Britain's tax system will be modernised to remove obstacles to competition and expand choice in trading financial instruments, the Treasury said on Tuesday.

The Treasury said in a statement it would also change the definition of a recognised stock exchange for tax purposes to allow shares traded on other regulated markets under the EU Markets in Financial Instruments Directive (MiFID) to benefit from tax arrangements that currently apply only to the London Stock Exchange.

"Taken together, these changes will help expand choice and increase competition in the provision of services to trade financial instruments in the UK," economic secretary to the Treasury Ed Balls said. The European Union's Markets in Financial Instruments Directive is aimed at helping create a single market in financial services in Europe. For example, MiFiD will allow banks to become their own execution venue, competing with exchanges in trading shares, a first for most EU countries.

Technology is key to the implementation of the regulation, because firms have to prove 'best execution' taking into account issues such as price, venue, cost and speed. Investment firms also have to keep records for five years.