The revised directive allows banks across the EU to internalise order flow and offer share dealing services direct to investors, bypassing stock exchanges entirely. However, in a move that has angered the banking lobby and industry participants in the UK and Germany where such practices are already allowed, the Commission has simultaneously amended the rules on transparency, forcing banks to disclose prices of inhouse trades before execution.

The Commission claims the changes will limit the prospects of market fragmentation and protect the rights of private investors. EU Insiders say the changes were brought at the last minute as a result of lobbying by Italian and French regulators.

In a response, the European Banking Federation (FBE) has expressed its "utmost concern" at the proposals, which it describes as "unacceptable".

"Inclusion of pre-trade transparency requirements will kill off the in-house trading activity before it can get off the ground in those countries where it is currently not permitted," says the EBF. "It will also create an undue burden in countries where it is currently permitted, thus erasing all potential benefits to European investors and extending the monopoly of the exchanges."

The EBF says the last minute changes to the proposed Directive "totally undermine" the conclusions of an eighteen month consultation process.

The London Stock Exchange has also hit out at the proposals, which it describes as a "backward step" for financial markets across the EU.

Commenting on the new text, Don Cruickshank, chairman of the London Stock Exchange, says: "What is now on the table is an impractical and anti-competitive solution that risks driving business away from the EU. If there are concerns from other European markets about the effects of competition, they would be better addressed by the introduction of proper conduct of business regimes in those particular member states."