London (Platts)--29Oct2012/829 am EDT/1229 GMT

The European Parliament's vote on the EU's proposed Market in Financial Instruments Directive and Market in Financial Instruments Regulation could restrict choice for investors and push more commodities trade toward exchanges, financial trading association the International Swaps and Derivatives Association warned Monday.

EU lawmakers voted on Friday to back the EU legislation intended to curb speculation in commodity derivatives trading, including the use of position limits, but with several amendments.

ISDA said many of these changes were welcome but expressed concern over some.

"For example, the Parliament is proposing limitations on when derivatives can be executed on an 'Organized Trading Facility,' effectively pushing transactions towards other, more exchange-like categories of venue, and thereby reducing the diversity of available platforms in a manner contrary to the desire to promote systemic resilience," ISDA said in a response to the vote.

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OTFs are any trading venues that bring together buyers and sellers in the over-the-counter market, as opposed to multilateral trading venues like exchanges. Multilateral venues are already covered by current EU financial trading regulations, but OTFs are being included for the first time in the new rules.

ISDA also warned that parliament's insistence that organized trading facilities should not be allowed to use proprietary capital -- their own stock and other on-balance sheet assets -- would limit their abilities to offer products the market wants.

"ISDA believes that maintaining an appropriate degree of investor choice over how and where trades are executed -- and allowing dealers to serve their customers by making markets -- is vital to ensuring safe and efficient OTC derivatives markets," it said.

But ISDA welcomed some of parliament's other changes, notably a recognition that some large-scale "block trades" are less likely to be liquid, so trading venues would not necessarily have to provide the same pre-trade price data for these as for more liquid contracts.

"We believe that these changes are vital for OTC derivatives, which are not mass-produced for secondary-market turnover, which can be customized, and which typically trade infrequently," ISDA said.

The parliament's vote on Friday gave its lead negotiator, Markus Ferber, a mandate to negotiate with national governments and the European Commission on a final text. Both parliament and national governments need to agree on a final text before the measures become law.

--Paul Whitehead, paul_whitehead@platts.com
--Edited by Jonathan Dart, jonathan_dart@platts.com

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