MiFID II

Delegated Acts Under the MiFID II Directive (2014/65/Eu) Published in OJ

 

On March 31, 2017, 28 Delegated Regulations supplementing the Markets In Financial Instruments Directive (“MiFID II“) (2014/65/Eu) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“) were published in the OJ, together with a Delegated Directive supplementing the MiFID. The Delegated Regulations will enter into force 20 days after their publication in the OJ (that is, April 20, 2017). They will apply from January 3, 2018, with the exception of certain provisions in Delegated Regulations 2017/567, 2017/571, 2017/581, 2017/583, 2017/587, 2017/588 and 2017/590.

The Delegated Regulations are:

  1. Commission Delegated Regulation (EU) 2017/565 of April 25, 2016, supplementing MiFID II with regard to organizational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive;
  2. Commission Delegated Regulation (EU) 2017/566 of May 18, 2016, supplementing MiFID II with regard to regulatory technical standards (“RTS“) for the ratio of unexecuted orders to transactions in order to prevent disorderly trading conditions;
  3. Commission Delegated Regulation (EU) 2017/567 of May 18, 2016, supplementing MiFIR with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions;
  4. Commission Delegated Regulation (EU) 2017/568 of May 24, 2016, supplementing MiFID II with regard to RTS for the admission of financial instruments to trading on regulated markets;
  5. Commission Delegated Regulation (EU) 2017/569 of May 24, 2016, supplementing MiFID II with regard to RTS for the suspension and removal of financial instruments from trading;
  6. Commission Delegated Regulation (EU) 2017/570 of May 26, 2016, supplementing MiFID II on markets in financial instruments with regard to RTS for the determination of a material market in terms of liquidity in relation to notifications of a temporary halt in trading;
  7. Commission Delegated Regulation (EU) 2017/571 of June 2, 2016, supplementing MiFID II with regard to RTS on the authorization, organizational requirements and the publication of transactions for data reporting services providers;
  8. Commission Delegated Regulation (EU) 2017/572 of June 2, 2016, supplementing MiFIR with regard to RTS on the specification of the offering of pre- and post-trade data and the level of disaggregation of data;
  9. Commission Delegated Regulation (EU) 2017/573 of June 6, 2016, supplementing MiFID II on markets in financial instruments with regard to RTS on requirements to ensure fair and nondiscriminatory co‑location services and fee structures;
  10. Commission Delegated Regulation (EU) 2017/574 of June 7, 2016, supplementing MiFID II with regard to RTS for the level of accuracy of business clocks;
  11. Commission Delegated Regulation (EU) 2017/575 of June 8, 2016, supplementing MiFID II on markets in financial instruments with regard to RTS concerning the data to be published by execution venues on the quality of execution of transactions;
  12. Commission Delegated Regulation (EU) 2017/576 of June 8, 2016, supplementing MiFID II with regard to RTS for the annual publication by investment firms of information on the identity of execution venues and on the quality of execution;
  13. Commission Delegated Regulation (EU) 2017/577 of June 13, 2016, supplementing MiFIR on markets in financial instruments with regard to RTS on the volume cap mechanism and the provision of information for the purposes of transparency and other calculations;
  14. Commission Delegated Regulation (EU) 2017/578 of June 13, 2016, supplementing MiFID II on markets in financial instruments with regard to RTS specifying the requirements on market making agreements and schemes;
  15. Commission Delegated Regulation (EU) 2017/579 of June 13, 2016, supplementing MiFIR on markets in financial instruments with regard to RTS on the direct, substantial and foreseeable effect of derivative contracts within the Union and the prevention of the evasion of rules and obligations;
  16. Commission Delegated Regulation (EU) 2017/580 of June 24, 2016, supplementing MiFIR with regard to RTS for the maintenance of relevant data relating to orders in financial instruments;
  17. Commission Delegated Regulation (EU) 2017/581 of June 24, 2016, supplementing MiFIR with regard to RTS on clearing access in respect of trading venues and central counterparties;
  18. Commission Delegated Regulation (EU) 2017/582 of June 29, 2016, supplementing MiFIR with regard to RTS specifying the obligation to clear derivatives traded on regulated markets and timing of acceptance for clearing;
  19. Commission Delegated Regulation (EU) 2017/583 of July 14, 2016, supplementing MiFIR on markets in financial instruments with regard to RTS on transparency requirements for trading venues and investment firms in respect of bonds, structured finance products, emission allowances and derivatives;
  20. Commission Delegated Regulation (EU) 2017/584 of July 14, 2016, supplementing MiFID II with regard to RTS specifying organizational requirements of trading venues;
  21. Commission Delegated Regulation (EU) 2017/585 of July 14, 2016, supplementing MiFIR with regard to RTS for the data standards and formats for financial instrument reference data and technical measures in relation to arrangements to be made by ESMA and competent authorities;
  22. Commission Delegated Regulation (EU) 2017/586 of July 14, 2016, supplementing MiFID II with regard to RTS for the exchange of information between competent authorities when cooperating in supervisory activities, on-the-spot verifications, and investigations;
  23. Commission Delegated Regulation (EU) 2017/587 of July 14, 2016, supplementing MiFIR on markets in financial instruments with regard to RTS on transparency requirements for trading venues and investment firms in respect of shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments and on transaction execution obligations in respect of certain shares on a trading venue or by a systematic internalizer;
  24. Commission Delegated Regulation (EU) 2017/588 of July 14, 2016, supplementing MiFID II with regard to RTS on the tick size regime for shares, depositary receipts, and exchange-traded funds;
  25. Commission Delegated Regulation (EU) 2017/589 of July 19, 2016, supplementing MiFID II with regard to RTS specifying the organizational requirements of investment firms engaged in algorithmic trading;
  26. Commission Delegated Regulation (EU) 2017/590 of July 28, 2016, supplementing MiFIR with regard to RTS for the reporting of transactions to competent authorities;
  27. Commission Delegated Regulation (EU) 2017/591 of December 1, 2016, supplementing MiFID II with regard to RTS for the application of position limits to commodity derivatives; and

Commission Delegated Regulation (EU) 2017/592 of December 1, 2016, supplementing MiFID II with regard to RTS for the criteria to establish when an activity is considered to be ancillary to the main business.

European Commission Responds to ECON Concerns About MiFID II Systematic Internalizers Operating Broker Crossing Networks

 

The European and Monetary Affairs Committee (ECON) has published correspondence between the European Parliament’s negotiating team for the Markets in Financial Instruments Directive (“MiFID“) II package of measures and Vice-President Valdis Dombrovskis about concerns relating to the potential establishment of networks of systematic internalizers (“SIs“) and of other liquidity providers that might circumvent certain MiFID II obligations, in particular concerning the trading of shares.

In a letter dated February 24, 2017, the negotiating team refers to the European Securities and Markets Authority’s (“ESMA“) letter from February 1 to Olivier Guersent, Director General, Financial Services and Capital Markets Union. The negotiating team and ESMA share the same concern that certain investment firms may be setting up interconnected SIs to cross third-party buying and selling interests via matched principal trading or other types of back-to-back transactions. The negotiating team has asked the European Commission to examine whether these practices comply with the letter and spirit of the MiFID II framework.

Mr. Dombrovskis responded in a letter dated March 16, 2017, setting out the conclusions of an initial investigation into the issue. He explained that a group of exchange operators are concerned about attempts to establish broker crossing networks in which both SIs and high frequency trading (HFT) firms interact in a manner that market operators describe as multilateral. Market operators are concerned that such networks may not be considered a multilateral trading system by all competent authorities, and so some variants of broker crossing networks may not be required to be authorized as multilateral trading facilities (“MTFs“). On the other hand, investment firms argue that the establishment of electronic links between SIs and other liquidity providers would not amount to the creation of an MTF. Market operators have requested that guidance be issued to the effect that such networks involving the rapid exchange of order information between participating SIs is an MTF and should be authorized as such.

The European Commission proposes to engage in a dialogue with ESMA and competent national regulators to determine the jurisdictions that the alleged broker crossing networks could potentially be established in. The European Commission will then engage with the relevant authorities on how to address the establishment of such networks within the MiFID II rules.

European Commission Adopts Delegated Regulation of RTS for Specifying Information to be Notified by Investment Firms, Market Operators and Credit Institutions under MIFID II

On June 29, 2016, the European Commission adopted a Delegated Regulation supplementing the MiFID II Directive with regard to regulatory technical standards (RTS) specifying information to be notified by investment firms, market operators and credit institutions exercising their rights under the freedom to provide services or the freedom of establishment.

ESMA was required to develop an exhaustive list of information to be notified to the relevant competent authority by such investment firms and credit institutions under Articles 34(8) and 35(11) of MiFID II. The Commission’s Delegated Regulation is based on the draft RTS submitted by ESMA to the Commission in June 2015.

The purpose of the RTS are to provide certainty, clarity and predictability in the passport notification process for investment firms and to facilitate the review by competent authorities through the use of harmonized documents.

The Council of the EU and the European Parliament will consider the Delegated Regulation and if neither of them objects, it will enter into force 20 days after its publication in the Official Journal of the EU (OJ).   It will apply from the date appearing in the second sub-paragraph of Article 93(1) of the MiFID II Directive.

Council of Europe Enacts Delay to MIFID II

On June 17, the Council of the EU issued a press release regarding its adoption of a regulation and a directive enacting a one-year delay to the new securities market rules.

Under the new regulation the deadline for member states to transpose MIFID II into national legislation is July 3, 2017 and the date of application of both MIFID II and MIFIR is January 3, 2018.

European Commission Adopts Delegated Regulations on RTS Relating to Execution Venues under MiFID II

On June 8, 2016, the European Commission adopted the following two Delegated Regulations supplementing the MiFID II Directive (2014/65/EU):

  1. A Delegated Regulation (C(2016) 3333 final) in relation to regulatory technical standards (RTS) surrounding the data to be published by execution venues on the quality of execution of transactions, together with an Annex. For financial instruments subject to the trading obligation, each trading venue and systematic internalizer must, under MiFID II, make available to the public, at no cost and on at least an annual basis, data relating to the quality of execution of transactions on that venue.
  2. A Delegated Regulation (C(2016) 3337 final) in relation to RTS for the annual publication by investment firms of information on the identity of execution venues and on the quality of execution, together with an Annex. Investment firms that execute client orders must, under MiFID II, summarize and make available annually, the top five execution venues in terms of trading volumes where they executed client orders in the preceding year, and information on the quality of execution obtained.

It is now for the Council of the EU and the European Parliament to consider the Delegated Regulations. Subject to any objection, they shall enter into force 20 days after their publication in the Official Journal of the EU (OJ).

European Parliament Votes to Postpone MiFID II Implementation until January 2018

On June 7, 2016, the European Parliament published a press release announcing that it has voted to postpone the implementation of MiFID II (the MiFID II Directive (2014/65/EU)) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR)) until January 3, 2018. This grants member states a year’s extension on the original July 3, 2016 deadline to transpose the legislation. The extension was triggered by the European Commission and the European Securities and Markets Authority’s (ESMA) delay in producing the necessary technical standards.

MiFID II intends to close the gaps left by MiFID I. Following the financial crisis, it was introduced to create a single market for investment services and activities, with the aim of improving the competitiveness of EU financial markets. The Parliament, through MiFID II, seemingly aims to introduce: (i) a dedicated regime for the treatment of package transactions with regards to pre-trade transparency obligations; (ii) clarification for the own-account exemption for corporate end-users and securities financing transactions, which are excluded from MiFID transparency obligations; and (iii) a technical cross-referencing issue between the Prospective Directive (2003/71/EC) and MiFID II.

On June 8, the Parliament proceeded to publish the provisional edition of: (i) the text of the legislative proposal for a Directive amending the MiFID II Directive as regards certain dates; and (ii) the text of the legislative proposal amending the MiFIR, the Market Abuse Regulation (Regulation 596/2014) (MAR) and the Regulation on improving securities settlement and regulating central securities depositories (CSDs) (Regulation 909/2014) (CSDR) as regards certain dates.

It now remains for the proposals to be formally adopted by the Council, following which they will be published in the Official Journal of the EU (OJ) and enter into force in line with the timing stipulated in the legislation.

ESMA Publishes Opinion on MiFIR II RTS on Ancillary Activities

ESMA has published an opinion proposing amendments to its draft technical standards (“RTS“) under the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR) relating to criteria to establish when a non-financial firm’s commodity derivatives trading activity is considered to be ancillary to its main business. The revised draft RTS are set out in an annex to the opinion.

In response to the draft text submitted by ESMA to the European Commission in September 2015, the Commission requested that ESMA include in its RTS a capital-based test for groups that have undertaken significant capital investments in creating infrastructure, transportation or production facilities or groups that undertake activities or investments that cannot be hedged in financial markets.

ESMA maintains that its business activity test was in line with the objectives set out in MiFID II, and a capital based test has significant drawbacks. However, it has identified some metrics for a numerator and denominator that the Commission could use to construct a capital test as an alternative to ESMA’s main business test. In cases where a capital test is introduced, ESMA proposes to allow entities choose between performing the original main business test based on trading activity or a capital test to avoid putting small and medium-sized entities at a disadvantage. Opinion.

ESMA Publishes New Q&A on CFDs and Other Speculative Products

The European Securities and Markets Authority (ESMA) has published a new question and answer document (ESMA/2016/590) on the application of MiFID to the marketing and sale of financial contracts for difference (CFDs) and other speculative products to retail clients.

ESMA explains that, although CFDs and other speculative products (such as binary options and rolling spot forex) are complex products, they are widely advertised to the retail mass market by a number of firms, often through online platforms. The Q&A document is designed to promote common supervisory approaches and practices in the application of MiFID and its implementing measures to key aspects that are relevant when CFDs and other speculative products are sold to retail clients. Although they are targeted at competent authorities, the answers are also intended to help firms by providing clarity on MiFID requirements.

ESMA has also added that, while the Q&A refer to MiFID, the principles and requirements underpinning the content of the document will remain unchanged once MiFID II enters into application.

European Commission Adopts Delegated Directive Supplementing MiFID II

On April 7, 2016, the European Commission adopted a Delegated Directive supplementing MiFID II regarding the safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision of reception of fees, commissions or any monetary or non-monetary benefits (i.e. inducements).

The aim of the draft Delegated Directive is to specify further the following MiFID II rules and details for their implementation:

  • The safeguarding of clients’ financial instruments and funds;
  • Product governance obligations for investment firms manufacturing or distributing financial instruments (or both);
  • The provision or reception of inducements.

The draft Delegated Directive is based on the final technical advice on MiFID II and MiFIR provided to the Commission by ESMA in December 2014. The Council of the EU and the European Parliament will now consider the Delegated Directive. If neither of them object, it will enter into force twenty days after publication in the Official Journal.