Stricter European Union rules for corporate bond markets will be phased in gradually to ensure they don’t threaten funding for the economy, a senior EU official said on Tuesday in the latest sign of a more accommodative stance towards the financial sector.
The bloc is reforming its securities markets to plug supervisory gaps highlighted by the 2007-09 financial crisis.
The MiFID II reform takes effect in January 2018 but banks and asset managers have criticised one element that will force them to publicise bid and offer prices for corporate bonds ahead of a trade to increase transparency and competition.
Market participants say it will put people off trading instruments companies use to raise funds.
After a rethink, the bloc’s European Securities and Markets Authority (ESMA) proposed introducing the transparency requirements in four stages over several years.
On Tuesday, an official from the bloc’s executive European Commission said the phase-in would be softened further because corporate bonds were essential for financing the European economy.
“We have to be extremely careful to preserve a functioning market in this respect,” Tilman Lueder told the European Parliament’s economic affairs committee.
Instead of the automatic phase-in of each stage as set out by ESMA, Lueder said assessments will have to show that no damage was being done to bonds before moving on to the next stage through formal legislation, a process that can take more time.
Kay Swinburne, a British centre-right member of the parliament, welcomed the Commission’s rejection of “automaticity”.
But ESMA Chairman Steven Maijoor told the lawmakers that its approach would have given maximum legal clarity and certainty.
It would have ensured that trading bonds over the telephone would not profit for a substantial competitive advantage over electronic platforms for a long and possibly indefinite period of time, Maijoor added.
The European Commission is looking to the bond market to raise more funds for the economy and reduce the continent’s heavy reliance on bank funding.
MiFID II will also introduce for the first time limits on how big a position an individual trader can hold in a commodity such as grains, oil or copper to curb what some lawmakers say is speculation pushing up prices for consumers.
Some lawmakers said adjustments made by regulators and the European Commission to the position limits will end up giving more leeway for speculators.
Lueder said substantial work was still needed on determining which commodity traders should be exempt from higher capital charges because it was only an “ancillary” part of their business.