MiFID II (Directive 2014/65/EU)

COREPER Publishes Position on European Crowdfunding Service Providers

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On June 26, a press release was published by the Council of the EU’s Permanent Representatives Committee (COREPER). COREPER has agreed its position relating to the proposed Regulation on European crowdfunding service providers and the proposed Directive making consequential amendments to the MiFID II Directive (2014/65/EU).

The press release states that the EU is setting out a new regulatory framework for the operation of crowdfunding platforms. The new framework will make it easier for crowdfunding platforms to provide their services across the EU. It harmonizes the minimum requirements on these platforms when operating in their home market and other EU countries. The proposal also increases legal certainty by harmonizing investor protection rules.

COREPER’s position

  • removes barriers for crowdfunding platforms operating across borders;
  • provides tailored rules for EU crowdfunding businesses depending on whether they provide their funding in the form of a loan or an investment (through shares and bonds issued by the company that raises funds);
  • provides a common set of prudential, information and transparency requirements to ensure a high level of investor protection; and
  • defines common authorization and supervision rules for national competent authorities.

According to COREPER’s position, the proposal covers crowdfunding campaigns of up to €8 million over a 12-month period as a general rule. Where member states have decided to set the threshold for prospectus obligations below €8 million, they should be able to prohibit the raising of capital for crowdfunding projects from its residents for amounts exceeding that national threshold. Larger operations are regulated by MiFID and the prospectus regulation. Reward- and donation-based crowdfunding fall outside the scope of the proposal since they cannot be regarded as financial services.

European Commission Adopts Delegated Regulation on RTS for the Application of Position Limits to Commodity Derivatives

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On December 1, 2016, the European Commission adopted a Delegated Regulation supplementing the MiFID II Directive (2014/65/EU) in relation to regulatory standards (“RTS“) for the application of position limits to commodity derivatives (2016) 4362 final).

The MiFID II Directive requires that competent authorities, in line with ESMA’s methodology, establish and apply position limits on the size of a net position a person can hold in certain commodity derivatives and economically equivalent OTC (EEOTC) contracts. Article 57(3) and (12) of the MiFID II Directive empowers ESMA to develop RTS providing the basis of the methodology for the calculation and application of the position limits.

In September 2015, ESMA submitted the draft RTS to the Commission. The Commission then notified ESMA in April 2016 that it intended to endorse the RTS, provided that a number of changes were made. ESMA submitted revised draft RTS to the Commission in May 2016. The Commission explains that the amended provisions create a more stringent regime for liquid contracts whose underlying product is food for human consumption. Further, it caps the upper position for new and illiquid contracts to 40%, but stipulates that upper position limits of up to 50% can be imposed on a temporary basis. The proposed methodology also highlights how competent authorities are to consider volatility when setting position limits.

The Council of the EU and the European Parliament are now to consider the Delegated Regulation. Should neither of them object, it will enter into force 20 days after its publication in the Official Journal of the EU (OJ).

European Commission Adopts Delegated Regulation on RTS on Criteria for Establishing When an Activity Is Considered to Be Ancillary to the Main Business

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The European Commission adopted, on December 1, 2016, a Delegated Regulation supplementing the MiFID II Directive (2014/65/EU) in relation to regulatory technical standards (“RTS“) on the criteria for establishing when an activity is considered to be ancillary to a firm’s main business (C(2016) 7643 final).

The MiFID II Directive exempts persons dealing on their own account, or providing investment services to clients, in commodity derivatives and emission allowances, provided that activity is ancillary to their main business and their main business is not the provision of investment services or banking activities. Article 2(4) of the MiFID II Directive gives the Commission power to adopt RTS specifying the criteria for establishing when an activity is to be considered ancillary to the main business of a group.

ESMA submitted draft RTS to the Commission in September 2015. The Commission notified ESMA in April 2016 that it intended to endorse the draft RTS, subject to several amendments being made. In May 2016, ESMA submitted a formal opinion and a revised draft of the RTS to the Commission.

It is now for the Council of the EU and the European Parliament to consider the Delegated Regulation. Should neither of them object, it will enter into force 20 days after its publication in the Official Journal of the EU (OJ) and will apply from January 3, 2018.

Permanent Representatives Committee Approves Delay to New Securities Market Rules

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On May 18, 2016, the Permanent Representatives Committee approved, on behalf of the Council of the EU, an agreement with the European Parliament for a one-year delay to the dates of transposition and application of the MIFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MIFIR”). This was announced in a press release of the Council of Europe.

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

ESMA Consults on Remaining MiFID II Draft ITS

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On August 31, 2015, the European Securities and Markets Authority (ESMA) published a consultation paper on the remaining draft implementing technical standards (ITS) under the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR).

The consultation will close on October 31, 2015, and focuses on three key areas: the timing and format of publications and communications in case of suspension and removal of financial instruments from trading on trading venues; notification and provision of information for data reporting services providers; and weekly aggregated position reports for commodity derivatives, emission allowances and derivatives thereof to deliver transparency and support monitoring of the new position limits regime.

ESMA Comments on MiFID II Implementing Measures

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On June 16, 2015, the European Securities and Markets Authority (ESMA) published a statement by on its work on implementing measures under MiFID II (Directive 2014/65/EU) and MiFIR (Regulation 600/2014).

The statement explains that the following three areas are receiving the most attention from stakeholders:

  • Non-equity transparency.  ESMA acknowledges that it will not be able to find the ideal system that perfectly balances transparency and liquidity and that will satisfy the preferences of all market participants. However, ESMA is trying to find reasonable and workable compromises and it is ready to look at the non-equity rules again, once they are in operation, to react to potential deficiencies. ESMA is also thinking about a more flexible system that better reflects market developments and that can be based on better quality data. ESMA’s approach on bond market transparency is likely to look different to the position consulted on.
  • Position limits. The range of contracts captured varies from highly liquid to completely illiquid. This wide variation implies that ESMA has to be cautious and that a one-size-fits-all approach cannot be the solution.
  • Ancillary activity. There will be “major refinements” in ESMA’s proposal compared to the text that was consulted on in relation to the test of whether non-investment firms perform investment services as an ancillary activity to their main business.