LONDON European Union states struck a deal on Thursday to overhaul the bloc's stock, bond, derivatives and commodities markets, an EU official said, ending a near two-year deadlock.
Ambassadors from the 27 member states meeting in Brussels agreed to update rules known as MiFID to catch up with trading technology and plug supervisory gaps highlighted by the financial crisis four years ago.
"There is in substance an agreement to be confirmed by ambassadors on Monday," an EU official close to the talks said on condition of anonymity.
Progress on the draft law that was proposed in October 2011, had been deadlocked as demands from Britain, Germany and France split members states into opposing camps.
"It's been done. The deal is sensible," an EU member state diplomat added.
The updated MiFID rules will create organized trading facilities or OTFs, a new breed of trading platforms for derivatives which are currently traded privately among banks.
It follows a pledge made by G20 leaders in 2009 at the height of the crisis to make the $630 trillion market for credit default swaps, interest rate swaps and other off-exchange traded derivatives more transparent.
The United States has finalized rules for its own version of OTFs to rival existing exchanges.
"OTFs will give new players and market participants an additional incentive to use this less regulated environment," said Judith Hardt, secretary general of the Federation of European Securities Exchanges (FESE).
The rules seek to crack down on what critics see as speculation pushing up food and energy prices.
There would be mandatory limits on positions in copper, coffee, oil and other commodity markets to stop undue influence on prices.
Member states also want to introduce an EU-wide cap on dark pool, or anonymous trading, for the first time along with other restrictions on less-transparent trading.
"This looks like having a pretty fundamental impact on brokers' workflow and that they will bear the brunt of the consequences, intended or otherwise," said Steve Grob of Fidessa, a trading infrastructure supplier.
Member states agreed to allow competition in clearing derivatives. Though Germany, fearing it will be negative for Deutsche Boerse (DB1Gn.DE), secured a review by regulators first to check the "open access" won't increase risks in markets.
The bloc's finance ministers are set to rubber-stamp the deal when they meet in Luxembourg on June 21.
Afterwards, EU states will sit down with the European Parliament to thrash out a final text for a law that will take effect from 2014 at the earliest. There are already several points of contention with further tweaks likely.
(Reporting by Huw Jones, editing by Clare Hutchison)