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New Seduction from Brussels for Stock Market Investors

7 August 2007 - Features - Editor

Every stock market investor has nightmares about executives and entrepreneurs pouring precious capital down a drain, or running away with it! That is why any new initiative to protect the interests of stock market investors is welcomed with large dollops of fresh capital influxes. One of the most important characteristics of any stock market is now what it does to protect small investors. The MIFID or Markets in Financial Instruments Directive is a path-setting initiative by the European Union.

The MIFIDM has advantages for sponsors of securities as well. Unique regulatory conditions in each stock market have plagued Europe until now, making companies incur wasteful expenses in conforming to a multitude of rules. Everyone stands to gain if all EU members agree to a uniform set of stock market conditions for listing, though it has to be said that MIFID has a distinct bias in favor of the little guy. Most new and genuine stock market players will consider this to be a welcome move.

A key aspect of MIFID is to force financial firms to understand the needs and risk taking capacities of new and prospective stock market investors. This is not dissimilar to existing practices in some EU member countries, though others do not bother with such safeguards. Some people feel that MIFID may drive retail investors away from the stock market to the safe havens of fixed deposits, but this may be better than the potential ruin of individuals who cannot withstand losses.

MIFID also seeks to promote transparency. Investors have always worried about advisors being biased in their recommendations by prospects of inducements from various quarters. The new EU legislation will limit the potentials for such distortions, and help people consider stock market options with greater confidence. EU Exchanges should be net gainers as a result.

Opinion may be divided on some aspects of how MIFID may impact European stock market behavior, but it is certain that all entities offering financial services in this part of the world will have to revamp their operating procedures quite drastically. The ones which are able to restructure their processes to serve retail investors diligently are sure to benefit.

 


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