The review of the Markets in Financial Instruments Directive MIFID 2 Brussels, 11 June 2014
State of play - level 1 process Political agreement on the review of the Market in Financial Instruments Directive (MiFID II consisting of a directive and a regulation) was reached on 14 January 2014. The vote adopting the text in EP Plenary took place on 15 April 2014. Text as adopted by EP was endorsed by Coreper on 7 May, and of the Council (General Affairs) on 13 May 2014. Publication in OJ foreseen on 12 June 2014 Entry into force 2 July 2014 (=20 days after publication in OJ) Entry into application 2 January 2017 - L2 in place 6 months before 2
State of Play (2) - Level 2 process Commission delegated acts based on advice from ESMA (predominantly investor protection issues, definitions and some transparency issues) ESMA Regulatory technical standards (RTS) and Implementing technical standards (ITS) (predominantly organisational requirement, micro structural issues, market structure/transparency issues) ESMA Guidelines foreseen in some areas (esp organisational requirements) Timing: RTS 12 months, ITS 18 months, technical advice 8 months ESMA organises hearing on 7-8 July 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 Updates required in light of developments in market structures and technology Ensure fair competition and efficient markets Raise investor protection in specific areas to support confidence Increased supervisory convergence across the single market and harmonised third country regime 4
MIFIR Recital 1 The financial crisis has exposed weaknesses in the transparency of financial markets which can contribute to harmful socio-economic effects. Strengthening transparency is one of the shared principles to strengthen the financial system as confirmed by the G20 Leaders' statement in London on 2 April 2009. In order to strengthen the transparency and improve the functioning of the internal market for financial instruments, a new framework establishing uniform requirements for the transparency of transactions in markets for financial instruments should be put in place. The framework should establish comprehensive rules for a broad range of financial instruments. It should complement requirements for the transparency of orders and transactions in respect of shares established in Directive 2004/39/EC of the European Parliament and of the Council. 5
MIFIR Recital 10 All organised trading should be conducted on regulated venues and be fully transparent, both pre and post trade. Appropriately calibrated transparency requirements therefore need to apply to all types of trading venues, and to all financial instruments traded thereon. 6
MIFIR Recital 16 In order to ensure uniform applicable conditions between trading venues, the same pre trade and post-trade transparency requirements should apply to the different types of venues. The transparency requirements should be calibrated for different types of financial instruments, including equities, bonds, and derivatives, taking into account the interests of investors and issuers, including government bond issuers, and market liquidity. The requirements should be calibrated for different types of trading, including order-book and quote-driven systems such as request for quote as well as hybrid and voice broking systems, and take account of transaction size, including turnover, and other relevant criteria. 7
Market structure OTF: The introduction of a new multilateral trading venue, the Organised Trading Facility (OTF), for nonequity instruments to trade on an organised multilateral trading platforms ensure 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. 8
Transparency (1) Equity markets: broadened to depositary receipts, ETFs, certificates etc Pre-trade transparency - Calibration for different types of trading systems including orderbook, quote-driven, hybrid and periodic auction trading systems. - MIFID I waivers kept but framed at L1 - A double volume cap mechanism limits the use of reference price waivers and negotiated price waivers (4% per venue cap and 8% global cap) together with a requirement for price improvement at the mid-point for the former. - Large in scale waivers and order management waivers not changed in L1 but need to be assessed in L2 against need for enhanced transparency - 9
Transparency (2) Equity markets: broadened to depositary receipts, ETFs, certificates etc Post-trade transparency - Publication as close "as technically possible" - Possibility for deferral of publication (type/size), i.e. large in size 10
Transparency (3) Non-equity markets: extention to bonds, structured finance products, emission allowances, derivatives and actionable indication of interests Pre-trade transparency - Calibration for different types of trading systems including orderbook, quote-driven, hybrid and periodic auction trading systems. Waivers are available for -Large in scale orders -RFQ/voice trading above size specific to instrument/class, where undue risk to liquidity providers (distinction retail/wholesale) -Derivatives not subject to the trading obligation + other illiquid instruments 11
Transparency (4) Non-equity markets: extention to bonds, structured finance products, emission allowances, derivatives Post-trade transparency -Transactions public as close to real-time as is technically possible -Deferrals: i. large in scale transactions ii. illiquid market iii. transactions that are above a size specific to that financial instrument /class+ undue risk to liquidity providers (taking into account whether retail or wholesale investors -Additional means available - extended deferral, but some transparency during deferral: volume masking, aggregation etc - special rules for sovereign bonds - temporary suspension in case of liquidity drop 12
Transparency (5) Other transparency related issues - - systematic internalisers - Ensure that that trading carried out OTC does not jeopardise efficient price discovery or a transparent level playing field between means of trading - Issue: "frequent systematic and substantial basis", deal on own account by executing client orders outside a trading venue - - Data disaggregation and provision on a "reasonable commercial basis" - Objective to bring down cost of trade data - Issue: level of disaggregation, hard cost+ rules or principles based? - - Consolidated tape providers - Ensure one-stop-shop for data (post trade) - Issue: granularity? 13
Thank you for your attention