Is the regulatory WORM turning?

A week before President Trump’s inauguration the CFTC approved a proposal to amend the record keeping requirements contained in Regulation 1.31. The changes were an interesting precursor to the Trump administration’s call for a review of regulation in the financial services space. One of the significant changes in the proposal is the elimination of the requirement that... Read More

No action sometimes better course of action

Implementing pan-European financial regulation is no easy feat. Finding agreement across 28 member states and translation into vastly differently legal systems is a true challenge. It comes as no surprise that those projects are regularly subject to delays. Against that backdrop, it is most welcome that ESMA is again requesting the power to issue a no-action letter like their international... Read More

Two for one

If nothing else, we know the new regime in the US likes a good punchy sound bite. As many of us predicted, President Trump and his team have their sights firmly set on loosening the burden of Dodd-Frank and other regulatory sets that they feel make for a hostile business climate. The tagline of Trump’s executive order for regulatory reform is “two for one” –... Read More

Let’s agree to disagree

With hindsight, last year’s discussion about the differences in defining direct electronic access (DEA) under MiFID II and RegAT may have been somewhat premature. Firstly, with the change in both the US administration and the CFTC leadership it is now uncertain how RegAT will be progressed. Secondly, over the last few months it’s become clear that we can’t even... Read More

A Trump card for regulation?

It’s difficult to argue against any sensible form of regulation that ultimately makes the financial markets fairer and safer for all participants, but implementing and complying with all the new rules that apply across our industry is, undeniably, a very costly business. So when President-elect Trump’s newly sworn-in, eager-to-please United States Congress puts forth... Read More

A year to go – more or less

With just 364 days left to go, the MiFID II go-live date looms large. But with complex regulation spanning several hundred pages of text it is no great surprise that some MiFID II deadlines will come in earlier than 3rd January 2018, while others leave more breathing space. For example, trading venues must submit their waiver applications to their relevant competent authorities... Read More

Uber transparent?

ESMA has today published the latest Q&A on investor protection. The document spans many different topics, but what sparked my interest in particular are the comments around the best execution quality reports. Under MiFID II brokers have to publish their top 5 execution venues. Firms trading as non-members (i.e. via another broker) are asking whether it is the exchange or the... Read More

That’s your limit!

As is so often the case with some of the lengthy documents that make up the Shakespearean drama that is the MiFID II implementation, the devil is in the detail. The technical standards on position limits for commodity derivatives are a good example. Right at the very end, just before President Juncker’s imprimatur, is a little tidbit suggesting that competent authorities will... Read More

The regulation holiday effect

Global harmonisation of financial regulation is high on the wish list of many trading firms and, in one sense at least, the regulators in Europe and the US are pretty well harmonised. Both have a tendency to publish long-awaited documents right before major holidays. Last week we saw another example of the regulation ‘holiday effect’ with the CFTC publishing its consultation... Read More

A calmer approach to position limits

As we edge ever-closer to MiFID II implementation, the position limits debate is once again underway in Europe. Under the new rules the UK regulator is required to impose position limits on all commodity derivatives listed on UK trading venues. In its Consultation Paper the FCA states: “The aim of the new regime governing commodity derivatives trading in MiFID II is to prevent... Read More

ESMA sets a date for SI compliance

Intended to promote practical convergence and common supervisory approaches and practices, like EMIR and MAR before them, the MiFID II Q&A is fast becoming a favourite on my browser. In its recent Q&A on transparency topics, for example, ESMA has clarified for those firms wondering if, when and how to become a systematic internaliser (SI) that they will have until September... Read More

Weighing up best-ex and best innovation

Competition amongst exchanges was a defining theme in MiFID I, but when it comes to best execution and trading venue fee structures, MiFID II might reverse some of that. MiFID II acknowledges that exchanges compete on fee structures and even establishes some basic rules (see RTS 10). But by tightening the bolts on best execution obligations, the new regulations can present conflicting... Read More

Golden aspirations

To achieve MiFID II’s aim of greater transparency, having a proper golden source of instrument data is key for every market participant. Fortunately, under the new rules, ESMA is required to publish a list of all financial instruments traded on all trading venues and systematic internalisers, enriched with useful, related information such as MiFIR transparency and liquidity... Read More

ESMA sheds light on dark trading caps

ESMA today published its first Q&A on MiFIR transparency topics which focuses on the double volume caps (DVCs) in equity markets and clarifies how markets can transition to the new DVC regime. The document outlines how to calculate the market share of non-transparent trading for instruments only coming in scope under MiFID II (think ETFs, for example). ESMA will make the assumption... Read More

No summer break for MiFID II

You may have noticed that the MiFID II Regulatory Technical Standards (RTS) continue to roll off the press at a steady pace signalling finalisation of the Level 2 detail. Last week alone seven RTS documents were adopted by the European Commission, including the long-debated RTS 2 on non-equity transparency and also an RTS on registration of third country firms which could become... Read More

The great negotiation

With the Brexit hangover slowly starting to recede it is perhaps time to start focusing on the road ahead. Regarding the immediate future there is at least some certainty, as we can assume that implementing EU regulation in the UK will progress regardless. Both the FCA and the European Commission have correctly pointed out that the UK remains a full member of the EU, with all its... Read More

RegAT – round 2

Regulation AT forges ahead, this time with a Round 2 panel convened on June 10th at which the CFTC focused the discussion on five major sticking points: 1. Amendments to the proposed definition of direct electronic access (DEA) 2. Quantitative measures to establish the population of persons 3. Alternatives to require each person defined as an “AT Person” to implement and utilize... Read More

Regulatory algebra

Algorithmic trading and market access are under increased pressure from regulators everywhere, adding new layers of complexity in the quest for a single, global, normalised trading experience. Buy-sides often use Sponsored Access (SA), Direct Market Access (DMA) or Direct Electronic Access (DEA) via brokers across different regions. With MiFID II and RegAT each defining those terms,... Read More

Phew! No more HFT for me

Some might remember the surprise, back in March 2012, when it became apparent that an individual personal trader could end up being classed as a high frequency trader (HFT) under MiFID II. Admittedly I’m quite proud of my 10 finger touch-typing skills, but I wasn’t sure whether my ability to type really fast could be held against me one day. Finally, after four years,... Read More

CFTC keeps source on the menu

Open commentary for Regulation AT is now officially over, and while the CFTC mulls over the mostly cautious responses there is some time to reflect on how best to prepare for enforcement of the rules. However, the loftiest piece of proposed legislation in the carte de jour isn’t about futures or traders at all, but the underlying source code of the systems associated with them,... Read More

In true MiFID style

The European Commission (EC) has published the first in a series of highly anticipated delegated acts, defining some of the crucial details for MiFID II. Most relevant in yesterday’s document is the unbundling of research and execution fees, where the EC has largely followed the advice given by ESMA back in December 2014. In true MiFID II style, a new acronym is introduced, each... Read More

A brief history of on/off-exchange

Hailed by legislators as the new framework to close loopholes, MiFID II will see OTC trading face new restrictions, most importantly in the form of the Systematic Internaliser (SI) and the new trading obligations. As the fog slowly lifts, it’s becoming apparent that these new restrictions could impact market structure in surprising ways. A more detailed analysis shows that... Read More

MiFID II – back to square one

A proposed new law is currently making its way through the Brussels/Strasbourg law-making factory to delay the introduction of MiFID II. There is little doubt that the industry will breathe a sigh of relief when the delay is finally confirmed. However, the proposed new law has also encouraged legislators to consider further changes to the MiFID II Level 1 texts (amendments 1-3 and... Read More

MiFID II delay – a missed opportunity

The European Commission’s long-awaited official proposal for a one year extension to the MiFID II deadline is finally published today. In short, application dates will be pushed back by one year, with the official go-live date now set for Wednesday 3rd January 2018. While the delay comes as a massive relief to many market participants and the regulators, it is also a missed... Read More

Nosey neighbours

Is MiFID II really going to force investment firms to pass around huge amounts of personal, identifiable information? Will competitors and counterparties learn way too much about your business? While many of these concerns may be overblown, there are some valid points to consider. The most obvious one relates to transaction reporting under RTS 22, which will require numerous items... Read More

SMP checks in the balance

Self-match prevention (SMP) is offered by many exchanges – CME, ICE, Turquoise and BATS among them – and by the more advanced order management systems. In most cases, employing an SMP check is voluntary for trading firms; that is important because not every prevented self-match is also a prevented (illegal) wash trade. Some regulatory jurisdictions require intent as... Read More

And the MiFID II award for early guidance goes to…

Amidst the on-going rumblings about delays to MiFID II, and the budget and planning uncertainty this has created, it’s good to see that market participants continue to press on with implementation. MiFID II includes many new obligations for venues and, for investment firms, knowing what the exchanges will do fills a significant piece of the puzzle in their overall plan. Despite... Read More

Who watches the watchmen?

With much of the new financial regulation being passed and implementation for most of it in full swing, supervision is likely to gain more attention in the coming years. Since investment firms and infrastructure providers are largely supervised by national competent authorities, it raises the question who watches the watchmen? In ESMA’s 2016 work programme, the authority... Read More

New year, new regulations

Throughout 2015, many in our industry would no doubt have agreed that MiFID II was fast becoming the single most important EU legislation initiative. With the unofficial – but likely – delay until January 2018, the impact of MiFID II remains far-reaching, but at least this may allow for a more orderly implementation. As the new year begins, it’s time to review... Read More

All ‘ayes’ on RegAT

Last week, following an open meeting on the subject, the CFTC’s motion to move forward with its proposed Regulation on Automating Trading (RegAT) was passed unanimously by 3 to 0. Following a brisk set of opening remarks by Commissioners Bowen and Giancarlo, and a statement by Chairman Massad, the Division of Market Oversight valiantly attempted to present a case for the CFTC... Read More

Keep the pedal to the metal

Earlier this week ESMA called for delays to the MiFID II implementation deadline. So it’s goodbye to punishing timelines and we can all get our lives back! But hold on, before we breathe a collective sigh of relief, things are not quite that simple. Most importantly, it is not ESMA that can decide on a delay, but the European Commission (EC). Even if Steven Maijoor, ESMA’s... Read More

MiFID II choice cuts

The overhaul of transaction reporting under MiFID II continues unabated in the latest ESMA drafts, with new obligations and data changes still being introduced. Aimed at improving the quality of data for market abuse investigation, ESMA has introduced a new requirement for transaction reports to be made available to regulators in a common XML template in accordance with ISO 20022... Read More

Doesn’t ESMA time fly!

Looking at the latest changes regarding accuracy of business clocks, now reincarnated as RTS 25, I noticed a number of interesting points in the text. Most importantly, the absence of the usual clause “…applies from 3rd January 2017″, with just the generic phrase stating that the rules will “enter into force on the twentieth day following that of its publication”.... Read More

What’s missing from ESMA’s report?

Yesterday saw the publication of ESMA’s long-awaited report on the technical standards for MiFID II / MiFIR. As well as reviewing every single word of this impressive tome – 1,532 pages spread across three documents – we should consider the wider scope and take note of what the report does not cover too. Comparing the drafts from December 2014 and February 2015... Read More

All together now…

A common approach will be key to minimising the fallout of MiFID II implementation, particularly around the extra data required for record keeping and transaction reporting and for algo identification. I’m hopeful that the ‘final’ Technical Standards due next month will have at least dropped requirements to include static data. Do we really need multiple systems storing... Read More

Ranks of cross-border issues swell

Payment for research and unbundling has been on the European regulatory agenda for some time. It has now escalated to a cross-border issue after concerns were raised with the US SEC by a senior US politician worried about the impact on US growth industries. The recent past gives us plenty of examples of cross-border issues from both sides of the Atlantic – the US person under... Read More

MiFID II deadlines under further pressure

The European Commission (EC) and ESMA have agreed on an improved process to draft the Level 2 texts for MiFID II. On the back of those discussions, ESMA asked for a 3-month extension on their own deadline to submit draft technical standards and the EC granted it. While the next Level 2 drafts will now not be published until September 2015, the benefit is that further changes are... Read More

ESMA stops short of a no-action letter

Having taken several years to get through the review of MiFID, it was interesting to hear from ESMA chair Steven Maijoor last week that there is an appetite to “explore the mechanisms to address regulatory adjustments in a flexible and agile manner”. Neither national authorities nor ESMA have any tool like the ‘no-action letter’ employed in the US. Given that the rules... Read More

Holding a steady course

Having spent the last three months buried under a deluge of MiFID II consultation pages, the real world looked quite different when I came up for air recently. Since ESMA published the consultation back in December, Greece has elected a new prime minister, Star Trek has sadly lost the original Mr Spock, Madonna fell off a stage and a whole new season of House of Cards is available... Read More

On a quest for answers in Paris

Travelling to Paris today for tomorrow’s open hearing on MiFID II, the two issues I’ll be mulling over on the Eurostar will be record keeping for trading venues and transaction reporting. Both could potentially trigger significant changes in front and middle office workflows for many trading firms. At the core of my concerns lies the requirement for trading venues to... Read More

Stuck between a rock and a hard place

First proposed way back in 2011, work has been ongoing to narrow down the details of a common financial transaction tax (FTT) to be introduced across Europe. Back in May this year, all but one of the 11 member states keen to push ahead had agreed that by the end of 2014 it should all be worked out and the new tax phased in by the end of 2015. But according to the EU’s recent... Read More

More rules, more problems?

Fixed income, commodity and currency (FICC) markets are dominated by the big boys, the professional traders and investors. In this proverbial ‘champions league’ of markets, retailers are restricted to cheering from the side-lines. Perhaps because it has been assumed that these highly sophisticated professional traders can fend for themselves, the regulators have not... Read More

Algorithmes de type franḉais

Just as we’re all getting used to the idea of having to flag algos on an EU-wide basis under MiFID II by 2017, the French regulator recently published further guidance under the French banking bill that came into force in July last year. Amongst other things the French bill targets algorithmic trading/HFT and this recent notice calls for French entities to notify the regulator... Read More

Hang on a second!

MiFID II introduces the requirement to synchronise the business clocks of trading venues and their customers, standardising the recorded time on post-trade data, transaction reporting and, most importantly, order event auditing. Regulators argue that in the event of unusual market activity they will be able to pinpoint the exact moment things turned sour. A noble cause then, but... Read More

Staying local in a global world

With the continuous increase in regulatory oversight, many market participants raised concerns about extraterritoriality and the risks to cross-border trading early on. Despite the efforts of regulators around the globe to push equivalence and reciprocity arrangements, the risk of ‘Balkanisation’ of markets still seems very real. Considering the CME is set to open its... Read More

EU FTT, next attempt

At a meeting of EU finance ministers yesterday the discussion turned to the introduction of the financial transaction tax (FTT) under the enhanced co-operation procedure. While still lacking even the most basic facts, a revised implementation timeline is emerging along the lines of a gradual introduction of the tax, with a first phase in place by 1st January 2016 and details thrashed... Read More

Before you head for the beach…

As the i’s are dotted and the t’s crossed in the MiFID II Level 1 text ahead of its June publication in the EU’s Official Journal, ESMA is already gearing up for Level 2. In order to produce all the required documents ESMA is expected to run two consultations, one for the advice on the delegated acts – for which MiFID II’s entry into force triggers a six... Read More

Patience is a virtue

Last week’s announcement of the political agreement on MiFID II felt like the Gordian knot had been cut. Maybe 2014 will turn out to be the year when the regulatory uncertainty that dominated 2013 gives way to thrilling new opportunities. Amid all the excitement (and relief that MiFID II will escape the feared entanglement in the upcoming European Parliament elections), it... Read More

MiFID II under starter’s orders

So, the much-anticipated trilogue meeting finally took place yesterday. With negotiators for Parliament and the Council of Ministers under heavy pressure to resolve issues and avoid a threatened return to the drawing board, ECON’s press release, published late last night, announced that informal agreement has been reached on MiFID II/MiFIR. Hurrah! Too early for champagne corks... Read More

Hitting the bullseye

According to recent press articles, the MiFID II trilogue has agreed on capping dark trading at an arbitrary 4% per venue and 8% overall market share. At the heart of the discussion around dark trading lies the role of transparency in the wider market. While one side claims that transparency is the only thing that can keep fragmented markets efficient, the other side worries about... Read More

Congratulations, you’ve (almost) reached Level 2

With the election of the European Parliament scheduled for May 2014, the Level 1 texts of MiFID II, MAD II and CSD Regulation are likely to be agreed before then. This means that next year will be all about drafting and agreeing the Level 2s for those laws. ESMA kicked things off at the end of last week, publishing the first discussion paper on the implementation of the Market... Read More

Time is of the essence

Last weekend heralded the official end of summertime as the EU put its clocks back one hour. Since most electronic clocks are updated automatically many of us hardly notice the difference, but others may be forgiven for waking up somewhat confused as to what time it really is. I guess that must have occurred to the legislators in Brussels when discussing the possibility of imposing... Read More

Inching closer to the goal

ESMA’s work on the single rule book for EU financial markets, set out in its 2014 work programme, shows the bulk of MiFID II/MiFIR deliverables falling into the last quarter. With the Level 1 text still expected to be agreed by the end of 2013, the revision of MiFID and MAD will then unfold into advice, technical standards and guidelines over the following year. I’m interested... Read More

Identity crisis for algos

Yesterday saw the publication of the XETRA and Eurex rule changes relating to the German HFT Act in which they provide details of how to implement the new RegulatoryID. Under the new rules it will no longer be enough simply to differentiate between algo and non-algo orders (such as under the current CME regime). Starting from 1st April 2014, all orders sent by an exchange member... Read More

Looking through the CFTC’s prism

The CFTC’s recent Concept Release on Risk Controls and System Safeguards for Automated Trading Environments represents a watershed moment for US derivatives markets, setting the stage for a new regulatory approach to electronic trading. The CFTC’s role and powers have already been greatly enhanced, post-Dodd-Frank, through a combination of the new market abuse powers,... Read More

Value for money

The long list of topics to be tackled by ESMA in MiFID II Level 2 is laid bare in the EU regulator’s latest banking and investment services tender document, with submissions due by the end of this week. ESMA is seeking help with data gathering and analysis on a number of fronts, not least in order to specify detailed organisational requirements to be imposed on investment firms.... Read More

Regulatory front-running

Front-running is regarded as a form of market abuse and is banned accordingly. Although it is widely accepted that MiFID II will implement new regulation on algorithmic and high-frequency trading, that doesn’t seem to have stopped the law makers indulging in a little ‘front-running’ of their own. First, Germany passed its HFT Act ahead of schedule and now France... Read More

If it looks like a duck…

Dividing derivatives contracts into over-the-counter and exchange-traded would seem to be a simple task, but this is far from true. Thanks to EMIR’s definition of ‘on-exchange‘, contracts that are traded on anything other than a regulated market (RM) will be considered OTC regardless of whether they are traded on an MTF or are economically equivalent to the on-exchange... Read More

Anti-price discovery tax

This week saw the publication of the European Parliament’s amendments to the EU Financial Transaction Tax (FTT). As reported in the press, lower rates (until 2017) for sovereign debt and pension funds have found their way into the proposal. Unfortunately, some very unpleasant surprises crept in as well. According to the Parliament, firms engaging in high frequency trading... Read More

Double whammy

The latest published version of MiFIR is narrowing waivers, while widening its impact. Specifically, it has added a double cap limit to the pre-trade transparency reference price waiver. Limitations that may apply to the 4 existing waivers continue to evolve even as the Irish presidency of the Council of the European Union enters its final month before handing over to Lithuania. Article... Read More

Just when I thought we were out, they pull us back in

Since 2007 many of us in the industry have been attempting to iron out the inconsistencies (and confusion) introduced by MiFID around the use of venue of execution (VoE), Market Identifier Code (MIC) and Last Market (FIX Tag 30). In May 2012 FPL’s Buy-Side Working Group published its best practices for execution venue reporting, supporting the use of standard MICs on execution... Read More

Extraterritoriality agreement – maybe today, maybe tomorrow…

Extraterritoriality agreements for cross-border OTC derivatives have been hotly debated for a while now, but there have been few visible signs of progress in recent months. Last week the Chairman of the US SEC, Elisse Walter, presented her views on the complex area of equivalence and reciprocity. In her speech she referred to the problems that domestic regulators would face if forced... Read More

Take a break

Financial markets are global and closely interconnected. While this is largely beneficial for all market participants, it can also create spillover effects with unintended consequences. An academic study argues that liquidity can affect related instruments and create a feedback loop, or, put more pessimistically, a vicious circle. In simple terms, if liquidity evaporates in a derivative,... Read More

If it moves, tax it!

The proposal for a Directive implementing enhanced co-operation in the area of financial transaction tax (aka the EU FTT), with its eye-wateringly broad scope, will have to be churned through the legislation mills PDQ if it’s to meet its overly ambitious timeline. The would-be tax applies to all transactions where a counterparty is established in one of the 11 participating... Read More

A cry for help

More and more industry representatives are complaining about the politicisation of the rule-making process in financial markets. In Europe, politicisation has triggered some absurd episodes, such as the proposal for the greatest uncontrolled financial market microstructure experiment in the world (aka the minimum resting period of 500 ms) and the introduction of short selling bans... Read More

You can’t have your cake and eat it

Extraterritoriality agreements are important for many firms because they can reduce the burden of redundant and conflicting rules across different countries. Last November, considerable concerns were voiced by numerous regulators around the globe with regard to the CFTC Cross-Border Guidance relating to the US swap markets. Among the protestors were representatives of the European... Read More

Italian uncertainty continues

On 21st February, just days before Italy’s general election, Economy and Finance Minister Grilli signed the application decree for the Italian Financial Transaction Tax (FTT) ahead of its effective date of 1st March. Arguably, the decree is in breach of another Italian law, the “Statuto dei diritti del contribuente” (Statute of taxpayers’ rights, Law 212/2000),... Read More

Is FTT heading for Wall Street?

Over the past few months, many in the US trading community have been quietly mobilizing against European Financial Transaction Taxes being collected within US borders. The voice of opposition grew louder yesterday with the Security Traders Organization (STA) calling on market participants to take action by communicating to their elected representatives their “strong opposition”... Read More

La bozza del decreto

Italy’s Ministry of Economy and Finance published a draft of the decree for the Italian Financial Transaction Tax (FTT) just after the 31st January deadline imposed by the law (for an English translation visit our Raw material section). The decree sheds light on most of the dark corners left by the bill, detailing how charges are to be calculated, who is responsible for their... Read More

Coming soon – UK regulation with a whole new cast!

The number of mega blockbusters on the regulatory agenda this year would warrant their own awards ceremony. Whether it’s drama or comedy you’re after, there is certainly a regulation to suit every taste. One of my picks is the new UK regulatory structure epic Journey to the FCA (FSA, October 2012). Born out of the UK Financial Services Bill, the FSA will evolve into a new regulatory... Read More

Better consult…

Drafting new legislation is difficult and consulting the industry beforehand is sensible. Granted, where financial transaction taxes (FTT) are concerned this is tricky because no practitioner has anything good to say about it. However, beyond the mere purpose of FTT, the operational implementation is at least equally important. The current Italian FTT law has a number of issues... Read More

Dude, where is my level playing field?

At the heart of the European Union is the concept of a single market with a level playing field. Markets moving together, where trade and competition create benefits for everyone. Back in 2007, MiFID was a true testament to this when it introduced the idea of passporting regulatory oversight across Europe. Reading the latest regulatory news, there’s precious little to remind... Read More

One cliff avoided, another straight ahead!

The Italian Financial Transaction Tax (IFTT) passed into law over the Christmas holidays and shocked market participants around the world. Quite apart from the increase in tax levels compared to earlier drafts, the Italian government has invented an additional HFT tax based on the value of amended or cancelled orders (click here for more details). The French markets, luckily, didn’t... Read More

ESMA gears up for implementation

ESMA published a report last week on staffing and resources with regard to EMIR. After many years of public policy discussions and political deals, 2013 will be the year of hands-on implementation. Here are a few highlights from the document: • ESMA expects about 11 applications for Trade Repositories, each likely submitting a document between 200 and 1,000 pages long • ESMA... Read More

What’s in store for the coming year?

The European Commission adopted its work programme for 2013 (CWP) back in October, with the over-reaching aim to deliver financial stability, economic growth and jobs. In terms of new proposals, the CWP announced around 50 new initiatives to be tabled during 2013 and the first part of 2014. According to the EC President, José Manuel Durão Barroso: “The next step must be... Read More

The three (MAD) wise men

I find it rather appropriate this season that the three European bodies – the Commission, the Council and the Parliament (the latter with rapporteur Arlene McCarthy’s version) – are each bearing us a gift. Instead of the traditional gold, frankincense and myrrh, each is bringing its own take on the Market Abuse Directive. These slightly different texts will be... Read More

Here comes the CFTC: the regulators keep coming back for more

The latest batch of rules from the US Commodity Futures Trading Commission (CFTC), which come into effect on December 31, 2012, will require many firms currently outside the CFTC’s supervision to register as Commodity Pool Operators (CPOs). A new exemption test – the de minimis test – will need to be applied by firms daily to check their levels of commodity interest against... Read More

Unintended consequences, par excellence

The law of unintended consequences is not kind. It will strike wherever it pleases and sometimes even in places you wouldn’t expect. In an ironic twist, the order-to-trade ratio (OTR) may not calm markets as intended but reduce average trade size even further. The OTR, or some variation of it, is used by many exchanges to manage their message load. Generally speaking, OTR counts... Read More

Wave your waivers goodbye

Since the introduction of MiFID in 2007 the concept of the pre-trade transparency waiver has been widely accepted and applied. However, following the latest regulatory discussions, there is a danger that we may have to wave goodbye to some of these waivers with MiFID II. It seems that the regulators feel that the existing waivers are interpreted too loosely and inconsistently across... Read More

Are we nearly there yet?

There has been a small flurry of activity this week around the subject of a European consolidated tape, but is the fog starting to clear yet? Let’s take a closer look at the facts. The parliament adopted text of MiFID II calls for an effective and comprehensive consolidated tape to be in operation as soon as possible. The scope is post-trade data for equities and equity-like instruments,... Read More

Extraterritoriality reality?

Legislators and regulators all around the globe are rushing to meet the G20 commitment of shifting all standardised OTC derivative contracts onto exchanges or electronic trading platforms. Naturally, every country is trying to clean up its own backyard before looking across the fence at its neighbour’s. The disadvantage of this approach is that country-specific rules might... Read More

My Roman travelogue

Separate from the upcoming European Commission proposal for a financial transaction tax (FTT) under ‘enhanced co-operation’, Italy is pushing ahead with its own flavour of FTT, similar to the French tax which came into effect in August this year. It took me longer than I expected to find something sensible about the Italian proposals. Reports in the Italian media were a little... Read More

Is the grass any greener on the other side?

On 30th October the CFTC’s Sub-Committee on Automated and High Frequency Trading Working Group 1 presented its definition of HFT to the CFTC Technology Advisory Committee. This is very interesting, as the European Parliament already published its version on 26th October. Let’s compare notes across the pond. Both approaches define HFT as a sub-category of algorithmic... Read More

Some things in life are bad…

The next step in the MiFID parliamentary process is the EP plenary vote, to gain the backing of the entire house, scheduled for tomorrow, Friday 26th October. The EP is forging ahead, with little likelihood of further changes, it seems, though there is a debate on MiFID scheduled for today. Given where we are in the timeline of the parliamentary process for MiFID II legislation,... Read More

A sensible request deserves a sensible response

The German government and the European Commission want to mandate earmarking of every algorithmic order in order to identify the originating strategy. The reason being that market supervisors have a difficult job keeping up with all those technical innovations in financial markets. In the good old pit trading days traders were restricted by physical limitations, but in a world where... Read More

A health check for dark pools?

Over the past few years, dark trading has been the subject of considerable attention all around the world and its success in growing market share has everyone talking about this phenomenon. When they first came into operation dark pools were embraced as an exciting new way to trade large orders with minimum market impact. More recently, however, with the increased levels of HFT... Read More

Think again, things are about to change!

Do you think a retail broker has to connect to all exchanges in Europe in order to offer best execution? Of course not! MiFID’s current definition of best execution is principles-based and takes into account more than just the execution price, but things are about to change. The latest MiFID II draft from the ECON vote contains a number of amendments that may cause you to... Read More

For every action, there is an equal and opposite reaction

ESMA recently published its Guidelines on ETFs and other UCITS issues. As their Chair, Steve Maiijoor, puts it “these comprehensive guidelines are aimed at strengthening investor protection and harmonising regulatory practices across this important EU fund sector”. At a high level here are the key provisions (plus some of my own comments): 1. UCITS ETFs must by identified... Read More

What you need to know before buying a German car

The latest draft of the German HFT ruling has some fairly serious implications for market participants and there is little time to prepare. The new law is expected to be finalised sometime in the middle of next year and the legislator expects the industry to comply within a three month grace period. Let’s look at some of the features added since the previous draft published... Read More

LEI – how many expert groups does it take to identify an entity?

With the latest progress note from the Financial Stability Board (FSB) on the Global Legal Entity Identifier (LEI) Initiative published last week, it’s a good time to look at the basics. In June 2012, with the backing of the G20, the FSB was tasked with driving forward the LEI initiative to create a universal numbering system to uniquely identify parties to financial transactions. The... Read More

Brussels’ rules of etiquette

The on-going flood of new regulations and directives coming out of Brussels continues. With all its consultation papers, drafts, technical or implementing standards, recitals and articles, it is hard to keep your head above the waterline. Here are a few pointers to help you structure that paper flood into some more manageable channels. European laws and legislations are formally... Read More

Sensible timeframes please!

The final text of EMIR (European Market Infrastructure Regulation) entered into force on 16th August and the next milestone for ESMA, to complete the Level 2 text by the end of September, is fast approaching. ESMA’s consultation on the draft technical standards received over 130 responses before the 5th August deadline. Whilst there is general support for the key aims of EMIR,... Read More

Ready, set, go!

France’s AMF has published a brief statement spelling out the implications of EMIR entering into force in two days’ time. In terms of timelines these are the most important dates: August 16th, 2012 – EMIR enters into force September 30th, 2012 – deadline for ESMA to transmit EMIR technical standards to the European Commission July 1st, 2013 – Earliest possible... Read More

Germany’s “Best of …” HFT law

A Europe-wide consolidated regulatory framework can have many advantages for the financial industry. Laws such as MiFID II, MAD II and EMIR create a level playing field that simplifies competition on a pan-European scale. However, in the last couple of months a number of national legislations have been enacted that make the playing field a bit more uneven, again. There are, for... Read More

New month, new tax

Yesterday, 1st August (already!), the new French Financial Transaction Tax (FTT) came into effect. With the fine print of the new tax only emerging over the previous few days, we’ve now added the French FTT to our ‘At a glance‘ page to provide you with an overview. The tax, which applies to the purchase of over 100 French stocks with a company market value of more... Read More

School’s out!

OK, school’s out and the head’s advice was “…don’t do anything silly, and come back refreshed and ready for the new challenges of next year.” The European Parliament is also on its summer break and the next ECON Committee vote on MiFID II is scheduled for 26th September, with a plenary vote on the calendar for 19th  November.  There remains, however, a whole lot of... Read More

Dodd-Frank: Implications of the latest swap definition rule

Following the CFTC’s recent approval of a swap definition lawyers and the OTC derivatives industry are busy digesting the 600 page ruling. In effect, this kicks into motion an October 2012 timeline around the implications of two very significant previously defined rules for the regulation of OTC derivatives: Swaps defined by this rule must be cleared; and Swaps defined... Read More

Lost in translation

Yesterday the CNMV (the Spanish regulator) and CONSOB (the Italian regulator) banned any short selling (naked or covered) in their respective markets. It is becoming more and more difficult to believe that these bans are imposed as a measure of good market regulation and not due to unrelated political considerations. On that point, a new study by Ian W. Marsh and Richard Payne analysed... Read More

We learn from history that we do not learn from history

Many people might have missed it, but between 1905 and 1981 the New York state imposed a Security Transfer Tax. The tax was based on the par value (aka stated value, or face value) of stocks traded, transferred or delivered in New York State. It was not implemented as a financial stability measure, but as a revenue generator to fund the state deficit. Following the 1932 and 1966... Read More

The horse hasn’t bolted, yet!

The Flash Crash catapulted circuit breakers into the public spotlight and showed how they (or rather the lack of them) can impact financial markets. Since then, in Europe at least, discussions have been relatively quiet. European markets are perhaps less prone than others to such massive price swings for two reasons. Firstly, Europe does not have the trade-through rule and, secondly,... Read More

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