MEPs vote to outlaw Execution only trading.


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This has appeared here before but I can't find it. Today MEPs voted to outlaw execution only trading. Investors will be required to seek advice before every transaction is the way that financial journalists have interpreted it! The article below was written a couple od days ago and the motion has now been passed as I understand it.

Execution-only deals under threat

Execution-only share dealing could be under threat from a new directive due to go before the European Parliament on Tuesday.
The cheap and cheerful execution-only service means customers don't pay for advice but can buy or sell for as little as £10.

Available over the phone or online, it has opened up the stock market to many people who might otherwise have balked at the high cost of transactions.

But the Investment Services Directive would require stockbrokers to run suitablility checks on all investments by clients, to assess their knowledge and experience.

Forced to pay

This would apply even to those who don't want advice, just an execution service.

Critics say this could increase the cost of a trade to £100.

People would be forced to pay for advice they did not want and many would find themselves priced out of investing in shares.

The directive goes before the European Parliament's economic and monetary committee on Tuesday, then the full Parliament at the end of September and finally the Council of Ministers.

If the measure is voted through, many execution-only brokers might close down.

ProShare, which represents small investors, says two-thirds of trades using market brokers are currently execution-only.

It says the system offers a valuable and efficient way for small investors to trade.

Fully responsible

"There is little evidence from the UK experience of execution-only dealing that investors using these services do not understand that they are fully responsible for their own decisions," ProShare told the European Parliament in its submission.

"Other than account-opening checks, we do not see the need for a suitability test."

MEP Theresa Villiers is one of those leading opposition to the plan.

"This is just nanny state-ism," she argues.

We don't want to cut out the choice that already exists for investors.

Diane Hay, Proshare
"There is no reason why investors shouldn't, if they want to, be able to make their own decision.

"There are a lot of very well informed, very expert people out there who are quite happy to take their own decisions and if they do that the cost of buying and selling sharses could be as much as 20 times cheaper than when they go to a broker and get advice."

Diane Hay, chief executive of ProShare, hopes there will be an exemption on the relevant clause.

"There will be changes as a result of this," she says. "We're not going to see things carry on exactly as before.


"But what we don't want to see are suitability tests every time any investor wants to trade shares.

"There are good things here but we don't want to cut out the choice that already exists for investors and is so important to the UK market."

The UK investment industry has been lobbying against the proposal, joined by countries such as Germany, which has a strong execution-only sector.

"We think this is too much legislation which isn't going to act in the client's interest because it's going to put up charges enormously," says Hilary Cook of Barclays Private Clients.

However, some European goverments are thought to be keen to impose suitability checks on would-be investors.
Does anyone know how this will impact companies such as IB ? I would have thought that it will just require more form filling in saying that you understand what you are doing.

One thing is for certain and that is it will kill daytrading in the UK if it prevents direct access trading in my view. One option is to register an address in the US which is something I have been looking at ever since this lunatic Nanny state we live in started this pathetic "No-one is accountable for their actions" mentality that we now seem to be faced with.

I have to say that I have grown to hate the EU and everything is stands for.

This action seems to suggest that using a Broker for advice is a good thing. What a joke. Most of the ones I know through friends don't even use TA.
This all smacks of 'jobs for the boys' to me.
..and what will it do to liquidity ?

If they pass this law, then they should pass another which only allows Brokers with a successful track record to give advice.
And while they're at it, they can have a crack at all the Fund and Pension managers and newspaper pundits who managed to lose huge amounts for their clients.

I have sent a very acidic email to my MEP and I have also asked IB how it will impact their subscribers. I will post the answers when I get them.

I bet most MEPs have never bought a share in their lives - either exec only or thru a stockbroker. They don't need to. With huge salaries, expense claims and very generous final salary pensions (which politicians have destroyed for the rest of us) this smacks of "I'm alright jack - pull the ladder up".

And these "experts" are presumably the same experts who marketed technology funds in the spring of 2000, and who urged us to sell our old economy banking and tobacco shares to embrace the new economy. As there aren't enough experts around to manage the funds that are currently available, where on earth are they to come from? Step forward spotty youth - yesterday you couldn't even spell stockbroker and now you are one!
Is anybody else seeing 4 large ftse charts on this thread??

Also having problems logging on.
Pray tell, where did you see the confirmation that they had passed the law ?
Following on from RogerM's comment's, I wouldn't be at all surprised if some of the drivers of the bill had taken a caning in the last year or two and are now exacting their revenge on those deemed responsible.

Just my tuppence.


I'm both impressed and amazed that you know who your MEP is? Does anyone else here know who their MEP is? I know that I don't!

FWIW, Londoners can lobby their MEP here and I've got to say I'm surprised that Londoners have a Conservative MEP.

What a strange world we live in. :LOL:


You just click on his link to the economic and monetary committee,then meetings (2/9/03) and agenda.There's only 1 meeting scheduled for today.I tried to reach the economic and monetary committee direct but 'the site has been redesigned' and jonathans way seemed easier. You're right though,it doesn't tell you much.
Trading the US direct access is my living.
If these muppets get their way then I shall simply have to buy a place in the US
Agreed the Euro MPs and EU are all muppets.

It looks to me that they will be pushing every trader to Futures, CFDs and Spreadbets thus reducing liquidity in the share market.

That's just what the economy needs.

I think the Tories might well have a referendum in their manifesto to leave the EU with a bit of luck.

Glen - I've not seen it in writing, but it was featured on BBC2's "working lunch" today. Presumably the practicalities of how it is to be ratified have yet to be decided so nothing changes immediately. Difficult to see how it would apply to an account held in the US in US$.
"Presumably the practicalities of how it is to be ratified have yet to be decided"

From the BBC notes:-
"The directive goes before the European Parliament's economic and monetary committee on Tuesday, then the full Parliament at the end of September and finally the Council of Ministers."

its probably a load of nonsense in any real sense.
It can only be enforced againstbusinesses registered in europe !
so a number of firms will simply move offshore.

but in any event , its unlikely to get any further without amendment.
There was an active lobby on the go on advfn some months ago, writing to mep's etc. They seem supportive of the complaints.
here is an example
Chas, if you are out there, I hope you dont mind me copying your post.

chaspebble - 14 Jul'03 - 15:09 - 92 of 109

Received from Theresa Villiers, MEP, regarding the risk to execution-only stock trading:

I would like to update you on developments in the campaign to save "execution only" broking and "direct offer" share services.

As the European Parliament's primary draftsman (or rapporteur) for the Investment Services directive (ISD), I tabled amendments some months ago to take execution-only and direct offer business out of Article 18, hence removing the the obligation to carry out a suitability test for these "non-advice" services. My key amendments are numbers 28 and 29 in my draft report on the Investment Services directive. These amendments met with a positive reception.

In order to obtain a clear majority for a sensible approach on Article 18, I have recently tabled compromise amendments. These remove the obligation to carry out a suitability test from services which do not involve advice (ie execution only and direct offer) in the same way that my original amendments did. The only change is to add in a requirement that the client agreement or promotional literature for such services state that no advice is being provided. This change reflects a concern expressed by various MEPs to ensure that clients are made aware that they are not receiving advice. These are compromises A14 and A15 to Article 18.4 and 18.5.

I have consulted experts and groups campaigning to save execution only and they are able to support the compromise amendments. I believe that, if passed, these amendments will save execution only and direct offer broking and allow current market practices to continue without disruption. Existing regulation already requires firms to give clients an explanation of the type of service which they are receiving, so no additional red tape should be required under an ISD which is amended in accordance with the compromise I have proposed.

I am optimistic that it will be possible to build a substantial majority for these amendments, from MEPs across the political spectrum, including the centre right grouping to which Conservative MEPs are allied and the various other political coalitions in the European Parliament. A vote on the amendments will take place in Strasbourg on 2nd September in the European Parliament's Economic and Monetary Affairs Committee. This will be followed by a vote in the full plenary session of the European Parliament in Strasbourg during the week starting 22nd September.

I continue to work closely with different interest groups across Europe, concerned to protect the right of investors to use execution only business, as well as with the FSA and the Treasury representatives negotiating on this issue in the Council of Ministers.

I am also in constant touch with MEPs from various countries and political groups on this issue. I have subjected my colleagues in the European Parliament to a gruelling succession of meetings, emails, memos, phone-calls etc all geared at reaching an agreement which will result in an acceptable and workable Investment Services directive which does not disrupt execution only business. I have also been campaigning on this issue through the pages of the national newspapers, particularly those like the Financial Times that are read extensively in Europe by the MEPs that we want to influence.

I will continue to keep you updated on this issue and to work hard to preserve your right to take your own decisions on your investments.

Best regards

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Hi all

I believe it comes down to this.
If Germany don't want it and we don't want it, then it won't go through.

No person with an ounce of intelligence would agree to something that would cause all ready weakened stock markets to fall. Could you imagine if the Dax fell much further - Germany would be in a similar state to Japan (as we've discussed on another thread).

Why would it cause stock markets to fall?
If you've got an account with an execution only broker, and they turn around to you and say the cost of dealing is going to sky rocket, they will very soon sell their shares. Selling shares = falls in markets, and you end up with a situation of the institutions buying off other institutions.

As I said earlier "No person with an ounce of intelligence would agree to something that would cause all ready weakened stock markets to fall. This is where the problems start, MEP's are a bunch of useless, spineless people and therefore I would trust them to use any intelligence they might have accidentally gained. :mad:

Just as a side thought, how much knowledge do you need to have. You ring up a broker (could you imagine that ringing a BROKER!!!!) and asking to buy Vodafone. They then ask you to explain your decision. You say Well the 21 period RSI is rising stronger than the MACD of the same value.........., this implies you know what your talking about and I'm sure the broker wouldn't know what you mean let alone check it out to see if it's true!!!

The landlord from Time Gentlemen Please, had it right when he says

BACK OFF BRUSSELS!!! :devilish: