Changes from report parliamentary committee draft to plenary report

RemovedEXPLANATORY STATEMENT

AddedThe expert stakeholder group shall be composed of members with a sufficiently wide range of expertise, skills, knowledge and experience to provide adequate advice.

RemovedThe rapporteur welcomes the Commission’s proposal for the review of the Markets in Financial Instruments Regulation and Directive (MiFIR/D). The review is timely: Europe needs effective, understandable and deliverable changes to the current framework to reduce the fragmentation and increase the size, competitiveness and attractiveness, of EU capital markets.

AddedMembers of the expert stakeholder group shall be selected following an open and transparent selection procedure. In selecting the members of the expert stakeholder group, the Commission shall ensure that they reflect the diversity of market participants across the Union.

RemovedNonetheless, the rapporteur has identified certain areas for improvement. The amendments included in the report are informed by the desire to establish a regulatory framework conducive to an environment where all market participants benefit from trading. The amendments are guided by four main principles:

AddedThe expert stakeholder group shall elect a Chair from among its members. The position of Chair shall be held for a period of two years. The European Parliament may invite the Chair of the expert stakeholder group to make a statement before it and answer any questions from its members whenever so requested.

Removeda. reducing fragmentation and cross-border barriers;

Added2. ESMA shall develop draft regulatory technical standards to specify, where necessary, the quality and the substance of the core market data,▌ the quality of the transmission protocol, and measures to address erroneous trade reporting and enforcement standards in relation to data quality.

Removedb. levelling the playing field, supporting a healthy degree of competition between different execution venues and methods;

AddedThose draft regulatory technical standards shall in particular specify all of the following:

Removedc. allowing EU firms to be competitive internationally and more attractive for EU and third-countries investors;

Added(a) the content and the format of the core market data fields and the regulatory data fields, in accordance with prevailing industry standards and practices;

Removedd. encouraging retail participation and strengthening investor protection.

Added(b) any data fields required to be contributed to and by the CTP in addition to core market data as referred to in Article 2(1)(36b) and▌ regulatory data as referred to in Article 2(1)(36c);

RemovedIt is clear that the changes require careful calibrations, in the spirit of an overall balanced approach and to the long-term benefit of EU market participants. The rapporteur has extensively engaged with market participants and national competent authorities, and has elaborated what is intended to be an ambitious yet balanced text, whose main changes classified into three areas: consolidated tape (CT), market structure and transparency, forwarding and execution of client orders.

Added(ba) what constitutes the transmission of data “as close to real time as technically possible”.

RemovedConsolidated Tape

AddedFor the purposes of the first subparagraph, ESMA shall take into account the advice from ▌the ▌expert stakeholder group established in accordance with paragraph 1, international developments, and standards agreed at Union or international level. ESMA shall ensure that the draft regulatory technical standards take into account the reporting requirements laid down in Articles 3, 6, 8, 10, 14, 18, 20, 21 and 27g.

RemovedIn its proposal, the Commission seeks to establish the conditions for the emergence of a CT in Europe across all asset classes. The rapporteur shares this objective: a CT displaying real-time prices for financial instruments across the Union is a fundamental tool to reduce fragmentation and improve the attractiveness of EU capital markets, and will provide great benefits to end investors.

AddedESMA shall submit those draft regulatory technical standards to the Commission by [12 months after the date of entry into force of this amending Regulation].

RemovedThe different CTs should be introduced in a phased approach - starting with bonds, then equities/ETFs and derivatives - and with no longer than six months between the initiation of the process for appointing the CTP in each asset class. To ensure an effective oversight of the tape by EU public authorities, ESMA should be granted sufficient time to run the selection and authorisation processes and address outstanding data issues. With respect to the latter, ESMA should consider industry’s prevailing standards and practices, to maximise the value of the CT for its users.

AddedPower is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

RemovedThe efficiency of the CT will be proportionate to the value it provides to its users - in this sense, it is essential that the equity tape contains real-time, pre-trade information, necessary to inform investors’ trading decisions. While the biggest players in the market will continue to seek access to the data stream that they currently use, a pre-trade CT in equity will be a great addition for players such as small and medium-size asset managers, or foreign investors seeking to access the EU markets. The CT should also be a tool for retail investors, and for them it should be intelligible easy to access and free or, at most, only requiring the payment of a symbolic amount.

Added1. Trading venues and their members or participants, systematic internalisers, APAs and CTPs shall synchronise their business clocks to record the date and time of any reportable event.

RemovedThe rapporteur recognises that the introduction of a CT for equities may impact regulated markets, which derive a significant share of their revenues from market data. Hence, the amendments introduce an exemption from mandatory contributions for markets that either (i) represent less than 1% of the total EU average daily trading volume, or (ii) do not contribute significantly to the fragmentation of EU markets as they mostly trade shares for which they are also the venue of primary admission.

Added2. ESMA shall, in accordance with international standards, develop draft regulatory technical standards to specify the level of accuracy to which clocks are to be synchronised.

RemovedNonetheless, the rapporteur believes that the inclusion of all EU regulated markets in the CT would be beneficial for end investors, increase the attractiveness of the Union markets lead to an increase in trading volumes and visibility for smaller regulated markets - in line with the objectives of the Capital Markets Union action plan. The amendments therefore includes an opt-in option to the mandatory contribution scheme for those exemptible regulated markets. In those cases, a higher share of the CT revenues should be re-allocated to them.

AddedESMA shall submit those draft regulatory technical standards to the Commission by [OP insert a date 6 months as of entry into force].

RemovedMarket structure and transparency

AddedPower is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.’;

Removeda. Waivers, DVC and SIs quoting and execution rules

Added(11) in Article 23, paragraph 1 is replaced by the following:

RemovedToday market participants must adhere to highly complex transparency rules, including the application of waivers, deferrals and the cap mechanism. The amendments seek to simplify these rules to the benefit of the EU market structure and to increase the competitiveness and attractiveness of EU markets as a whole.

Added‘1. An investment firm shall ensure that the trades it undertakes in shares with an EEA International Securities Identification Number (ISIN) admitted to trading on a regulated market shall take place on a regulated market, MTF, systematic internaliser or a third-country trading venue assessed as equivalent in accordance with Article 25(4), point (a) of Directive 2014/65/EU, as appropriate, unless :

RemovedThere is also a recognition of the necessity to increase pre-trade transparency and thereby reinforce the price formation process, while ensuring that market quality, overall liquidity on EU trading venues and the domestic and international competitiveness and attractiveness of EU markets and firms are fostered.

Added(a) those shares are traded on a third-country venue in a non-EEA currency; or

RemovedAs such, the rapporteur proposes a rebalancing of the rules governing capital markets by limiting the use of the waivers to pre-trade transparency obligations under Article 4 of MiFIR. The threshold for the use of those waivers should be determined by ESMA, and not be higher than twice the standard market size. This proposal introduces greater flexibility than the Commission’s proposed fixed threshold, allowing ESMA to factor in different elements when determining the threshold.

Added(b) those trades are carried out between eligible counterparties, between professional counterparties or between eligible and professional counterparties and do not contribute to the price discovery process.

RemovedAt the same time, the cap mechanism limiting dark trading under these waivers should be suspended. These caps were set arbitrarily and proved to be of limited utility, and their removal would reduce complexity and align the Union with international practices.

Added▌

RemovedSIs quoting and executions rules are also reviewed, applying the same threshold as that under Article 4 of MiFIR.

Added(11a) Article 25 is amended as follows:

RemovedThe increase of the threshold for the use of waivers, the limits to SIs quoting and execution, and the suspension of the cap mechanism should achieve the dual objective of strengthening trading in lit venues while simplifying the rules, maintaining the competitiveness of EU firms and the number of trading choices available to end-investors. ESMA should be monitoring the impact of these changes on the functioning of markets, and intervene if the price formation process is undermined.

Added(a) paragraph 2 is replaced by the following:

Removedb. Non-equities deferrals

Added‘2. The operator of a trading venue shall keep at the disposal of the competent authority, for at least five years, the relevant data relating to all orders in financial instruments which are advertised through their systems in an electronic and machine-readable format and using a common template in accordance with the ISO 20022 methodology. The records shall contain the relevant data that constitute the characteristics of the order, including those that link an order with the executed transaction(s) that stems from that order and the details of which shall be reported in accordance with Article 26(1) and (3). ESMA shall perform a facilitation and coordination role in relation to the access by competent authorities to information under this paragraph.’;

RemovedTo simplify the current regime and ensure end-investors transparency, the rapporteur believes that the deferral regime for non-equities should be harmonised at Union level. The price and the volume of a non-equity transaction should be published as close to real time as possible, and the price should only be delayed until maximally the end of the trading day. Evidence from other jurisdictions indicate that shorter deferrals are beneficial for end-investors and - for certain categories of transactions - do not affect negatively the liquidity available in the markets. At the same time, in recognition of the need for liquidity providers not to be exposed to undue risks, the amendments allow for the masking of the price and volume of very large transactions for a maximum of four weeks. The exact calibration of the various buckets for the deferrals should be left to ESMA, but the proposed approach should ensure greater transparency while accounting for the different necessities of market participants.

Added(b) in paragraph 3, the first subparagraph is replaced by the following:

Removedc. SIs definition and reporting requirements

Added‘ESMA shall develop draft regulatory technical standards to specify the details and formats of the relevant order data required to be maintained under paragraph 2 of this Article that is not referred to in Article 26.’

RemovedThe existing reporting regime for investment firms created uncertainty about who should report the trade and lead to duplicative reporting. Besides, the link between the reporting obligation and the status of a SI led to an inflated number of SIs in the Union, distorting the picture of market participants. The amendments thus seek to decouple the SI status and the reporting requirements, introducing the possibility for market participants to register as a ‘designated reporting entity’ (DRE).

Added(11b) in Article 26, paragraph 1 is replaced by the following:

RemovedESMA should establish a register of all SIs and DREs, specifying their identity and the instruments or classes of instruments for which they are either an SI or a DRE. This would remove uncertainty and would reduce the regulatory burden for investment firms, particularly smaller ones. The rapporteur believes that under this approach, firms qualifying or opting in as SIs will only be those firms acting as liquidity providers, providing further clarity to the overall equity market structure.

Added‘1. Investment firms which execute transactions in financial instruments shall report complete and accurate details of such transactions to the competent authority as quickly as possible, and no later than the close of the following working day.

Removedd. DTO suspension

AddedThe competent authorities shall, in accordance with Article 85 of Directive 2014/65/EU, establish the necessary arrangements in order to ensure that the competent authority of relevant markets also receive that information.

RemovedThe rapporteur shares the Commission’s aim to enhance the Union’s clearing capacity by introducing a targeted suspension of the derivatives trading obligations (DTO). The COM proposal addresses the impact of the dealer-to-customer market by allowing for the temporary suspension when receiving client quotes from counterparties with no active membership on an EU trading venue. However, this solution does not address the dealer-to-dealer market for CDS in Europe. The amendment introduces the possibility for DTO suspensions in favour of dealer-to-dealer platforms that have established links to CCPs established in the Union, directly supporting the EU agenda to support the competitiveness of EU CCPs and clearing in the EU.

AddedThe competent authorities shall without undue delay make available to ESMA any information reported in accordance with this Article.

RemovedForwarding and execution of client orders

Added1a. By ... [12 months after the date of entry into force of this amending Regulation], the Commission shall, in close cooperation with ESMA, assess the possibility of extending the requirements of this Article to AIFMs as defined in Article 4(1), point (b) of Directive 2011/61/EU, and management companies, as defined in Article 2.1b of Directive 2009/65/EC, which provide investment services and activities, as defined in Article 4(1), point (2) of Directive 2014/65/EU and which execute transactions in financial instruments. In particular, the Commission shall include a cost-benefit analysis and an evaluation of the scope of such extension.