Directive 2014/65/EU and Regulation (EU) No 600/2014 MiFID II/MiFIR Compliance Day Sabine Schönangerer DG FISMA, Securities Markets Unit 6 October 2015 02/10/2015
Overview When? Timetable Why MiFid II/MiFIR? What? Key content Level 1 (MiFID II/MiFIR); Level 2 (Commission delegated acts, RTS, ITS) 02/10/2015
Updated rules for markets in financial instruments COM, EP, Council MiFID II/MiFIR (2011-2014) = Level 1 Entry into force on 2 July 2014 and entry into application on 3 January 2017 Around 90 empowerments for DA, RTS, ITS = Level 2 ESMA ESMA technical advice Dec 2014 ESMA draft RTS (Sept 2015)/ITS (January 2016) COM EP, Council Delegated acts RTS, ITS 3
The MIFID review: main objectives Close loopholes and achieve more efficient markets by shifting trade on to multilateral and transparent platforms in line with G20 consensus Improve oversight and transparency of commodity derivative markets to ensure their function for hedging and price discovery Ensure fair competition and efficient markets Updates required in light of developments in market structures and technology Raise investor protection in specific areas to support confidence Increase supervisory convergence across the single market and harmonise third country regime; Improve capital markets to the benefit of the real economy 4
Key achievements Scope: Transparency Algorithmic trading/hft Commodities Market Structure: OTF Trading obligation for derivatives SME Growth Markets Investor protection: Quality Enhancement Inducements Safeguarding of Client assets 02/10/2015
1: Key achievements 1. 1. Scope: Algorithmic trading/hft A comprehensive and solid framework of trading controls to ensure that trading systems can meet the challenges of technological development. High frequency trading must not be allowed if it undermines the stability of the systems; much emphasis on the individual responsibility of the traders themselves introducing market making obligations. 6
1. 2. Market Structure Key achievements OTF: The introduction of a new multilateral trading venue, the Organised Trading Facility (OTF), for nonequity instruments to trade on an organised multilateral trading platform ensures a level playing field with RMs and MTFs. Trading Obligation: A trading obligation for derivatives that are eligible for clearing under EMIR and that are sufficiently liquid is introduced (G20). Trading obligation for shares and obligation for multilateral systems on equities to be authorised as MTFs. SME Growth Market 7
Key achievements 1. 3. Scope: Commodities (G20) Exemptions: have been reduced (same activity, same requirements). Position limits: Strengthened supervisory powers and a harmonised position-limits regime for commodity derivatives to improve transparency, support orderly pricing and prevent market abuse. Competent authorities will impose limits on persons positions in accordance with a methodology for calculation set by the European Securities and Markets Authority (ESMA). Position-reporting obligation by category of trader. Regulators and market participants will have better information on the functioning of these markets. 8
Main Commodity issues in level 2 measures: Increasing the scope of commodity derivatives covered by MIFIDand reducing exemptions Increasing the scope of commodity traders covered by authorisation requirements; and Position Limit and reporting regime to enhance transparency and to combat market abuse 02/10/2015
Key achievements 1. 4. Transparency improve quality of data Equity markets: A double volume cap mechanism limits the use of reference price waivers and negotiated price waivers (4% per venue cap and 8% across Union cap). Large in scale waivers and order management waivers continue to exist. Non-equity markets: Pre-trade transparency waivers, if requested by a platform, are available for large orders, request for quote and voice trading. Post trade transparency is provided for all financial instruments with the possibility of deferred publication or volume masking as appropriate. 10
Transparency issues at L2 - Waivers and deferrals - Double volume cap - Systematic internalisers 02/10/2015
1. 5. Investor protection Key achievements Enhanced organisational requirements, such as strengthened role of management bodies, client asset protection and product governance. Strengthened conduct rules such as an extended scope for the appropriateness tests and reinforced information to clients. Independent advice is clearly distinguished from non-independent advice and limitations are imposed on the receipt of commissions (inducements). The new framework also covers structured deposits and amends the Insurance Mediation Directive to introduce some rules for insurance-based investment products. 12
Key achievements 1. 6. Non-discriminatory access Establishment of a harmonised EU regime for nondiscriminatory access to trading venues, CCPs and benchmarks used for trading and clearing. This regime should allow for enhanced competition and more effective and stable capital markets for the benefit of investors. 13
Key achievements 1. 7. Emission Trading Allowances are classified as financial instruments. 1. 8. Sanctions and supervisory powers Effective and harmonised administrative sanctions. Strengthened cooperation between authorities. Intervention powers for competent authorities and ESMA to prohibit or restrict the marketing and distribution of certain financial instruments in welldefined circumstances. 14
Key achievements 1. 9. Third country regime Establishment of a harmonised EU-wide regime for granting access to EU markets for firms based in third countries when they provide services to professional clients and eligible counterparties, based on an equivalence assessment of third country jurisdictions by the Commission. For a transitional period of three years and then pending equivalence decisions by the Commission, national third-country regimes continue to apply. 15
Key topics at L2 Investor protection (inducements, investment research, cost disclosure, etc); SI regime (definition, thresholds, access to quotes); SME growth markets (real network of SME growth markets); Pre- and post-trade transparency (calibration of liquidity classes, calibration of waivers and deferrals); Reasonable commercial basis for publishing market data (RCB), target to reduce the cost for market data in the EU; Commodity derivatives (delineation between wholesale energy contracts and financial instruments); Position limits (for NCAs based on ESMA methodology). 16
Thank you for your attention (*) DG FISMA / Unit C3 securities markets FISMA-C3@ec.europa.eu (*) This presentation may not, under any circumstances, be interpreted as stating an official position of the European Commission 17