Anne PlestedWith reports of a draft of the revised Markets in Financial Instruments Directive circulating in Brussels in recent days, I’d like to bring you up to speed with how we are progressing in the MiFID II back-shop!

We are now looking at

  • a marked up copy of Directive 2004/39/EC – the revised Directive
  • a new Regulation (ref tbd) that establishes uniform requirements in relation to the disclosure of trade transparency data to the public and transaction data to competent authorities, the authorisation and ongoing obligations applicable to providers of data services, the mandatory trading of derivatives on organised venues, and specific supervisory actions regarding financial instruments and positions in derivatives.

I look forward to bringing you a more detailed analysis of each section in the coming weeks on PMQs.

My first impression is that all is mostly as we expected from the consultation document (December 2010). Interesting, though, to see they have plumped for option C (competing commercial providers) on the European Consolidated Tape!

As a taster take a look at my first scan of the documents:

The original MiFID was composed of Markets in Financial Instruments Directive (2004/39/EC) (MiFID) and its implementing measures (Directive 2006/73/EC and Regulation 1287/2006).

So there has always been an element of Regulation out there with MiFID.

The proposal amending MiFID is divided in two:

1. A Regulation sets out requirements in relation to the disclosure of trade transparency data to the public and transaction data to competent authorities, the authorisation and ongoing obligations applicable to providers of data services, the mandatory trading of derivatives on organised venues, and specific supervisory actions regarding financial instruments and positions in derivatives.

2. A Directive amends specific requirements regarding the provision of investment services, the scope of exemptions from the current Directive, organisational and conduct of business requirements for investment firms, organisational requirements for trading venues, powers available to competent authorities, sanctions, and rules applicable to third-country firms.

Some of the key points to note are:

  • The European Securities and Markets Authority (ESMA) should also play a key role in the implementation of the new EU-wide framework
  • The need to balance investor protection, efficiency of the markets and costs for the industry has been central in laying out these requirements
  • Organised Trading Facilities (OTFs) will be introduced (no prop flow, no OTF to OTF trading, and must be registered as an OTF)
  • An MTF can be registered as a SME Growth Market (less than 100m Euro turnover)
  • Standardised OTC derivatives to be traded on exchange – ESMA will maintain a database of the instruments in scope and where they are traded
  • Clarification of the rules around Systematic Internaliser (SI)
  • The proposals aim to bring all entities engaged in high frequency trading into MiFID
  • Transparency rules are extended to include non-equities
  • Position limits are introduced on derivatives… limits on the number of contracts which any given market member or participant can enter into over a specified period of time, or alternative arrangements with equivalent effect, to be imposed – ESMA to publish and maintain on its website a database with summaries of the limits or arrangements in force
  • Position reporting by categories of traders for commodity derivatives
  • All trade reporting via an Approved Publication Arrangement (APA)
  • European Consolidated Tape (ECT): the envisaged solution is an authorisation of providers (CTP = Consolidated Tape Providers) in competition with each other initially for equities only. Non-equities to follow in 2 years time to allow for more time to deal with related technical challenges. Consolidated data should be available real-time on a reasonable commercial basis and free after 15 mins.
  • Transaction reports to identify the person who made the investment decision and the executing trader. Not clear if this is optional though for investment firms to include this data on all transmitted orders.
  • Deferred publication for large in scale trades looks to be staying
Comments
2 Responses to “MiFI Leaks!”
  1. David Pearson says:

    The directive proposal makes the following statement, the first of four relating to contracts in commodity derivatives:

    “The powers made available to competent authorities should be complemented with explicit powers to demand information from any person regarding the size and purpose of a position in derivatives contracts related to commodities and to request the person to take steps to reduce the size of the position.”

    The directive appears to set out the requirement to provide the tools for limiting positions, but not the rules or criteria by which a national regulator make invoke those powers. So at face value, the action could be perceived as draconian, but without understanding the point at which the regulator would demand action, many questions remain.

    The impact of such a regulatory demand upon a client base of non-members using the trading facilities of a GCM is potentially huge. The interpretation of this rule by ESMA and the regulators will be very interesting.

    • Anne says:

      Perhaps the EU is following the US here, where there are rules coming in Summer/Fall 2011:

      -Position limits are intended to protect futures markets from excessive speculation that could cause unreasonable or unwarranted price fluctuations and are sometimes referred to as “speculative position limits”, or “speculative limits”. The Commodity Exchange Act (CEA) authorized the CFTC to impose limits on the size of speculative positions in futures markets.

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