Market Abuse Directive

By THIS IS MONEY
Updated:

 

We consider the regulation at the heart of Bank of England governor Mervyn King's defence.

What is it?

Some would say you only have to spell out the initials to know what it is - MAD.

Seriously.

It's regulation handed down by the European Union in 2005 to stamp out insider trading. At a very basic level, it forces stock market quoted firms to be totally transparent with their investors.

Does it work?

Like all one-size-fits-all solutions implemented by the EU, it's had a number of unintended consequences that make life more difficult.

Like what?

Bank of England governor Mervyn King has complained bitterly that the directive stymied any notion of a covert bail-out of hapless Northern Rock. So if you accept his logic, the whole run on the Rock was down to Brussels.

Is that fair?

You can have some sympathy with his point of view. In the Seventies the Bank was able to move silently into the market to shore up the finances of a number of smaller lenders. In each case, financial crisis was averted with the saving public blissfully unaware of the impending doom.

So King's off the hook?

No. The EU has rubbished the governor's claims and said the directive should not have prevented a behind-the-scenes rescue of the Rock. Perhaps the Bank needs to check its facts more closely.

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