MiFID II: the next step Fiona Richardson and Mark Spiers November 2015
What we are covering today 2
FCA Discussion Paper 26/3/15 FCA Market Issues Consultation Paper Due 12/15 FCA Conduct Consultation Paper Due 3/15 National Transposition Due 3/7/16 Legislation Level 1 entry into force 2/7/14 Level 2 Advice to EC 19/12/14 RTS to EC 28/09/15 Level 2 Adopted by EC Expected 14/12/15 ITS to EC Due by 3/1/16 Level 2 in OJ Expected 3/15 Where are we now? you are here 2014 2015 2016 MiFID II 3/1/17 3
FCA Authorisation No longer exempt? OTF? Data Provider? MIFID II Jan 2016 Authorisation process set out Q1 2016 Forms available on FCA website Apr 2016 Pre application meetings Apr 2016 Gateway for draft applications open 3 Jul 2016 Deadline for applications 4
Recap on the levels of MiFID Level 1 Framework Legislation Recast MiFID MiFIR MiFID II Level 2 Implementing Measures Delegated and Implementing Acts Level 2.5 Technical Standards Implementing Technical Standards and Regulatory Technical Standards you are here Level 3 Regulatory convergence ESMA issue non-binding guidance on the meaning of the Levels 1 and 2 National regulators comply or explain Level 4 Enforcement of Directive Enforcement action by EC for failure to implement or inconsistent implementation 5
Technical Standards Technical Standard Topic Subject Technical Standard Topic Subject RTS 1 RTS 2 RTS 3 RTS 4 Transparency Equity Transparency Non- Equity Transparency Volume cap mechanism Derivative trading obligation RTS 17 RTS 18 ITS 19 Trading Venues Admission of financial instruments to trading on regulated markets Suspension and removal of financial instruments from trading Content and format of the description of MTFs and OTFs RTS 5 RTS 6 RTS 7 RTS 8 RTS 9 RTS 10 Microstructural Derivatives that have a direct, substantial and foreseeable effect in the EU Algorithmic trading, providing direct electronic access and acting as general clearing members Requirements on RMs, MTFs and OTFs enabling or allowing algorithmic trading through their systems Market making agreements and market making schemes Ratio of unexecuted orders to transactions Requirements to ensure co-location and fee structures are fair and non-discriminatory RTS 20 RTS 21 RTS 22 RTS 23 RTS 24 RTS 25 Commodity Derivatives Market Data Reporting Criteria for establishing when an activity is to be considered to be ancillary to the main business Methodology for the calculation and the application of position limits for commodity derivatives traded on trading venues and economically equivalent OTC contracts Transaction reporting obligations Financial instruments reference data Maintenance of relevant data relating to orders in financial instruments Clock synchronization RTS 11 RTS 12 RTS 13 RTS 14 RTS 15 Data Publication and Access Tick size regime Determination of a material market in terms of liquidity relating to trading halt notifications Authorisation, organisational requirements and the publication of transactions for data reporting services providers Data disaggregation Access in respect of central counterparties and trading venues RTS 26 RTS 27 RTS 28 Post Trading Issues Best Execution Obligation to clear derivatives traded on regulated markets and timing of acceptance for clearing Quarterly report by Trading Venues, SIs, MMs and other liquidity providers Annual report by investment firms to clients (buy-side) RTS 16 Access in respect of benchmarks 6
Remember the hopper? Eligible Counterparties Suitability Best Execution Information to Clients Client Agreements Client Assets Advice Inducements Reporting Transaction Reporting Algo and HF Trading Appropriateness Product Intervention Fair, Clear and not Misleading Remuneration Product Governance Telephone Recording Underwriting and Placing Compliance Record Keeping Conflicts Complaints Trade Transparency Derivative Trading MiFID II 7
Best Execution Transaction Reporting Algo and High Frequency Trading
Best Execution RTS 27 RTS 28 Quarterly report by Trading Venues, SIs, MMs and other liquidity providers Annual report by investment firms to clients 9
Transaction Reporting RTS 22 Transaction reporting obligations RTS 23 RTS 24 RTS 25 Financial instruments reference data Maintenance of relevant data relating to orders in financial instruments Clock synchronization 10
Algo and HF Trading RTS 6 RTS 7 RTS 8 RTS 9 RTS 10 RTS 11 RTS 12 Algorithmic trading, providing direct electronic access and acting as general clearing members Requirements on RMs, MTFs and OTFs enabling or allowing algorithmic trading through their systems Market making agreements and schemes Ratio of unexecuted orders to transactions Fair and non-discriminatory co-location and fee structures Tick size regime Determination of a material market in terms of liquidity relating to trading halt notifications 11
Getting Compliant
Your project Have you started yet? There is a lot of content in MiFID II Analysis and planning read ascertain gaps develop solutions identify opportunities Implement change test train client contact Don t wait for FCA rules or even the final EU legislation 13
Approaching your project line by line What rules apply to my business? Have they changed from MiFID I? If so, do I need to take action? What exactly do I need to do, and what is the effort needed? Who is going to do it? How do I make them? 14
Critical success factors Management and business buy-in MiFID II is something you have to do yourself, not something that can be done to you by consultants You and the whole business must be prepared to embrace the change Senior Management must support achieving compliance Clear objectives and deliverables Proper project governance Clear understanding of what is compliance Each action needs to be clearly articulated Ownership and robust tracking of compliance Excellent reporting Expect questions from clients and regulators 15
Using Bovill to kick start your project Our ToolKit 16
Questions 17