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Small investors get better protection through revised EU law on financial markets

Date

15 Jan 2024

Sections

Euro & Finance

The revised EU legislation on markets in financial instruments will significantly improve protection of small investors, underline the Socialists and Democrats while welcoming the new rules that are set to be endorsed by the European Parliament on Tuesday.

Eero Heinäluoma, S&D negotiator on the revision of the EU legislation on markets in financial instruments, said:

“We welcome the revision of the EU legislation on markets in financial instruments aimed at increasing transparency and fairness of European financial markets. We expect EU member states to apply the new rules consistently when they enter into effect.

“The S&Ds strongly support the new rules, in particular the introduction of a general ban on ‘payment for order flow’ – a practice where brokers direct consumers’ investments to certain trading venues for a fee.

“As the EU capital market supervisor, ESMA, warned already several years ago, this practice can represent a significant conflict of interest. It can encourage directing consumers' stock trades to trading venues that offer the highest compensation for brokers, instead of the best option for their clients.

“Moreover, various studies show that brokers who accept payment for order flow consistently generate worst execution outcomes for their clients. For these reasons, payment for order flow is already banned in several member states and it is high time that we agreed on a general ban.

“The ban will significantly improve the protection of small investors in the EU. It will ensure that in the future, brokers direct their clients to trading venues that offer the best trading conditions, instead of those offering the highest payment.”

Note to editors:

The revision refers to the directive and regulation on markets in financial instruments, also known by their acronyms MiFID and MiFIR, which are a part of the European law on capital markets.

The European Commission presented its proposal in November 2021, introducing several changes to Europe’s current capital market rules, including the establishment of a European database giving all investors access to real-time trading data for stocks, bonds, derivatives, and other instruments across the EU. 

In addition, the Commission also proposed a general ban of ‘payment for order flow’. To reach a compromise with EU member states, the Parliament accepted that the exemptions from the rules are still possible until 30 June 2026, although the S&Ds would have preferred an immediate full ban.

 

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