Trading rules may be changed to bypass exchanges

Rules forcing investors to buy and sell shares via stock exchanges in Europe are to be scrapped as part of an attempt to shake up EU financial markets.

On the day Germany's Deutsche Borse announced it was closing the Neuer Markt, its market for fast-growing companies, it emerged that the European Commission is to permit investors to trade shares directly with other shareholders and banks, bypassing stock exchanges.

It is part of the Commission's effort to create a single financial market and could trigger the biggest change in a decade for Europe's securities markets.

Large exchanges, such as the London Stock Exchange, are likely to be beneficiaries, with Europe's smallest exchanges losing out even further. Large investment banks are also likely to gain from the change.

In a small number of EU countries, including Britain and Germany, banks are already allowed to trade in-house, and some carry out up to 15 per cent of their dealings outside stock exchanges. In France, Italy and Spain all major trades have to go through a stock exchange.

Opponents of the proposal warned the rules would lead to a fragmentation of the market and make it difficult for investors to find the best price for their shares. There are likely to be stock exchange closures.

An advanced draft of the new rules says many of the national regulations currently hampering cross-border trading are to be ended.

The rules would regulate investment banks and stock exchanges with a lighter touch, allowing them to operate across the EU once they are approved by their national authority.

The Commission's proposals have to be approved by EU governments and the European Parliament, and could be implemented as early as 2004.

Meanwhile, the meltdown of the new economy claimed a new victim yesterday when the Deutsche Borse said it was closing the Neuer Markt, the ailing five-year-old technology market.

The Neuer Markt, the market for high-growth and technology companies, and the SMAX, the small caps index, will be discontinued by the end of 2003 at the latest, the bourse said.

The Neuer Markt, home to a host of technology victims, has collapsed from a high of 9,665.8 on March 10th, 2000, to yesterday's mid-morning trading level of 365.76, a fall of 96.2 per cent.

- (Financial Times Service)