LONDON, Aug 29 (Reuters) - The European Union has moved to close a loophole that could have allowed banks to hook up with each other to skirt tougher transparency rules for share trading from January.
The bloc's executive European Commission has published an amendment to its "MiFID II" law that comes into force in just six months' time.
The law toughens up transparency requirements by pushing more trading onto regulated public platforms.
The Commission said an amendment would stop banks that execute a client's share order in-house - known as systematic internalizing or SI - from teaming up with each other and "high frequency traders" to act as a virtual trading platform, a service that would require a separate license.
Brussels was worried that traders would take advantage of "ambiguity" in the MiFID II law.
"A clear goal of MiFID II is indeed to ensure that multilateral trading takes place on regulated trading venues, subject to pre- and post-trade transparency requirements," the Commission said in an emailed statement on Tuesday.
The amendment also make sure that banks cannot gain an advantage by making own account trading appear as "riskless," meaning capital is not put at risk.
"This ensures that SIs will assume market risk when they deal on own account and hence cannot replicate the functioning of multilateral trading venues by matching trades between themselves," a Commission official said.
"The Commission will continue to monitor market developments closely to address any risk of circumvention of MiFID 2 rules."
The EU executive it was unable to make changes to the "tick size" or price increments of shares traded in-house at banks, saying the tick regime was written for exchanges and not for in-house trading.
The changes will need rubber stamping by the European Parliament and EU states before coming into effect in about three months' time. (Reporting by Huw Jones; Editing by Mark Potter)