Europe takes big step towards tighter financial market rules

STRASBOURG, France - Europe took a key step towards tighter regulation of financial markets late Tuesday when the European Parliament and negotiators for the 28 member states agreed a deal in principle after two years of talks.

The new rules for markets in financial instruments, known as MiFID II, aim to close loopholes in existing legislation to curb speculative trading in commodities and regulate high-frequency trading so as better to protect investors and make markets safer.

Rampant speculation in derivatives on the financial markets, especially in US home loan debt, was blamed as a central cause of the financial crisis of 2008 and made the eurozone debt crisis even worse.

"I welcome the agreement in principle reached today by the European Parliament and the Council on updated rules for markets in financial instruments," said the EU's Financial Markets Commissioner Michel Barnier.

"These new rules will improve the way capital markets function to the benefit of the real economy," he said in a statement.

"They are a key step towards establishing a safer, more open and more responsible financial system and restoring investor confidence in the wake of the financial crisis."

The new rules will apply to investment firms, market operators and services providing post-trade transparency information in the European Union, a parliament statement said.

They will notably force market players to buy and sell financial instruments on regulated markets comparable to stock exchanges to ensure all trade is tracked by MiFID.

To help limit speculation in food and energy, authorities for the first time will be able to limit the size of a net position that a person can hold in commodity derivatives.

"Today's decision marks a good start in tackling 'gambling' on food prices which are a matter of life and death to millions," Oxfam said.

Also for the first time at EU level, the deal sets rules on what is known as high-frequency trading based on automatic algorithmic systems, forcing investment firms to stop trading if price volatility becomes too high.