Managers to combat European regulations

The European Federation for Retirement Provision (EFRP) has warned plans to force institutions to declare derivative trades on a listed exchange, as they would stocks, could distort markets by allowing short-term traders to cash in on deals.

These plans form part of the European Commission’s (EC) Markets in Financial Instruments Directive (MiFID).

The response follows PW’s revelation the sum cost of a raft of proposals from the EC could be as much as 45% of existing LDI trades – approximately £315bn.

The EFRP document states: “We are strongly supportive of increasing transparency in the markets, but would therefore warn against the commercial interests which may lie behind the application of this valuable principle in the current proposals.

“For example, high-frequency traders and other speculative operators could take undue advantage of investments by long-term investors, such as pension funds, if the current proposals are adopted.”

Andrew Giles, co-chief investment officer at Insight, said UK institutional investors have been lobbying to mitigate against this by removing the need for details of very large trades to be reported.

“At the moment, large trades would most likely have to be reported too quickly,” he added.

In a presentation to clients, seen by PW, Royal Bank of Scotland warns MiFID’s “attempt at applying an equity dealing environment to over-the-counter derivatives [will have] serious ramifications for the banking industry and its clients”, such as pension funds.