In a critical statement, the FESE says the Commission's definition of liquid shares "could have a detrimental effect on the transparency of initial public offerings (IPOs) as well as on the survival of smaller exchanges".

FESE says the definition of a 'liquid share' is crucial as it determines whether firms trading against their own books are required to comply with minimum transparency requirements by publishing firm quotes.

While internalisers are demanding a high threshold, Massimo Capuano, president, FESE, is not convinced by their arguments. He says: "By subtracting a substantial part from transparency requirements you are effectively making markets less transparent for the investor and issuer community."

FESE is also worried about a proposed new rule on IPOs. The latest Commission proposals would require any share that comes new to the market shall be exempted from liquid share status for six months, regardless of the size of the IPO.

"This is unthinkable," argues Judith Hardt, secretary general of FESE. "Think of giant share issues such as Deutsche Telekom or Vodafone that immediately jumped to the top of turnover tables. To claim it cannot be predicted that some IPOs will bring highly liquid shares is a farce."

FESE says market activity after an IPO should be be estimated on the basis of previous offers of comparable size, as had been suggested by the Committee of European Securities Regulators (CESR).

"It is in the first days and weeks after the IPO that transparency in trading is most important for new shares. Investors know this, regulators know this – and we do," says Hardt.

Earlier this month The European Banking Federation (FBE) slammed the new MiFID directive for being "too complex, cumbersome and restrictive". In particular FBE criticised proposals to force banks to maintain a record of their quoted prices, saying the move would "significantly add to the overall cost of operating a systematic internalisation system".

Last month Sir Callum McCarthy, chairman and acting chief executive of the UK's Financial Services Authority (FSA), said the proposals would "impose significant costs on the UK market" and that it was "deeply unsatisfactory" that MifiD had not undergone a full cost-benefit analysis.

Analysts estimate that capital markets firms will be forced to spend up to EUR1 billion on technology to achieve compliance with the new rules, which are scheduled for introduction at the end of April 2007.