EUROPE – The new investment services directive was passed at its first reading by the Economic and Monetary Affairs Committee of the European Parliament yesterday.

The new directive aims to increase competition and improve investor protection.

Following the advice of the rapporteur, UK MEP Theresa Villiers, the committee supported the basic line of the European Commission's proposal.

But it introduced several amendments “to limit red tape, distinguish between retail and professional investors and prevent the new rules increasing the cost of share dealing”. All compromise amendments were adopted.

The directive aims to modernise current ISD legislation dating from 1993 which established a "single passport" for investment firms operating in Europe.

The new proposal ends the so-called "concentration rule" which allows national authorities to require that retail share orders be executed via the national stock exchange. In its place are “common norms” for the execution of orders in the financial markets.

According to the Parliament’s news service, the new legislation “introduces more competition in the industry, promotes investor choice and strengthens investor protection”.

“It should improve price efficiency, reduce trading costs and expand investment funds available, thus boosting economic growth.”

Transparency requirements feature in the directive – but the committee has taken account of concerns that the new rules could have a negative impact on liquidity and could discriminate against investment firms. It has clarified the transparency rules through comprise amendments limiting the scope of these requirements.

The European Parliament will vote at first reading on this report at its plenary session on September 24.