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This article first appeared in the Paris newspaper La Tribune on February 9, 2010, and is translated and adapted here with permission of the authors. Paul Lagneau-Ymonet is a member of the Research Group Institution Building Across Borders at the MPIfG.

To date, the organization of securities markets has not yet benefited from the feigned attempts of reform presented by authorities since the outbreak of the current crisis. However, speculative opportunities like the risks incurred also depend on the markets on which one operates. It is for this reason that the coming revision of the European Markets in Financial Instruments Directive (MiFID), which came into effect on November 1st, 2007, is such a considerable challenge.

This Directive reflected an incredible faith in the coordinating virtues of the market – the central idea being that competition between exchanges and other trading venues would reduce transaction costs, increase trading volume and, as a result, lower the cost of capital for issuers. The MiFID notably abolished the ‘concentration rule’, which, in a number of countries (i.a. France), imposed intermediaries to carry out most of their transactions on a single regulated market, so as to concentrate the liquidity and to establish, for each security, a “fair price” known to all. Eventually, the directive has made possible the emergence of various opaque trading venues that challenge more transparent regulated markets.

Reports from the Committee of European Securities Regulators (CESR) and from the French Association of Financial Markets (AMAFI) reveal the extent of the disillusionment. The lower fees that resulted from unleashed competition have only benefited to a few internationally operating banks, namely about ten institutions that are responsible for three-quarters of the financial transactions in Europe. But the end clients – private individuals, in particular – do not fare as well. Read the rest of this entry »