Internal Market Commissioner Frits Bolkestein says: "We need to update the Union's securities markets legislation to reflect profound changes in securities trading infrastructure, exchanges, clearing, and settlement systems since the Investment Services Directive came into force five years ago. Under the influence of the euro and new technologies the pace of change can only accelerate."

The consultation, which runs until March 31 2001, focuses on two specific areas: the 'single passport' for investment firms; and the development of an appropriate regulatory framework for the trading infrastructure. Bolkestein has called for contributions from all interested parties, including the European Parliament, national authorities, market players and regulators.

According to the single passport principle, a provider authorised in one EU Member State is free to provide that service anywhere else in the Union but can still be subject to conduct of business rules in the host Member State. The Commission believes that revision of the ISD should create the legal environment in which the 'passport' can become effective immediately for inter-professional business and be progressively extended to cover provision of services to retail investors.

The Commssion also notes that many of the changes in European securities markets are occurring at the technical level of exchange organisation, as well as trading, clearing and settlement systems. At present, EU securities legislation provides for "regulated markets" to serve investment firms in other Member States but does not properly provide for safeguards in relation to disclosure, transparency, integrity and stability.

"This potentially distorts competition and co-operation between exchanges and trading systems," states the Commission.

The Commssion wants to know whether it would be useful to apply common principles to trading systems - including new electronic trading arrangements - and if so, what these principles should be. Brussels is also seeking to stimulate collective debate on the need for common regulatory and supervisory responses to consolidation of clearing and settlement functions.