Cesr calls for ETF transparency

ETFs and other equity-like instruments would be subject to the same transparency rules as shares, under proposed changes to European financial market regulations revealed last week.

The Committee of European Securities Regulators (Cesr) listed its recommendations for changes to the Markets in Financial Instruments Directive (Mifid), which came into force in 2007, including an expansion of existing transparency requirements to include ETFs, certificates and depository receipts, all of which it says are economically equivalent to shares.

It says equity trade data should be consolidated into a single European tape. This recommendation, whereby all ETF and equity trades would be reported, has long been promoted by certain members of the ETF industry.

As the majority of ETF trading in Europe is currently not reported, with a lot of business done over-the-counter, the requirement for ETF trade reporting would help reveal the level of liquidity in the European market (ETFM: Oct 6, 2009).

The committee also recommends all pre- and post-trade information should be published with a delay of no more than 15 minutes.

Repeating earlier concerns about the destabilising effects of high-frequency trading, it says: "Cesr will also work further on high-frequency trading to better understand any risks it might pose to the orderly functioning of markets."

Non-equity markets should also improve transparency: covered bonds and sovereign bonds ought to be covered by post-trade transparency rules, and the rules should also be phased in to cover sovereign credit default swaps as well as structured products such as asset-backed securities and collateralised debt obligations.

Differing pre-trade transparency rules were giving some national markets an unfair advantage, and they should be brought into line, the Committee adds.

Three more sets of recommendations - on client categorisation, exchange-traded derivatives and transaction reporting - are due later this year.