Changes from report parliamentary committee draft to plenary report

RemovedEXPLANATORY STATEMENT

Added(b) point (20) is replaced by the following:

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.

Added‘(20) ‘systematic internaliser’ means an investment firm which, on an organised, frequent, systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system; the definition of a systematic internaliser shall apply only where the qualitative criteria indicating that an investment firm performs its activities on an organised, frequent, systematic and substantial basis are met, or where an investment firm chooses to opt-in under the systematic internaliser regime;’;

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:

Added3a. in Article 16, the following paragraph is inserted:

Removeda. reducing fragmentation and cross-border barriers;

Added‘10a. An investment firm that is a market data contributor within the meaning of Article 2(1), point (34a), of Regulation (EU) No 600/2014 shall have arrangements in place to ensure it meets the data quality standards set out in Article 22b of that Regulation.’;

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

Added3b. Article 18 is amended as follows:

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

Added(a) the following paragraph is inserted:

Removedd. encouraging retail participation and strengthening investor protection.

Added‘2a. Member States shall require market operators and investment firms operating an MTF or an OTF to establish and maintain effective arrangements to verify that issuers of transferable securities that are traded under its systems have obtained the ISO 17442 Legal Entity Identifier.’;

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(b) paragraph 8 is replaced by the following:

RemovedConsolidated Tape

Added‘8. Where a transferable security that has been admitted to trading on a regulated market is also traded on an MTF or an OTF without the consent of the issuer, the issuer shall not be subject to the obligation set out in paragraph 2a or to any obligation relating to initial, ongoing or ad hoc financial disclosure with regard to that MTF or an OTF.’;

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.

Added4. Article 27 is amended as follows:

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.

Added(-a) paragraph 2 is deleted;

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.

Added(a) paragraph 3 is replaced by the following:

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.

Added‘3. In the case of financial instruments that are subject to the trading obligation set out in Articles 23 and 28 Regulation (EU) No 600/2014, Member States shall require that, following execution of a transaction on behalf of a client, the investment firm shall inform the client where the order was executed.’;

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.

Added(aa) paragraph 6 is deleted;

RemovedMarket structure and transparency

Added(b) ▌paragraph 10 is replaced by the following:

Removeda. Waivers, DVC and SIs quoting and execution rules

Added‘10. ESMA shall develop draft regulatory technical standards on the criteria to be taken into account when defining and assessing the order execution policy under paragraphs 5 and 7, taking into account whether the orders are executed on behalf of retail or professional clients.

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.

AddedThose criteria shall include at least the following:

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) factors determining the choice of execution venues included in the order execution policy;

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) the periodicity of assessing and updating the order execution policy;

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(c) ways of defining classes of financial instruments under paragraph 5.

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

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

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.

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

Removedb. Non-equities deferrals

Added5. in Article 31(1), the following sentence is added:

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‘Investment firms and market operators operating an MTF or an OTF shall have arrangements in place to ensure they meet the data quality standards as set out in Article 22b of Regulation (EU) No 600/2014.’;

Removedc. SIs definition and reporting requirements

Added6. in Article 47(1), the following points (g) and (ga) are added:

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‘(g) to have arrangements in place to ensure they meet the data quality standards as set out in Article 22b of Regulation (EU) No 600/2014.

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(ga) to have at least three materially active members or users, each having the opportunity to interact with all the others in respect to price formation.’;

Removedd. DTO suspension

Added6a. Article 48 is amended as follows:

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.

Added(a) paragraph 5 is amended as follows:

RemovedForwarding and execution of client orders

Added(i) the first subparagraph is replaced by the following: