have been complied with if the order is executed on a "relevant" market (the safe harbour principle). Identification of the relevant market should be delegated to the implementing rules and should take into account liquidity, the efficiency of price formation, security of outcome, and the market to which the issuer has applied for listing.

Client order handling rules for investment firms

To make sure that investment customers can make a truly informed cholice concerning terms and procedures for trading, we suggest introducing stronger investor protection rules that require express consent from the customer whenever the investment firm intends to execute an order outside regulated markets and MTFs.

Rules on financial salesmen

All in all the Commission's proposal introduces a regime for tied agents that is consistent with the organizational efficiency of intermediaries and with investor protection. We accordingly stress the need that these rules not be amended.

* * *

Italian operators wish to underscore the importance of these issues in the light of the proposed amendments to the text presented by Mme Villiers, European Parliament rapporteur for the directive proposal. Bearing on the same issues, the Villiers proposals would undo the advances in transparency made by the directive as currently worded, weakening investor protection and market integrity.

In what follows we set forth a series of amendments to the proposed directive that would make for more balanced regulations and limit the negative repercussions of the fragmentation trading in a number of different venues.

CONTENTS

BEST EXECUTION

(Art. 19)

REQUIREMENT FOR INVESTOR'S CONSENT

(Art. 20.3)

PRE-TRADE TRANSPARENCY FOR INVESTMENT FIRMS

(Arts. 20.4, 25)

POST-TRADE TRANSPARENCY FOR INVESTMENT FIRMS AND TRANSPARENCY RULES FOR MTFs

(Arts. 26, 27, 28)

TRANSPARENCY RULES FOR REGULATED MARKETS

(Arts. 41, 42)

TIED AGENTS

(Arts. 3, 21)

Article 19
Obligation to execute orders on terms most favourable to the client

1. Member States shall require that investment firms providing services which entail the execution, whether by the firm itself or another investment firm, of client orders in financial instruments ensure that those orders are executed in such a way that the client obtains the best possible result in terms of price, costs, speed and likelihood of execution, taking into account the time, size and nature of customer orders, and any specific instructions from the client.

2. The competent authority shall verify that investment firms implement effective and efficient procedures which form a systematic, repeatable and demonstrable method for facilitating execution of client orders on terms that are most favourable to the client. In assessing these procedures, regard shall be had to the extent to which the procedures enable the firm to obtain the best possible result having regard to the conditions prevailing in the marketplace to which the investment firm can reasonably be expected to have access.

3. Member States shall require investment firms to review, on a regular basis, the procedures which they employ to obtain the best possible result for their clients and, where necessary, to adapt those procedures so as to obtain access to the execution venues which, on a consistent basis, offer the most favourable terms of execution available in the marketplace.

4. In order to ensure the protection necessary for investors, the fair and orderly functioning of markets, and to ensure the uniform application of paragraphs 1, 2 and 3, the Commission shall, in accordance with the procedure referred to in Article 59(2), adopt implementing measures concerning:

(a) the factors that may be taken into account for determining best execution or the calculation of best net price prevailing in the marketplace for the size and type of order and type of client;

(b) the procedures which, taking into account the scale of operations of different investment firms, may be considered as constituting reasonable and effective methods of obtaining access to the execution venues which offer the most favourable terms of execution in the marketplace.

Member States shall require that investment firms providing services which entail the execution, whether by the firm itself or another investment firm, of client orders in financial instruments ensure that those orders are executed in such a way that the client obtains the best possible result in terms of price, costs, speed and likelihood of execution, taking into account the time, size and nature of customer orders, and any specific instructions from the client.

To this end investment firms shall provide, in their contracts with clients, the list of regulated markets or MTFs to which they belong or have access and with respect to which the best results referred to in paragraph 1 are sought, updating such list periodically.

The list of regulated markets or MTFs provided on a contractual basis to the client must include at least the relevant regulated market or MTF.

The conditions cited in the present paragraph shall in any case be considered to be satisfied when the order is executed in the relevant regulated market or MTF.

2. The competent authority shall verify that investment firms implement effective and efficient procedures which form a systematic, repeatable and demonstrable method for facilitating execution of client orders on terms that are most favourable to the client. In assessing these procedures, regard shall be had to the extent to which the procedures enable the firm to obtain the best possible result having regard to the conditions prevailing in the relevant regulated market or MTF. marketplace to which the investment firm can reasonably be expected to have access.

the factors that may be taken into account for determining best execution or the calculation of best net price prevailing in the marketplace for the size and type of order and type of client;

the factors that must be considered in determining the relevant regulated market or MTF, taking into account liquidity, effectiveness of price formation, reliability of transaction execution and the market to which the issuer has applied for listing;

the procedures which, taking into account the scale of operations of different investment firms, may be considered as constituting reasonable and effective methods of obtaining access to the execution venues which offer the most favourable terms of execution in the marketplace.

Argument

In a trading environment characterized by a number of different exchange systems and the possibility of intermediaries acting as direct counterparties in trades with customers, it is essential that best execution requirements be utterly clear and unequivocal, so as to prevent abuses and customer complaints.

We accordingly agree with the Commission's proposal, which turns on the intermediary's dynamic search for the best terms for the customer among the various trading systems that carry the security in question.

In this regard, the regulation does not provide a common definition of the concept of best execution, which hinders comparison and verification of compliance even after the trade has been executed. And it exposes those called upon to apply it to possible disputes. A considerable improvement to the Commission proposal can be achieved by introducing the "safe-harbour" principle that execution of an order on a regulated market or a relevant MTF in and of itself assures best execution.

This approach should be supplemented by the addition of a definition of the notion of relevant regulated market or MTF using objective criteria set out in the Directive, which should be specified in the CESR's implementing measures.

The proposal seeks to introduce objective standards for the choice of the trading venues among which to seek the "best price" for customers. The existence of specific oversight responsibilities, the presence of stringent rules, attention to and monitoring of potential conflicts of interest, the reliability of the price-formation process and of post-trade processes are all necessary to ensure serving investors' needs and to eliminate possible disputes.

Comparison with the Villiers amendment

We are very definitely in disagreement with the amendment to this article proposed by Villiers. This calls for introducing a principle of execution policy whereby prior communication of the order execution policy by the trader (information on the trading venues to which the trader is linked, the steps used to seek the best price, and the elements, such as price, speed of execution, transaction costs, that are taken into consideration to determine best execution) and the customer's approval of such policy satisfy the obligation to seek the best terms. We feel that this type of approach introduces an excessive degree of discretion, putting the regulation at a further remove from the definition of common standards of best execution, and fails to provide incentives for achieving greater price efficiency. This is likely to result in disparities in the treatment of investors by different securities firms.

Art. 20.3

Client order handling rules

3. Member States shall ensure that investment firms obtain the express prior consent of clients before proceeding to execute client orders outside the rules and systems operated by a regulated market or MTF. Member States shall allow the investment firm to obtain this consent either in the form of a general agreement or in respect of individual transactions. If the prior consent of clients is given in the form of a general agreement, it should be contained in a separate document and should be renewed annually.

3. Member States shall ensure that investment firms obtain the express prior consent of clients before proceeding to execute client orders outside the rules and systems operated by a regulated market or MTF. Member States shall allow the investment firm to obtain this consent either in the form of a general agreement or in respect of individual transactions. If the prior consent of clients is given in the form of a general agreement, it should be contained in a separate document and should be renewed annually.

Argument

We consider that for purposes of transparency and protection of the investor, the latter's "express prior consent" for off-exchange trading in the form of a mere "general agreement" would increase the investment firm's discretion, which combined with the "weak pre-trade transparency" regime that is proposed would make it very hard for investors to learn of any possible better deals.

The express consent of the customer every time the investment firm intends to execute a trade off-exchange and outside MTFs permits the investor to make an informed choice.

Comparison with the Villiers amendment
There is considerable disagreement on the proposed amendment that would permit the customer's consent to be generic agreement to the intermediary's execution policy. This approach, combined with the weakening of pre-trade transparency and best-execution obligations, makes trading procedures opaque to the investor, which is in outright conflict with the purposes of the proposed Directive.

Art. 20.4

Client order handling rules

4. Member States shall require that, in the case of a client limit order which cannot be immediately executed under prevailing market conditions, investment firms are, unless the client expressly instructs otherwise, to take measures to facilitate the earliest possible execution of that order by making public immediately the terms of That client limit order in a manner which is easily accessible to other market participants. Member States shall provide that the competent authorities are to be able to waive the obligation to make public a limit order that is large in scale compared with normal market size as determined under Article 41(2).

4. Member States shall require that, in the case of a client limit order which cannot be immediately executed under prevailing market conditions, investment firms are, unless the client expressly instructs otherwise, to take measures to facilitate the earliest possible execution of that order by making public immediately the terms of That client limit order in a manner which is easily accessible to other market participants. transmitting it to a multilateral trading platform (regulated market or MTF) on the basis of the principle of best execution. Member States shall provide that the competent authorities are to be able to waive the obligation to make public a limit order that is large in scale compared with normal market size as determined under Article 41(2).

Argument

We consider that pre-trade transparency should be as broad as possible, with a view to efficient price formation.

As for the second amendment proposed here, we think that not only the terms of orders but customers' orders themselves should be made public.

Recital 27 envisages the possibility of executing this kind of order on a regulated market or on an MTF, as an alternative to making the trading information public.
Comparison with the Villiers amendment

Again, Italian operators do not agree with the rapporteur's proposal, in particular that concerning the obligation to disclose to the market unexecuted orders (limit order rule). Villiers calls for the elimination of this obligation, questioning the benefits in terms of price discovery and customer interests found by the Commission's Explanatory Memorandum (III. 5), which holds that "In the case of limit orders, where the client specifies conditions that prevent the prompt execution of the order, the firm shall take steps to facilitate prompt execution - either by routing it to a %u2018regulated market' or MTF, or disclosing the limit order to the market in some other way so as to allow other market participants the opportunity to trade at the specified terms."

Art. 25
Obligation for investment firms to make public firm bid and offers

1. Member States shall require any investment firm authorised to deal on own account to make public a firm bid and offer price for transactions of a size customarily undertaken by a retail investor in respect of shares in which it is dealing, and where those shares are admitted to trading on a regulated market and for which there is a liquid market.

Member States shall require that the investment firms referred to in the first subparagraph trade with other investment firms and eligible counterparties at the advertised prices, except where justified by legitimate commercial considerations related to the final settlement of the transaction.

3. Member States shall ensure that the bid and offer prices required under paragraph 1 are made public in a manner which is easily accessible to other market participants, free of charge, on a regular and continuous basis during normal trading hours.

The competent authority shall verify that published quotes reflect prevailing market conditions for that share, and that the investment firm regularly updates the bid and offer prices that it makes public pursuant to paragraph 1.

4. In order to ensure the uniform application of paragraphs 1, 2 and 3, in a manner which supports the efficient valuation of shares and maximises the possibility of investment firms to obtain the best deal for their clients, the Commission shall, in accordance with the procedure referred to in Article 59(2), adopt implementing measures which:

(a) specify the size of transactions customarily undertaken by a retail investor in respect of which the investment firm shall make public firm bid and offer prices;

(b) define the shares or classes of share for which there is sufficient liquidity to allow application of the obligation under paragraph 1;

(c) determine which types of investment firms shall be exempted, pursuant to paragraph 2, from the obligation under paragraph 1;

(d) specify the means by which investment firms may comply with their obligations under paragraph 3, which shall include the following possibilities:

i) through the facilities of any regulated market which has admitted the instrument in question to trading;

ii) through the offices of a third party;

iii) through proprietary arrangements.

1. Member States shall require any investment firm authorised to deal on own account which, in the exercise of its ordinary, regular activity, supplies liquidity by executing clients' orders as counterparty or matching orders received from clients to make public a firm bid and offer price for transactions of a size customarily undertaken by a retail investor in respect of shares financial instruments in which it is dealing, and where those shares instruments are admitted to trading on a regulated market or MTF and for which there is a liquid market.

2. Member States shall provide that the obligation set out in paragraph 1 is waived in respect of investment firms which do not represent an important provider of liquidity for the share(s) in question on a regular or continuous basis.

3.
2. Member States shall ensure that the bid and offer prices required under paragraph 1 are made public in a manner which is easily accessible to other market participants, free of charge, on a regular and continuous basis during normal trading hours.

4. In order to ensure the uniform application of paragraphs 1 and 2 3, in a manner which supports the efficient valuation of shares and maximises the possibility of investment firms to obtain the best deal for their clients, the Commission shall, in accordance with the procedure referred to in Article 59(2), adopt implementing measures which:

(a) specify the size of transactions customarily undertaken by a retail investor in respect of which the investment firm shall make public firm bid and offer prices;

(b) define the shares or classes of share for which there is sufficient liquidity to allow application of the obligation under paragraph 1 classes of financial instrument that require special treatment because of their specific illiquidity, to allow exemption from the application of the requirement laid down in paragraph 1;

(c) determine which types of investment firms shall be exempted, pursuant to paragraph 2, from the obligation under paragraph 1;

(d) (c) specify the means by which investment firms may comply with their obligations under paragraph 3, which shall include the following possibilities:

through the facilities of any regulated market which has admitted the instrument in question to trading;

i bis) through the facilities of an MTF which has admitted the instrument in question to trading;

ii) through the offices of a third party;

iii) through proprietary arrangements
.
Argument

Italian operators consider adequate pre-trade transparency is fundamental to ensure the integrity of markets, to protect investors and to ensure fair competition among all trading system operators.

The amendments proposed here are designed to ensure clearer identification of the persons required to disclose their trading terms in transparent fashion. In this framework, the approach is a "functional" one, i.e. one that applies rules to the activity and not to the type of person engaging in it. The proposal is thus to subject to pre-trade transparency requirements not intermediaries authorized to trade on own behalf but trading systems, as variously organized. To this end we propose to extend the requirements already in effect for regulated markets and MTFs to investment firms the operatye trading systems as part of the ordinary business activity.The complexity of financial instruments other than shares is such that the individual investor is not in a position to determine whether the price applied by the intermediary is actually the correct one.

The amendment also involves the types of financial instrument subject to pre-trade transparency, which in our view should cover not only shares but all financial instruments, in that their pricing presumes knowledge of market demand and supply.
Comparison with the Villiers amendment
We do not agree with amendment 51, which with the evident intention of avoiding any transparency whatever simply abrogates Article 25.

Art. 26
Post-trade disclosure by investment firms

1. Member States shall require investment firms which, either on own account or on behalf of clients, conclude transactions in shares admitted to trading on a regulated market outside the rules and systems of a regulated market or MTF, to make public the volume and price of those transactions and the time at which they were concluded. This information shall be made public immediately, on a reasonable commercial basis, and in a manner which is easily accessible to other market participants.

2. The competent authority shall ensure that the information which is made public in accordance with paragraph 1 and the time-limits within which it is published comply with the requirements adopted pursuant to Article 42. Where the measures adopted pursuant to Article 42 provide for deferred reporting for certain categories of transaction in shares, this possibility shall apply mutatis mutandis to those transactions when undertaken outside the rules and systems of regulated markets or MTFs.

3. In order to ensure the transparent and orderly functioning of markets and the uniform application of paragraph 1, the Commission shall adopt, in accordance with the procedure referred to in Article 59(2), implementing measures which:

(a) specify the means by which investment firms may comply with their obligations under paragraph 1 including the following possibilities:

(i) through the facilities of any regulated market which has admitted the instrument in question to trading;

(ii) through the offices of a third party;

(iii) through proprietary arrangements.

(b) clarify the application of the obligation under paragraph 1 to transactions involving the use of shares for collateral, lending or other purposes where the exchange of shares is determined by factors other than the current market valuation of the share.

1. Member States shall require investment firms which, either on own account or on behalf of clients, conclude transactions in shares financial instruments admitted to trading on a regulated market or MTF outside the rules and systems of a regulated market or MTF, to make public the volume and price of those transactions and the time at which they were concluded. This information shall be made public immediately, on a reasonable commercial basis, and in a manner which is easily accessible to other market participants.

2. The competent authority shall ensure that the information which is made public in accordance with paragraph 1 and the time-limits within which it is published comply with the requirements adopted pursuant to Article 42. Where the measures adopted pursuant to Article 42 provide for deferred reporting for certain categories of transaction in shares financial instruments, this possibility shall apply mutatis mutandis to those transactions when undertaken outside the rules and systems of regulated markets or MTFs.

(a) specify the means by which investment firms may comply with their obligations under paragraph 1 including the following possibilities:

through the facilities of any regulated market which has admitted the instrument in question to trading;

i bis)
through the facilities of an MTF which has admitted the instrument in question to trading;

(ii) through the offices of a third party;

(iii) through proprietary arrangements.

Argument

See Argument under Article 28.

Art. 27
Pre-trade transparency requirements for MTFs

1. Member States shall require that investment firms operating an MTF make public current bid and offer prices which are advertised through their systems in respect of shares admitted to trading on a regulated market. Member States shall provide that this information is to be made available to the public on reasonable commercial terms and on a continuous basis during normal trading hours.

2. The competent authority shall ensure that the content, timing and publication of pretrade

reporting by MTFs comply with the same requirements as apply pursuant to Article 41 in respect of transactions in those instruments when undertaken on a regulated market. Competent authorities shall also waive the obligations referred to in paragraph 1 in respect of trading methods operated by MTFs when exemptions are provided, under Article 41, for the same trading methods when operated by regulated markets.

1. Member States shall require that investment firms operating an MTF make public current bid and offer prices which are advertised through their systems in respect of shares financial instruments admitted to trading on a regulated market or MTF. Member States shall provide that this information is to be made available to the public on reasonable commercial terms and on a continuous basis during normal trading hours.

2. The competent authority shall ensure that the content, timing and publication of pretrade

reporting by MTFs comply with the same requirements as apply pursuant to Article 41 in respect of transactions in those instruments when undertaken on a regulated market. Competent authorities shall also waive the obligations referred to in paragraph 1 in respect of trading methods operated by MTFs when exemptions are provided, under Article 41, for the same trading methods when operated by regulated markets.

Argument

See Argument under Article 28.

Art. 28
Post-trade transparency for MTFs

1. Member States shall require that investment firms operating an MTF make public the price, volume and time of the transactions executed under its rules and systems in respect of shares which are admitted to trading on a regulated market. Member States shall require that details of all such transactions be made public, on a reasonable commercial basis, as close to real-time as possible.

2. The competent authority shall ensure that the content and timing of the post-trade information, and the methods for its publication comply with the same requirements as apply pursuant to Article 42 in respect of transactions in shares undertaken on a regulated market.

1. Member States shall require that investment firms operating an MTF make public the price, volume and time of the transactions executed under its rules and systems in respect of shares financial instruments which are admitted to trading on a regulated market or MTF that they operate. Member States shall require that details of all such transactions be made public, on a reasonable commercial basis, as close to real-time as possible.

2. The competent authority shall ensure that the content and timing of the post-trade information, and the methods for its publication comply with the same requirements as apply pursuant to Article 42
in respect of transactions in shares undertaken on a regulated market.

Argument

Our view is that pre-trade and post-trade transparency must cover all financial instruments listed for trading on regulated markets or MTFs, and not just shares.
Comparison with the Villiers amendment

We do not agree with amendment 53, which would open the way to an extensive graduation of transparency among MTFs. Instead, all intermediaries, regardless of trading venue, must be subject to the same disclosure obligations.

Art. 41

Pre-trade transparency requirements for regulated markets

1. Member States shall require regulated markets to make public current bid and offer prices which are advertised through their systems for shares admitted to trading. Member States shall require this information to be made available to the public on reasonable commercial terms and on a continuous basis during normal trading hours. Member States shall also require any regulated market to make public, through the arrangements employed for making public the information required under the first subparagraph, firm bid and offer prices in shares which it has admitted to trading and which are communicated to it by investment firms pursuant to Article 25.

2. Member States shall provide that the competent authorities are to be able to waive the obligation for regulated markets to make public the information referred to in paragraph 1 in respect of transactions that are large in scale compared with normal market size for the share or type of share in question.

3. In order to ensure the uniform application of paragraphs 1 and 2, the Commission shall, in accordance with the procedure referred to in Article 59(2) adopt implementing measures as regards:

(a) the range of bid and offers or designated market-maker quotes, and the depth of trading interest at those prices, to be made public;

(b) the types of order or market-maker quote to be made public;

(d) the applicability of paragraphs 1 and 2 to trading methods operated by regulated markets which conclude transactions under their rules by reference to prices established outside the rules and systems of the regulated market or by periodic auction;

(e) appropriate arrangements for making the information public on a reasonable commercial basis.

1. Member States shall require regulated markets to make public current bid and offer prices which are advertised through their systems for shares financial instruments admitted to trading. Member States shall require this information to be made available to the public on reasonable commercial terms and on a continuous basis during normal trading hours. Member States shall also require any regulated market to make public, through the arrangements employed for making public the information required under the first subparagraph, firm bid and offer prices in shares which it has admitted to trading and which are communicated to it by investment firms pursuant to Article 25.

3. In order to ensure the uniform application of paragraphs 1 and 2, the Commission shall, in accordance with the procedure referred to in Article 59(2) adopt implementing measures as regards:

(a) the range of bid and offers or designated market-maker quotes, and the depth of trading interest at those prices, to be made public;

(b) the types of order or market-maker quote to be made public;

(e) appropriate arrangements for making the information public on a reasonable commercial basis.

Argument

See Argument under Article 42.

Art. 42

Post-trade transparency requirements for regulated markets

1. Member States shall require regulated markets to make public the price, volume and time of the transactions executed under their rules and systems in respect of shares admitted to trading. Member States shall require details of all such transactions to be made public, on a reasonable commercial basis and as close to real-time as possible. Member States shall also require any regulated market to make public, through the arrangements employed for making public the information required under the first subparagraph, details of transactions in shares which it has admitted to trading and which have been reported to it by investment firms pursuant to Article 26.

2. Member States shall provide that the competent authority may authorise regulated markets to provide for deferred publication of the details of transactions that are large in scale compared with the normal market size for that share or that class of shares. The competent authority must give prior approval to proposed arrangements for deferred trade-publication, and ensure that these arrangements are clearly disclosed to market participants and the investing public.

3. In order to provide for the efficient and orderly functioning of financial markets, and to ensure the uniform application of paragraphs 1 and 2, the Commission shall, in accordance with the procedure referred to in Article 59(2) adopt implementing measures in respect of:

(a) the scope and content of the information to be made available to the public;

(b) the conditions under which a regulated market may provide for deferred publication of trades and the sizes of transaction or types of share for which deferred publication is allowed;

1. Member States shall require regulated markets to make public the price, volume and time of the transactions executed under their rules and systems in respect of shares financial instruments admitted to trading. Member States shall require details of all such transactions to be made public, on a reasonable commercial basis and as close to real-time as possible. Member States shall also require any regulated market to make public, through the arrangements employed for making public the information required under the first subparagraph, details of transactions in shares financial instruments which it has admitted to trading and which have been reported to it by investment firms pursuant to Article 26.

2. Member States shall provide that the competent authority may authorise regulated markets to provide for deferred publication of the details of transactions that are large in scale compared with the normal market size for that share financial instruments or that class of shares financial instruments. The competent authority must give prior approval to proposed arrangements for deferred trade-publication, and ensure that these arrangements are clearly disclosed to market participants and the investing public.

(a) the scope and content of the information to be made available to the public;

(b) the conditions under which a regulated market may provide for deferred publication of trades and the sizes of transaction or types of share financial instrument for which deferred publication is allowed;

(c) appropriate arrangements for making the information public on a reasonable commercial basis.
Argument

Our view is that pre-trade and post-trade transparency must cover all financial instruments listed for trading on regulated markets or MTFs, and not just shares.

Art. 3

Definitions

Tied agent means a natural or legal person who, without being considered as an investment firm for the purposes of this Directive, promotes the investment and ancillary services of an investment firm to clients or prospective clients, collects and transmits instructions or orders from the client in respect of investment services or financial instruments to that investment firm, and provides advice to clients or prospective clients in respect of the financial instruments or services offered by the investment firm under the full and unconditional responsibility of the investment firm on whose behalf it acts;

The text of the Commission proposal must not be altered
Argument

See Argument under Article 21.

Art. 21

Obligations of investment firms when employing tied agents

1. Member States shall require an investment firm to employ tied agents only for the purposes of promoting the services of the investment firm, soliciting business or collecting orders from clients or potential clients and transmitting these to that investment firm, and providing advice in respect of financial instruments or services offered by that investment firm.

2. Member States shall require an investment firm employing a tied agent to remain fully and unconditionally responsible for any action or omission on the part of the tied agent when acting on behalf of the firm. Member States shall require the investment firm to ensure that a tied agent discloses immediately to any client or potential client the capacity in which he agent is acting and the firm which he is representing.

3. Member States shall ensure that investment firms monitor the activities of their tied agents and adopt measures and procedures so as to ensure that they operate, on a continuous basis, in compliance with this Directive.

4. Each Member State shall ensure that tied agents which act or wish to act on its territory are entered in a public register which is established and maintained under the responsibility of the competent authority. The competent authority shall ensure that tied agents are only admitted to the public register if it has been established that they are of sufficiently good repute and that they possess appropriate general, commercial and professional knowledge so as to be able to communicate accurately all relevant information regarding the proposed service to the client or potential client. The register shall be updated on a regular basis. It shall be publicly available for consultation.

5. Member States shall ensure that investment firms employ only tied agents entered in the public registers referred to in paragraph 4.

6. Member States may allow the competent authority to delegate the establishment and maintenance of the public register pursuant to paragraph 4 and the tasks of monitoring compliance of tied agents with the requirements of paragraph 4 to a body meeting the conditions laid down in Article 45(2).

The text of the Commission proposal must not be altered.

Argument

In the face of possible changes that would upset the balance by softening the tied agent's obligation to act on account of only a single investment firm (see, in this regard, not only initiatives undertaken by the representatives of some Member States within the Council but also the recent French bill on financial security), our position is that the provisions of Articles 3 and 21 of the proposal must be retained as they now stand.

All these provisions are interrelated. Taken together, they strengthen the interest and the trust of individual investors in investment firms that employ tied agents. Italy's experience with financial salesmen, the statute on whom precisely fits the notion of tied agent, provides confirmation. In Italy, the success of the marketing channel consisting of networks of financial salesmen has advanced in parallel with the steady reduction in the rate of their illicit actions and the growing trust of investors in their regard.

In particular, the obligation to work for only one investment firm is an indispensable safeguard for savers, in that in enables tied agents to be brought within the sphere of the organization and control of the investment firm and is the condition for making that firm jointly and severally liable for damages caused by any improper action committed by the tied agent.

Joint and several liability of the investment firm is warranted insofar as the firm has the power to oversee the entire activity of the tied agent in the investment service sector. If an agent works on behalf of more than one firm, however, there would be a greater risk of customer confusion concerning which of the various principals the agent is representing at any given moment. Also, there would be a perceptible weakening of the controls that each principal could exercise on the activities of the tied agent, as well as a drastic lowering of the agents' level of professional training and updating, which for the most part is now seen to and/or financed by the principal (the investment firm) for its own tied agents. As a result, there would be frequent conflicts among the firms in exercising controls and in assigning liability for illicit actions by agents. Further, the basis of correct competition between investment firms could be distorted, given that a tied agent could be induced to promote the products and/or services of the firm giving him larger commissions, to the detriment of investors.

Nor is it legitimate to cite Directive 2002/92/EC of 9 December 2002, governing insurance intermediaries (independent or connected), since the proposed Investment Services Directive under discussion here expressly denies that the tied agent can be considered an intermediary (Article 3.22). Moreover, while Directive 2002/92/EC does provide that the connected insurance intermediary can conduct "insurance intermediation activity on behalf of and on the account of one or more insurance companies" it specifies that this is allowable only "if the insurance products are not in competition" with one another. This principle, transposed to the investment services business, is tantamount in practice to the single mandate for tied agents.