The evolving global impact of MiFID II

Last week, the U.S. Securities and Exchange Commission announced an extension of their no-action letter regarding the European Union’s investment research rules. This extension helps both SEC regulated brokers and their European counterparts to the ultimate benefit of EU investors. In Europe, significant industry progress has been made in managing potential conflicts of interest in the use of dealing commission, and widespread change has been... Read More

Catch 22: The share trading obligation

MiFID II refined the definition of OTC trading for equities, making it more difficult for firms to trade away from recognised trading venues or outside of a systematic internaliser (SI). Introduced in 2018, the so-called share trading obligation (STO) effectively wrapped more regulation and transparency around EU share trading. As a consequence, trade flow was pushed towards SIs, reducing off-venue OTC trading. According to the rules, shares in scope... Read More

Time runs out on Swiss equivalence

Over the weekend, the stock market equivalence granted to Switzerland by the European Commission expired. The limited-period equivalence, which was given in December 2017 and extended to 30 June 2019, has run out. Despite Swiss beliefs that all the conditions are still met for recognition by the EU, there was no let-up in the EU’s resolve to see this privilege revoked. The financial community’s hopes last week of an eleventh-hour extension to... Read More

EU financial transaction tax proposal lives on

Back in 2011, the European Commission proposed a common European financial transaction tax (FTT). Despite several postponements and a general lack of support across the EU, a co-operation of member states – including France, Germany, and Spain – remain determined to implement the tax. As per the progress report submitted last week to the European Council from the German delegation, the new tax could be based around the existing French FTT model.... Read More

Compromising on trading obligation

Today ESMA changed their mind on the share trading obligation (STO) in the event of a No-Deal Brexit. Under their new approach, any ISIN with the GB country code is now out of scope. Obviously, this change reduces the number of ISINs where EU buy-sides are forced to trade at home. Most importantly, among those instruments no longer subject to the STO are the 14 highly liquid shares that triggered the initial market uproar. While this is a step in... Read More

What do you wish for in MiFID 2.1?

The European Commission is required to review MiFID 2 by March 2020. The German Finance Ministry kicked things off at the beginning of this year by inviting comments from the industry. Attending the recent FIA Compliance and Regulation Forum, I noted that many of the regulators and market participants seem to prefer targeted adjustments over a large-scale rewrite. So, it appears that MiFID could follow the path chosen for the EMIR review. This is... Read More

Contorted contraptions

Emotions are running high with ESMA’s announcement last evening on the share trading obligation and the immediate response by the FCA. Doubtless market participants had hoped for a more practical approach and are disappointed in a new regime that prevents EU27 investment firms from trading stocks such as Vodafone in London after a no-deal Brexit. While arguing what the regulator could have done, we shouldn’t forget that it is all caused by... Read More

ESMA sheds light on OTC trade reporting under No-Deal

ESMA has released a statement which amongst other things includes clarification for EU investment firms that they will have to publish their OTC trades via an EU APA if a UK counterparty is involved. Whilst in Europe this approach may serve to ensure post-trade transparency within the EU27, it is also true that the UK counterparty could be required to publish that trade to a UK APA. This sounds to me like a recipe for a return to the problem of OTC... Read More

Where will the liquidity shift within Europe?

Recently, Phil from the FT highlighted the risk for about 90 dual-listed companies under a no-deal Brexit. But I think the problem is much bigger. In our own analysis, we took it further and found about 230 liquid stocks (not necessarily dual listed) that had roughly a 50:50 split of turnover across UK and EU27. While dual listing complicates compliance, it also causes a problem if half of your turnover is on the wrong side of the Channel. At the... Read More

One year on and none the wiser

MiFID has achieved the rare feat of becoming a genericized trademark. In the same way that Xerox stands for copy machines in general, MiFID has turned into a synonym for all financial markets’ regulation. Thinking about its scorecard on its first birthday, whether MiFID II really is ground-breaking, or deserving remains debatable. However, there is no doubt about its voluminous size. And it is because of this unusual size that even one year on,... Read More

Setting a good example

Meanwhile in another part of Europe, time is running out for Swiss equivalence. The one year period previously granted in December 2017 is set to expire on 31st December. Switzerland needs equivalent third-country status in order to preserve the status quo and allow EU trading participants bound by MIFID to continue accessing the Swiss market locally in the EU. The Swiss government’s Federal Council continues to believe that all the conditions,... Read More

It is about time

Last Friday, ESMA finally published its long anticipated call for evidence on periodic auctions. Periodic auctions became popular in 2017 and even more so through 2018 and so they are often linked to the introduction of MiFID II. While some opponents lambasted them as a cynical attempt to avoid the double volume cap, supporters have pointed out their innovative approach to fulfilling a real need amongst market participants while still being fully... Read More

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