EUROPE - A number of elements within the MiFID II and MiFIR Directives, including rules on organised trading facilities (OTFs) and pre- and post-trade transparency, could lead speculative operators to take "undue" advantage of investments by pension funds, according to the European Federation for Retirement Provision (EFRP).

In a position paper on the review of the MiFID Directive and the directive on over-the-counter (OTC) derivatives, central counterparties and trade repositories (MiFIR), the EFRP said it welcomed and supported the general purpose of the directives, but asked Brussels to bring a number of amendments to the current texts.

The EFRP argued that the current proposals on OTFs, systemic internalisers, pre- and post-trade transparency, algorithmic/high frequency trading and mandatory trading of derivatives on trading platforms places could have a negative effect on pension funds, since the proposals apply in the same way to all financial market participants.

The European association insisted that pension funds, as long-term institutional investors, handled "block orders" and should therefore benefit from some flexibility.

"We would like to see the MiFID II and MiFIR proposals take this into account," it said. "A degree of flexibility in the execution of large and illiquid orders is necessary to ensure appropriate risk management and minimisation of costs, from which pension fund members will benefit."

The association also insisted that pre-trade transparency requirements should take into account that transactions are traded on a "quote-driven market" with specific trading systems.

"If bids and offers are made transparent, such information would be used by market participants to front-run the large (or illiquid) orders of pension funds and other long-term institutional investors," it said.

"We ask for pension funds and asset management companies acting on their behalf not to be required to disclose their pre-trade data to the public, in order to avoid such a situation."

In addition, the EFRP asked for OTC derivatives position data to be disclosed to the public on an aggregated, anonymous basis and with an "appropriate" delay period.

The association argued that immediate disclosure of the data respecting pension funds' positions to other market participants would have "severe adverse effects" on their ability to trade and hedge liabilities.

"High-frequency traders and other speculative operators could take undue advantage of investments by long-term investors such as pension funds if the current proposals are adopted," the EFRP said.

"This commercial advantage would not be counterbalanced by any benefit for the trading activity of pension funds, and hence for their members.

"Therefore, it would only represent an unjustified cost for pension funds, affecting the returns on investments and, ultimately, the contributions paid to workplace pension beneficiaries."

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