By Huw Jones
LONDON, July 16 (Reuters) - Share trading costs in the European Union fell by up to 80 percent between 2006 and 2008, evidence that new market rules are boosting competition, a study for the EU's executive body said on Thursday.
During the period pan-EU rules called the Markets in Financial Instruments Directive or MiFID were introduced to tear down barriers to cross-border share trading competition.
Exchanges like Deutsche Boerse and the London Stock Exchange now face competition from newcomers like Chi-X, Turquoise and BATS.
Bourses have slashed their tariffs in a bid to fend off the newcomers which collectively have garnered about a fifth of blue chip trading in Europe.
EU Internal Market Commissioner, Charlie McCreevy, said the study confirmed MiFID was having a positive effect on competition, along with a code of conduct which the Commission made the clearing and settlement industry sign to drive down prices.
The study conducted by Oxera showed that volume is the single most important determinant of price.
Clearing costs have also dropped significantly since 2006 but settlement costs are mixed, rising in some centres and falling in others. The European Central Bank is building a single regional settlement system to slash costs.
Oxera will conduct a follow-up study in 2010, the year the Commission will review MiFID and it is already being lobbied heavily by new entrants and bourses to make changes amid disputes over market share figures and transparency.
"I encourage market participants to continue supporting our efforts to improve transparency and carry out sound policies based on facts," McCreevy said in a statement.
The aim of MiFID is to make it easier and cheaper to trade securities across borders to reinforce a single capital market and increase investor choice.
Cross-border trading remains twice as costly as trading within national borders in top financial centres like Britain, Germany, France and Italy, Oxera said.
Robert Barnes, managing director of equities at UBS bank, commended the Commission's efforts to using such studies as part of evidence-based policymaking.
"To become an effective tool, further reports need to reflect also post-trade costs as a proportion of the respective value-traded -- as this is what impacts investors," Barnes said.
Oxera said its next study would assess more precisely the extent to big and small investors benefit from the reduced price of using trading infrastructures. (Editing by Greg Mahlich)