Markets in Financial Instruments Directive

SEC Announces Measures to Facilitate Cross-Border Implementation of the European Union’s MiFID II’s Research Provisions

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On October 26, 2017, the Securities and Exchange Commission (“SEC”) announced that, “following consultation with European authorities, and in response to concerns that investors could lose access to valuable research, the staff of the U.S. Securities and Exchange Commission issued three related no-action letters. These letters are designed to provide market participants with greater certainty regarding their U.S. regulated activities as they engage in efforts to comply with the European Union’s (EU) Markets in Financial Instruments Directive (MiFID II) in advance of the Jan. 3, 2018, implementation date.”

According to the SEC, the no-action relief “provides a path for market participants to comply with the research requirements of MiFID II in a manner that is consistent with the U.S. federal securities laws. More specifically, and subject to various terms and conditions: (1) broker-dealers, on a temporary basis, may receive research payments from money managers in hard dollars or from advisory clients’ research payment accounts; (2) money managers may continue to aggregate orders for mutual funds and other clients; and (3) money managers may continue to rely on an existing safe harbor when paying broker-dealers for research and brokerage.”

The Press Release announcing these developments can be found here.

EBA Launches Supplementary Data Collection on Revision of Investment Firm Prudential Framework

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On July 6, 2017, the European Banking Authority (“EBA“) published a press release announcing the launch of a supplementary data collection relating to its proposals for a revised prudential framework for investment firms. It also published a template for investment firms authorized under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID) with instructions.

This exercise follows up on the first data collection launched on July 15, 2016, and the discussion paper published by the EBA on November 4, 2016, in which the EBA consulted on its proposals for developing a new prudential framework.

The EBA notes that, following feedback to the discussion paper, it has improved its initiation proposals concerning primarily the calculation of capital requirements based on risk proxies (known as “K-factors“) under the following three types of risk: (i) risk to customers (RtC), risk to market (RtM) and risk to firm (RtF). It has decided to undertake a supplementary data collection to allow for a complete calibration of all the relevant aspects of the new prudential regime and a final impact assessment of its proposal on regulatory capital requirements. The data collection has been designed to reduce that burden by limiting the number of variables requested to the minimum necessary to accomplish the intended purpose.

The deadline for firms to submit completed templates to the relevant national competent authorities is August 3, 2017.

ESMA Updates Document on Waivers from MiFID Pre-Trade Transparency Requirements

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On June 20, 2016, the European Securities and Markets Authority (“ESMA“) published an updated version of the waiver document (ESMA/2011/241h) that sets out its assessment of applications for waivers from pre-trade transparency requirements under the Markets in Financial Instruments Directive (2004/39/EC) (“MiFID“).

The waiver document is aimed at competent authorities under MiFID to ensure that, in their supervisory activities, their actions converge with the opinions provided by ESMA. The examples are also intended to provide clarity for firms on the MiFID requirements for pre-trade transparency.

In the updated waiver document there is a new ESMA opinion relating to large-in-scale waivers. The new opinion, which is written in red, provides an example of functionalities that satisfy the MiFID criteria.

ESMA Reminds Firms of their Responsibilities when Selling Bail-In Securities

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On June 2, 2016, ESMA issued a statement (ESMA/2016/902) reminding banks and investment firms of their responsibility to act in their clients’ best interests when selling bail-in-able financial instruments.  The statement clarifies how credit institutions and investment firms should apply the requirements under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID) governing the distribution to clients of financial instruments subject to the BRRD resolution regime under the Bank Recovery and Resolution Directive (2014/59/EU).

The statement stresses that firms must comply with their obligations under MiFID and the importance of:

  • Providing investors with up-to-date, complete information drafted under the supervision of the compliance function.
  • Managing potential conflicts of interest, in particular, when a firm sells its own bail-in financial instruments directly to its customers (self-placement).
  • Ensuring the product is suitable and appropriate for the investor, which may entail collecting more in-depth information about the client than usual to reflect the fact a client could lose money without the firm entering into insolvency.

In an accompanying press release, ESMA explained that under the BRRD rules, which came into force in January 2016, firms are likely to issue a significant amount of potentially loss-bearing instruments to fulfil their obligations and raised its concern that investors (in particular retail investors) are unaware of the risks they may face when buying these instruments.

ESMA Publishes Final Technical advice on the MiFID II Directive and MiFIR

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On December 19, 2014, the European Securities and Markets Authority (ESMA) published final technical advice (ESMA/2014/1569) to the European Commission and a consultation paper (ESMA/2014/1570) on the MiFID II Directive (2014/65/EU) and MiFIR (the Markets in Financial Instruments Regulation (Regulation 600/2014).

The consultation paper includes draft regulatory technical standards (RTS) and implementing technical standards (ITS) under the MiFID II Directive and MiFIR.  The consultation paper invites responses to the draft RTS and ITS by March 2, 2015, and responses will be used to finalise the draft RTS which will be sent to the Commission for endorsement by the middle of 2015.  Technical Advice.  Consultation Paper.

ESMA Compliance Table Relating to MiFID Remuneration

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On October 7, the European Securities and Markets Authority (ESMA) published a guidelines compliance table relating to its guidelines on remuneration policies and practices under the Markets in Financial Instruments Directive (MiFID).

The table lists the jurisdictions whose national competent authorities (NCAs) have informed ESMA whether they comply or intend to comply with the guidelines. The only jurisdiction in the table listed as not complying is Germany. There is a comment in the table that states that the German NCA (BaFin) does not entirely comply with the guidelines insofar as it excludes from their scope any remuneration agreed within the scope of application of collective agreements. Guidelines Compliance Table.

ESMA Publishes Responses to Consultation on Draft RTS on Information Requirements

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On September 7, the European Securities and Markets Authority (ESMA) published a consultation paper on draft regulatory technical standards (RTS) on information requirements for the assessment of acquisitions and increases in holdings in investment firms under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID).

The bodies that responded to ESMA’s consultation were:

  • European Fund and Asset Management Association (EFAMA)
  • Investment Management Association (IMA)
  • European Federation of Financial Advisers and Financial Intermediaries (FECIF); and
  • European Private Equity and Venture Capital Association (ECVA).  Responses to Consultation.

European Commission Updates MiFID Q&A Website

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On July 22, the European Commission answered the question on whether a rolling spot Foreign Exchange on margin takes the form of a derivative contract or a contract for difference to be considered a financial instrument under the Markets in Financial Instruments Directive (MiFID).

The European Commission confirmed in its answer that a rolling spot FX contract can be indefinitely renewed, and no currency is actually delivered until a party affirmatively closes out its position, which exposes both parties to fluctuations in the underlying currencies.  Hence, rolling spot foreign exchange contracts are a type of derivative contract relating to currencies and are considered financial instruments as defined under MiFID.  Answer.

ESMA Publishes Responses to Call for Evidence on Transaction Reporting

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The European Securities and Markets Authority (ESMA) has published the responses it has received to its May 2012 call for evidence on transaction reporting. On 7 May 2012, ESMA published a call for evidence on transaction reporting. The purpose of the call for evidence was to gather initial views on ESMA’s work to develop guidelines on harmonised transaction reporting under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID). This followed the commitment made by ESMA’s predecessor, the Committee of European Securities Regulators (CESR), to review its May 2007 Level 3 guidelines on MiFID transaction reporting.

On the basis of responses received, ESMA intends to launch a full public consultation on guidelines on harmonised transaction reporting. Call for Evidence. Responses.