UPDATE 1-EU executive to tighten market abuse rules

Mon Apr 20, 2009 1:08pm BST

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* European Commission says rules need tightening

* Catching abusers has proved difficult since law introduced

* Document sees possibility of widening scope of rules

(Adds more details)

By Huw Jones

BRUSSELS, April 20 (Reuters) - European Union rules designed to stamp out market abuses by share dealers need tightening to help improve investor confidence, the bloc's executive body said on Monday.

The rules, introduced in mid-2005, were aimed at preventing market manipulation and insider dealing.

But catching abusers has proved difficult, even though they would be considered civil cases under the EU law, mostly requiring a lower burden of proof than for criminal charges.

EU Internal Market Commissioner Charlie McCreevy launched a public consultation on the market abuse directive (MAD).

McCreevy believes the following elements of the directive need to be reviewed:

-- the scope of the rules may need widening as more instruments are traded off traditional stock exchanges and new trading platforms have sprung up in the past two years;

-- should the rules be extended to cover certain types of derivatives, credit default swaps, contracts for differences, climatic derivatives, emission allowance derivatives;

-- should there be a new, tailor-made market abuse framework for physical markets such as gas and electricity;

-- deficiencies in the current provision that allow companies to defer disclosure of inside information;

-- should the rights of regulators be strengthened to force dealers to hand over telephone and data traffic records;

-- whether a pan-EU legal framework on short-selling is needed and whether it should be included in an amended market abuse directive.

The review will also look at how aspects of the directive can be simplified to cut red tape such as easing the current obligation to draw up lists of insiders who hold sensitive information.

Changes to the rules would be likely to require draft legislative amendments to be adopted by EU states and the European Parliament.

(Reporting by Huw Jones; Editing by Sharon Lindores)

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