EU finance ministers struck a deal Friday to establish a new, more powerful European securities watchdog as part of efforts to unify financial markets and strengthen the bloc's economy.
The agreement announced in Luxembourg gives enhanced powers to the Paris-based European Securities and Markets Authority (ESMA), which will supervise major players.
Currently the agency has only a coordinating role among national market regulators.
But the Frankfurt stock exchange operator, Deutsche Boerse, will be excluded from the body's supervisory scope after Germany sought a carve-out.
German Finance Minister Lars Klingbeil welcomed the "very important and significant step" for investment and jobs in Europe, and said he appreciated that "everyone made compromises".
"This is a great day, we have a deal," said his French counterpart Roland Lescure. "This is a compromise, and a compromise by definition means everybody loses a little bit but we all win together."
The watchdog will become operational only after negotiations between the EU Parliament and member states on a final text underpinning its work.
The EU hopes it will be finalised by the end of the year.
The agreement is a step towards the creation of a unified capital market to help Europe better compete against the United States and Asian powerhouses.
Some countries including Ireland and Luxembourg criticised the plans unveiled last year by the European Commission because they feared losing influence over a sector with a prominent role in their economies.
Ireland, which currently holds the rotating EU presidency, has led efforts in recent months on a compromise text that the ministers agreed on.
The beefed-up regulator will supervise stock exchange platforms, clearing houses, and some players in the cryptocurrency sector.
ESMA will have greater decision-making powers and its relationship with national market regulators will be made clearer, which means it should also be able to act more effectively in the event of a financial crisis.
The reform is part of the EU's bid to create a Savings and Investments Union (SIU), which combines the Capital Markets Union and the Banking Union.
The hope is that unifying national financial markets will make investments flow more seamlessly across the EU, and the SIU will help tap into trillions of euros in citizens' savings in Europe that sit idle in bank accounts.
"It is a major step forward for a deepened savings and investments union, with significant added value for the EU's longer-term competitiveness," Irish Finance Minister Simon Harris said in a statement.
The exclusion of Deutsche Boerse has raised questions over whether it weakens the reform and maintains fragmentation.
But Berlin said that unlike Euronext -- which operates several stock exchanges including Paris and Milan -- the operator does not have a large cross-border dimension to justify putting it under ESMA's direct supervision.
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