The Association says it strongly supports measures aimed at furthering a true, single financial services market in the EU, but cannot support the organised market or trade reporting proposals currently contained in the Commission's directive because they will "increase costs, distort competition and inhibit the development of electronic trading".

In a recent comment letter, the association writes: "The Commission should propose only a targeted, limited set of revisions to the ISD in order to achieve the key changes required to liberalise European Union (EU) markets."

These revisions, suggests the association, include removing the ability of host states to impose rules and requirements on cross-border business; eliminating the concentration rule; adopting the principle that member states should differentiate in their rules between the protection required for retail investors and for professional investors; and including within the ISD a definition of professional investor, recognising the validity of a "light touch regime" for dealings between professional investors.

The industry body is also concerned with the organised market and trade-reporting provisions in the ISD proposal which it believes would be "a radical departure from the principles of the existing ISD and could have serious unforeseen consequences for the fixed income markets."

It upholds the Commission's worry that the growth of electronic trading systems and crossing networks may lead to market fragmentation and adversely impact the centralised price formation function provided by regulated markets for instruments whose trading is largely concentrated on such markets. However, the Association urges this should not be a concern relating to fixed income trading because they are overwhelmingly a professional, over-the-counter market, conducted by phone and increasingly electronically.

"The development of electronic trading systems for fixed income securities has been a positive market evolution and is naturally leading to pools of liquidity and price transparency within these pools," the Association says.

It warns that forging a "bright line" distinction between organised markets and requiring them to report OTC transactions to a regulated market could have the effect of forcing multilateral electronic systems to become regulated markets or cease operating in the EU. A regulated approach will merely lead to higher cost burdens and act as a disincentive to the development of electronic trading systems.