1. Welcome to Euro Shorts, a short briefing on some of the week’s developments in the
financial services industry in Europe.
If you would like to discuss any of the points we raise below, please contact me or one of
our other lawyers.
Claire Cummings
020 7585 1406
claire.cummings@cummingslaw.com
www.cummingslaw.com
UK base rate rise may be sooner than expected
The Bank of England has signalled that UK interest rates may rise this year. In a
keynote speech, Dr Carney said a rate rise "could happen sooner than markets
currently expect"; the consensus was that rates would rise in the first half of next
year, or even earlier. Dr Carney emphasised that there was "no pre-set course" on
when to raise rates, as there was more spare capacity in the economy that would
need to be used up first, and that the timing of the first rise was less important
than the speed at which subsequent increases were made. Dr Carney said that the
BoE expected eventual increases in the Bank rate to be gradual and limited.
Currency rigging to be made illegal
The chancellor has rejected EU plans to outlaw currency market manipulation
but has said that the UK will make rigging exchange rates a criminal offence. Mr
Osborne set out the proposals in his Mansion House speech, stressing the
importance of integrity in Britain’s financial markets to the economy as a whole.
More than 40 currency dealers around the world have now been fired or
suspended following claims that traders used client order information improperly
to attempt to manipulate prices, although no-one has been prosecuted under

2. England’s existing laws.
New UK housing market powers
The chancellor’s speech also confirmed plans to give the BoE new powers to
prevent the housing market from overheating. Measures include capping the size
of mortgage loans compared to income or the value of the house. The new
powers are to be given to the Bank's Financial Policy Committee by the end of
this Parliament. The chancellor considers that the UK housing market does not
pose an immediate threat to financial stability, but that if left unchecked, it may
do so in the future. He said that the risks come from homeowners borrowing too
much to pay for their property, which was a problem not only for the borrowers,
but also for the banks lending the money.
Fair and effective markets review proposed
HM Treasury has issued a press release announcing a joint review by HM
Treasury, the BoE and the FCA into the way wholesale financial markets
operate. The fair and effective markets review is intended to reinforce confidence
in the fairness and effectiveness of UK wholesale financial market activity and
influence the national debate on trading practices. It will focus on those
wholesale markets where the bulk of concerns over misconduct have arisen:
fixed income, currency and commodity markets, although it could apply across a
wider range of wholesale markets. The review will run for 12 months, with a
final report to be issued in June 2015.
UK rules on market abuse proposed
The press release accompanying the announcement of the joint review above
states that the government will take action domestically on, among other things,
expanding the UK rules on market abuse. By virtue of its power to do so under
the Lisbon Treaty, the UK has decided not to opt into the EU Commission's
Directive on criminal sanctions for insider dealing and market manipulation
(CSMAD). The press release notes that UK rules will be at least as strong as the
EU rules, but will preserve flexibility to reflect specific circumstances in the
UK's financial sector.

3. Trade bodies unite for MiFID II response
Fourteen trade bodies, including the IMA, ISDA, BVCA and AFME have united
to provide feedback on MiFID II, as concerns mount over the 1 August
timeframe given for industry responses by ESMA. The new formation, called the
Joint Trade Association Group, has been described as an ‘informal committee’ of
lobby groups and will co-ordinate responses to the hundreds of questions posed
by the ESMA consultation. By splitting the work, the Group aims to build
consensus in certain areas, avoid unnecessary duplication and simplify ESMA’s
task. The Group has twelve ‘workstreams’, which range from algorithmic and
high-frequency trading to open access, transaction reporting and market data.
ESMA attempts to define high-frequency trading
ESMA has proposed defining high-frequency trading (HFT) in its MiFID II
consultation paper, sparking a number of reactions in the market. In defining
HFT, the European regulator presents two options. In the first, ESMA would
consider techniques where there is an "infrastructure intended to minimise
network and other types of latencies" in place under specific circumstances, such
as algorithms are processed on servers co-located to a venue's matching engine,
the main advantage of this option being that the identification of parameters is
straightforward. The alternative option would ask venues to periodically analyse
the median daily lifetime of cancelled or modified orders and compare it to the
median average for the entire market. If it falls below the median, it would be
HFT. The resulting definition will apply across the EU.
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
13 June 2014