In a public consultation paper it also proposed making clear that EU investors could trade UK shares in London in a move to reduce the likelihood of Britain retaliating.

The EU's MiFID II securities rules introduced in 2018 sought to push more share trading onto transparent exchanges to better protect investors, away from dark pools where users have some degree of anonymity.

The European Securities and Markets Authority (ESMA) said on Tuesday that MiFID II has only been partially successful, with tweaks needed to tackle some significant remaining challenges.

ESMA proposed limiting waivers from having to flag the prices at which users intend to trade at on dark pools. Conditions for granting waivers could also be made tougher.

The watchdog is also proposing increased transparency requirements for "systemic internalisers", a reference to share trading inside banks between clients.

RETALIATION LESS LIKELY

In a step that could make it easier for EU investors to continue using UK trading platforms, ESMA said it was proposing to clarify where EU investors can trade non-EU shares.

Currently EU investors can be obliged to trade foreign shares on platforms in the EU where available, even if there is little volume.

Britain left the EU last week but has a business-as-usual transition deal until the end of December, after which UK platforms will need permission from the bloc to directly serve EU investors.

Permission is now being assessed under the EU's "equivalence" system that determines if UK securities rules are as robust as those in the bloc.

UK platforms like Turquoise, Aquis and Cboe Europe have opened units in Amsterdam and Paris to trade EU shares in case London gets cut off from the bloc.

ESMA said it makes sense to restrict the ability of EU investment firms to trade EU listed shares on "third country" or non-EU platforms that are not "equivalent".

"However, with respect to non-EU shares, it appears less appropriate to limit by default the access to third country venues", ESMA added.

ESMA and Britain's Financial Conduct Authority clashed over where shares could be traded under a no-deal Brexit, prompting ESMA to rein back a requirement for UK shares to be traded inside the bloc and not in London.

The FCA held back from retaliating and ESMA's proposed clarification could help smooth relations.

ESMA said its proposed clarification would make it "less likely that third countries will impose a trading obligation to EU shares".

By Huw Jones