Home Press room Press releases Investment banking and financial markets in Europe: A satisfactory compromise on the ISD and harmonisation must be continued  

Press release  


Investment banking and financial markets in Europe: A satisfactory compromise on the ISD and harmonisation must be continued

After four years of negotiations, the European Union has finalised the new investment services directive (ISD), now called Directive on markets in financial instruments. This text sets the legislative framework for European financial markets, defining not only the rules governing the interaction of financial intermediaries and markets, but also the level of protection for investors and the conditions whereby companies can raise funds through the financial markets.

1. A satisfactory compromise based on the principle of transparency

The FBF (French Banking Federation) has been strongly committed to the application of the principles of transparency and equal access to all order execution systems, whether regulated or not. The compromise reached by the Council of European Union and the European Parliament appears to be satisfactory in this respect:

  • transparency obligations have been defined for all internalisers (1). Below a standard market size, internalisers are obliged to quote a pre-trade bid/ask spread. This standard market size is the arithmetical average of the amount in euros of orders executed for a given stock on the European market;

  • limit orders which are not executed immediately by an internaliser must be transmitted to the regulated markets or to the multilateral trading facilities (MTFs) as they contribute to price formation;

  • price improvement by internalisers is authorised under conditions that ensure transparency is maintained. Price improvement means that an internaliser who has quoted a price may offer certain clients a better price, on a discretionary basis;

Under the terms of the directive, price improvement may not be offered to retail investors and can only be offered to professional investors for orders which are bigger than the size customarily undertaken by a retail investor. However, in this case, the internaliser is obliged to make public the range of this price improvement prior to the transaction. This provision, which is designed to guarantee maximum transparency for investors, is in line with the FBF's wishes.

Above the standard market size, the internaliser is not bound by any rules governing price disclosure but is still required to publish transactions (price and volume) which have been executed, as soon as possible.

2. Ensuring a coherent implementation of the new ISD

The European Union must now define, in conjunction with industry professionals and through the comitology procedure, the implementing measures through which this directive is to be applied. This means clarifying certain points in the text which remain general, such as best execution, or are not sufficiently precise, such as the definition of the bid/ask spread which must be quoted by the internalisers. This is a particularly crucial phase as it will establish precise and harmonised rules across Europe in order to prevent competitive distortions.

The transposition of the directive in the EU member states is scheduled for 2006.

3. Continuing harmonisation

It is important that efforts continue to ensure a high level of harmonisation in investment banking and financial markets in Europe. This was the main argument behind the FBF's contribution (2) to the European Commission on March 16, 2003. The French banks think it is also crucial that a directive on post-trade activities be defined, as this is the necessary next step going forward.

(1) Approved intermediaries who, on an organised, frequent and systematic basis, execute equity orders from their clients in-house (these intermediaries generally hold cash and securities accounts for these clients), by acting as a counterparty, that is by taking the transaction on their own trading position.

(2) European banking and financial services 2005-2010, Principles and Proposals


Colette Cova
email : ccova@fbf.fr
Tel : 01 48 00 50 07

Kenza Benqeddi
email : kbenqeddi@fbf.fr
Tel : 01 48 00 50 08

Top of the page