Since the 1960s, the EU has tried to forge a legal regime for investment services. These efforts have been marred by controversy, with views diverging on the appropriate level of competition in the field of securities trading. In November 2002, the Commission presented its proposal for a revised Investment Services Directive (ISD), the latest part of these efforts.
The purpose of this paper is not to make a paragraph-by-paragraph analysis of the 2002 ISD Proposal, probably the most important part of the Financial Services Action Plan (FSAP). Instead, it focuses on the ISD’s attempts to create a regulatory framework adapted to more a contestable trading sector. The report’s main centre of attention is therefore the new transparency regime, in particular the much-debated issue of whether to extend pre-trade requirements to investment firms and concentrates essentially on issues related to cash-equity markets.
The aim is to put this at first sight technical debate in perspective by providing a historical overview of Community investment services legislation, explaining how securities markets work, outlining the conflicting forces shaping market structures, providing an overview of changes to market structure during the last decades, explaining the instruments at regulators’ disposal for dealing with dynamic markets, evaluating the regulatory concerns that the market changes give rise to and assessing the appropriateness and feasibility of the Commission’s proposed regulatory framework.