UK watchdog to begin major review of wholesale financial markets

Reuters

By Huw Jones

LONDON, Nov 19 (Reuters) - Britain's financial regulatorwill start a root and branch review early next year of whetherwholesale markets used by banks, fund managers and exchanges arecompetitive.

"This will be a wide-ranging piece of work and, as part ofit, we will be inviting market participants to tell us wherethey currently encounter issues," David Lawton, director ofmarkets at the Financial Conduct Authority, said on Tuesday.

The FCA was launched in April with a mission to protectconsumers better after a string of mis-selling scandals leftthem out of pocket.

Lawton outlined how the new watchdog will also change theway it supervises wholesale markets after the scandal over therigging of Libor benchmark interest rates by banks.

The FCA will use new competition powers to make changes inthe way these markets operate. Wholesale financial markets coverstock exchanges as well as bond and derivative trading by banks,brokers and asset managers.

"We believe this work will be an important step forward inusing the competition objective to bring about better outcomesfor consumers and market integrity in the wholesale markets,"Lawton told an FCA conference on markets.

One issue the FCA expects to crop up in the review is theprice exchanges charge for their data on share trading.

Big asset managers have complained at having to pay aplethora of exchanges for their data to obtain a pan-Europeansnapshot of the market and check if they are getting the bestoffer prices.

Another issue is co-location or where exchanges offer apremium service to participants who are allowed to place theircomputer servers next to the exchange to get the fastest tradingspeeds possible.

Some investors view this as a two-tier market that createsunfair advantages.

Over the next five years, the watchdog expects to be usingits competition powers in the wholesale market as actively as itwill be in the retail market, an FCA official said.

The FCA can generate structural changes in the market toincrease competition by issuing new rules and guidance, curbingwhat firms can do and take enforcement action.

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