FMLC responds to MiFID Review consultation
29 March 2010
The Financial Markets Law Committee (FMLC) has published its response (dated 2 February 2011) to the European Commission’s consultation on the MiFID Review.
The FMLC has confined its response to those questions in the consultation that appear potentially to raise issues of legal uncertainty which may have an impact upon the financial markets. In particular:
- The FMLC has concerns regarding the proposal (set out in section 7.2.6 of the consultation paper) to introduce a principle of civil liability for investment service providers in order to harmonise investor protection in Member States. The FMLC takes the view that, whichever approach is adopted, it will be essential in the interests of legal certainty that the legislation expressly defines the categories of clients that will be affected and the MiFID rules to which civil liability will apply.
- The FMLC also has concerns regarding the proposal (set out in section 9 of the consultation paper) to develop a mechanism at the EU level to ban a particular financial instrument or activity. The FMLC believes that this proposal will give the supranational authority the power to override decisions taken by national regulators, which may remove legal certainty from the decision making process for both national regulators and the investment firms being regulated.
View FMLC response to Commission’s consultation on the MiFID Review
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Responses to the MiFID review
22 February 2011
On 8 December 2010, the European Commission Directorate General Internal Market and Services published a consultation document concerning the review of the Markets in Financial Instruments Directive (MiFID). The deadline for responding to this consultation was 2 February 2011.
The European Commission has now published the responses to the consultation. It has ordered these responses into three categories:
- Public authority – 28 responses.
- Registered organisation – 144 responses.
- Individuals/others – 187 responses.
The responses to the consultation will provide guidance for the Commission Services in preparing a formal Commission proposal, which is currently scheduled for adoption in Spring 2011.
View Responses to the MiFID review
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UK response to the Commission Services’ consultation on the MiFID review
9 February 2011
HM Treasury and the FSA have published a joint response to the European Commission consultation on the MiFID Review. In general the joint response notes surprise at the short consultation period and suggests that it is not conducive to sound policy making or the production of carefully considered legislative proposals.
View UK response to the Commission Services’ consultation on the review of the Markets in Financial Instruments Directive
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Speech by Mark Hoban on the MiFID Review
3 February 2011
HM Treasury has published a speech given by the Financial Secretary, Mark Hoban MP, to the Association for Financial Markets in Europe, on the MiFID Review.
In his speech Mr Hoban emphasised that he believed that any new legislation should pass three tests:
- That every proposal contained within it is grounded in conclusive evidence that demonstrates a need for intervention.
- That any new proposals contained within it deepen and strengthen the single market.
- That it is good for Europe’s global competitiveness and for the Single Market.
Mr Hoban went on to outline that he felt the MiFID Review could go further in protecting retail investors and avoiding regulatory arbitrage between sectors.
With regard to market structure, Mr Hoban outlined that he felt that the creation of a further category of organised trading facilities was ill defined, and that he felt it was unclear what would be included in this category.
Mr Hoban emphasised that he feels much more analysis is needed on the relative costs and benefits of high frequency trading and dark pools before it can be decided if the case for intervention has been made.
With regard to broker crossing networks, Mr Hoban questioned why, once a bespoke regime is in place, the European Commission feels there needs to be an automatic threshold to define a multilateral trading facility.
Mr Hoban concluded that any amendments to the current rules must be proportionate, grounded in fact and supportive of stability, growth and competitiveness.
View Speech by Mark Hoban on the MiFID Review
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BBA’s response to MiFID Review
3 February 2011
The British Bankers’ Association (BBA) has published its response to the European Commission's consultation on the review of the Markets in Financial Instruments Directive (the MiFID Review). The response states that the BBA is committed to supporting a European agenda that provides a sound and well resourced regulatory environment for financial services. However, in its response the BBA states that it has concerns vis a vis the MiFID Review over:
- New definitions of admission to trading and organised trading facility.
- Pre-trade transparency in non-equity markets.
- Post-trade transparency in non-equity markets.
- Classification of clients.
- Conduct of business rules.
- Power to ban products or activities.
View BBA’s response to Commission’s CP on MiFID Review
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Response of the FESE to the European Commission public consultation on the review of MiFID
2 February 2011
The Federation of European Securities Exchanges (FESE) has published its response to the European Commission’s consultation on the review of the Markets in Financial Instruments Directive (the MiFID Review).
The FESE’s response contains comments on:
- General, equity and derivatives market structure.
- Equity market transparency.
- Equity data consolidation.
- Non-equity market transparency.
- Intermediary rules.
- Commodity derivative measures.
- Transaction reporting.
- Reinforcing supervisory powers with regard to commodity derivatives.
View Response of the Federation of European Securities Exchanges (FESE) to the European Commission public consultation on the review of the Markets in Financial Instruments Directive (MiFID)
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IMA response to MiFID Review
2 February 2011
The Investment Management Association (IMA) has published its response to the European Commission’s consultation on the review of the Markets in Financial Instruments Directive (MiFID).
- The IMA supports the Commission in its proposals to address the quality of post-trade data in the equity markets. The IMA considers the Commission should ensure that it has powers to introduce a consolidated tape even if time is still given for an industry solution.
- The diverse range of markets in the EU requires consideration specific to each market. The IMA supports introducing the concept of organised trading facilities (OTFs) and asks for a work programme on sub-regimes.
- The IMA supports improved market surveillance across all organised markets.
- The IMA states that the interests of large investors such as the pension funds and savings pools are not always served by lit trading.
- The IMA opposes a suggestion that UCITS should be split into complex and non-complex as this fails to give due recognition to the regulation of this product and the required separation of roles which are themselves important components of investor protection.
- The IMA supports an alignment of MiFID, UCITS, the Alternative Investment Managers Directive and the Packaged Retail Investment Products initiative so as to provide a level playing field for members and for the sale of products in the EU. The IMA argues that the ability of national regulators to add domestic rules or to have the ability to use article 4 of MiFID’s implementing Directive should be weighed up in that light.
- The IMA believes that third country access by exemptive relief is important for maintaining the EU’s competitiveness.
- The IMA supports a more harmonised approach to the powers of supervisors and the sanctions imposed.
View Responses and representations 2011
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ISDA’s response to MiFID Review
31 January 2011
The International Swaps and Derivatives Association (ISDA) has published its response to the European Commission's consultation on the review of the Markets in Financial Instruments Directive (the MiFID Review).
In its response, the ISDA welcomes the MiFID Review. However, it makes a number of comments in relation to the Commission's proposals, including the following key points:
- Market structure. The ISDA believes that the Organised Trading Facilities (OTFs) regime should be clearly defined and structured such that the flexibility and choice offered by the current MiFID regime is not compromised.
- Pre- and post-trade transparency. The ISDA believes that the introduction of a prescriptive pre-trade transparency regime could undermine the functioning of over-the-counter (OTC) derivatives markets but supports the development of a formal post-trade transparency regulatory regime.
- Commodity derivative markets. The ISDA urges that any reporting and transparency proposals are harmonised with other EU initiatives, such as the proposed European Market Infrastructure Regulation, and the review of the Market Abuse Directive.
- Transaction reporting. The ISDA believes that transaction reports provide a useful mechanism for monitoring securities and securities derivatives markets; and that position reports collected by exchanges are the appropriate tool for supervisory oversight for commodities, foreign exchange and interest rate derivatives markets.
- Investor protection. The ISDA strongly supports the Committee of European Securities Regulators’ proposals for strengthening the right of investors to request information, but does not believe that client categorisation rules need to be changed in relation to product types. Further, the ISDA believes that the current presumption of professional clients’ knowledge and experience should be retained for all purposes.
- Reinforcement of supervisory powers. The ISDA considers that full use should be made of the enforcement of existing MIFID provisions before consideration is given to the use of a power to ban practices or operations. Regarding position limits, the ISDA supports the view taken by the FSA and HM Treasury that they have not seen evidence to indicate that a blanket approach through specific position limits is the most effective way to monitor, detect and deter manipulative behaviour in derivative markets, whether they are on-exchange or OTC.
View ISDA’s response to the European Commission’s Public Consultation on the Review of the Markets in Financial Instruments Directive (MiFID)
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Provisional text of a resolution by MEPs regarding the regulation of trading in financial instruments
21 December 2010
The European Parliament has published the provisional text of a resolution passed by MEPs on 14 December 2010 concerning the regulation of trading in financial instruments.
In relation to MiFID trading venues the resolution:
- Suggests that, in the interests of equitable treatment, multilateral trading facilities (MTFs) should be subject to the same level of supervision as, and therefore be regulated in a comparable way to, regulated markets (RMs).
- Asks for the European Securities and Markets Authority (ESMA) to conduct an investigation into the functioning and purpose of the Systematic Internaliser (SI) regime.
- Demands that investment firms which provide a portfolio management service and act in a portfolio management capacity be provided with best execution by the investment firms with whom they place orders.
- Calls for ESMA to conduct a review of whether order-by-order best execution needs to be better served by regulation in relation to the availability of data, both post-trade and in relation to execution quality, and in relation to market technology, such as order routers and venue connections.
- Calls for thorough enforcement of the provisions in MiFID in order to ensure that broker crossing networks (BCNs) that are carrying out activities equivalent to an RM, MTF or SI are regulated as such.
- Asks for an investigation into over-the-counter (OTC) trading of equities and calls for improvements to the way in which OTC trading is regulated.
- Asks for an investigation by the Commission into the effects of setting a minimum order size for all dark transactions.
In relation to pre-trade transparency waivers the resolution:
- Calls on the Commission to conduct a review of the existing MiFID pre-trade transparency waivers to: (i) consider whether a suitable minimum threshold should be introduced for the Reference Price waiver to encourage the use of lit venues; (ii) consider broadening the Reference Price waiver to include trades that fall within the current spread in the reference market; (iii) introduce a maximum volume of transactions that could use pre-trade transparency waivers in order to guarantee efficient price discovery; and (iv) give ESMA the possibility of adapting and restricting pre-trade waivers as necessary, taking into account the impact of dark trading on the efficiency of markets.
- Asks for a uniform application of pre-trade waivers across Member States.
In relation to the consolidated tape the resolution:
- Calls on the Commission to establish a working group to overcome the difficulties preventing the consolidation of market data in Europe.
- Calls upon ESMA to draw up common reporting standards and formats for the reporting of all post-trade data, both on organised trading venues and OTC.
- Asks that all reporting venues be required to unbundle post-trade data from pre-trade data so information can be made available to all market participants at a commercially reasonable and comparable cost.
- Asks the Commission to consider the introduction of Approved Publication Arrangements (APAs) in order to introduce quality standards for trade publication.
- Calls for a reduction in the time limit for deferred publication so transactions are reported to the regulators within twenty-four hours of taking place.
- Deems that it is essential to analyse the breakdown and business models of OTC trading, and therefore calls for the introduction of specific flags in pre- and post-trade transparency for OTC trades.
In relation to micro-structural issues the resolution:
- Insists that post-‘flash crash’, all trading platforms must be able to demonstrate to national supervisors that their technology and surveillance systems are able to withstand the kind of barrage of orders experienced on 6 May 2010 so as to ensure that they could successfully deal with the activity associated with high frequency trading (HFT) and algorithmic trading in extreme circumstances.
- Calls on ESMA to conduct an examination of the costs and benefits of algorithmic and HFT on markets.
- Calls for the practice of ‘layering’ or ‘quote stuffing’ to be explicitly defined as market abuse.
- Calls for an investigation into whether to regulate firms that pursue HFT strategies.
- Calls for an examination of HFT's challenges in terms of market monitoring; recognises the need for regulators to have the appropriate means to detect and monitor potential abusive behaviour; and, with this in mind, calls for the reporting to the competent authorities of all orders received by regulated markets and MTFs, as well as of trades done on these platforms.
- Calls for all trading venues allowing co-location of servers, whether directly or through third-party data providers, to ensure that equal access for all co-located clients is maintained and where possible under the same infrastructure latency arrangements in order to comply with non-discriminatory practice outlined in MiFID.
- Calls upon regulators to monitor and regulate the provision of sponsored access.
- Calls, notwithstanding the necessary application of safeguards, for ESMA to further investigate whether sponsored access crosses the threshold of non-discriminatory access.
- Calls on the Commission to adopt the principles being developed by the Technical Committee of the International Organization of Securities Commissions (IOSCO) on direct electronic access.
- Takes the view that, in order to comply with the principle that all investors should be treated equally, the practice of flash orders should be explicitly ruled out.
- Calls for an investigation by ESMA into fee structures.
- Asks for ESMA supervision and definition by implementing acts of robust volatility interrupts and circuit breakers which operate simultaneously across all EU trading venues in order to prevent a US-style ‘flash crash’ event.
In relation to scope the resolution:
- Requests that no unregulated market participant be able to gain direct or unfiltered sponsored access to formal trading venues and that significant market participants trading on their own account be required to register with the regulator.
- Calls for proprietary trading activities conducted via algorithmic trading strategies by unregulated entities to be transacted solely through a regulated financial counterparty.
- Calls for the extension of the scope of the MiFID transparency regime to all ‘equity-like’ instruments including depository receipts (DRs), exchange traded funds (ETFs), exchange traded commodities (ETCs) and certificates.
- Asks the Commission and ESMA to consider introducing a transparency requirement, pre- and post-trade, on all non-equity financial instruments, including government and corporate bond markets and central counterparty (CCP) eligible derivatives, to be applied in a manner that differentiates across asset classes where appropriate and at the same time combines with measures that bring about further standardisation of OTC derivative products in order to enable greater application of transparency.
- Takes the view that the Commission should ensure that post-trade data for non-equity products are provided in a form which is readily consolidated.
- Supports the Commission's intention to apply a wider range of MiFID provisions to derivative instruments.
- Calls for a proposal from the Commission to ensure that all OTC derivative contracts that can be standardised are traded on exchanges or electronic trading platforms, where appropriate.
- Requests a review of the IOSCO standards for clearing houses, securities settlement systems and systemically important payment systems with a view to improve further market transparency.
- Believes that it is necessary for regulators across the different physical and financial commodities markets to have access to the same data in order to identify trends and cross linkages, and calls on the Commission to coordinate efforts both within the EU and globally.
View European Parliament resolution of 14 December 2010 on regulation of trading in financial instruments – ‘dark pools’ etc. – Provisional text
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Commission publishes MiFID review consultation paper
8 December 2010
The European Commission has published its consultation paper on the review of the Markets in Financial Instruments Directive. The Commission believes that even though MiFID has only been applicable for three years it has already affected significant changes despite the worst financial crisis in decades. The Directive has brought about increased competition and innovation and better protection and services for investors.
However, the Commission also acknowledges that the key organising principles of MiFID - a regulatory framework centred on shares and regulated markets - needs updating to take into account a more complex market characterised by increasingly diverse financial instruments and methods of trading. The Commission is also aware that targeted reforms are necessary to take into account developments in specific areas such as the commodity markets.
The Commission’s consultation paper divided into 8 key sections covering:
- Addressing developments in market structures.
- Improvements to pre- and post-trade transparency in EU equity markets, and new measures on pre- and post trade transparency in non-equity markets.
- Improvements regarding market data consolidation.
- Measures specific to commodity derivative markets.
- Clarifications and necessary extensions to transaction reporting.
- Investor protection and provision of investment services.
- Further convergence of the regulatory framework and supervisory practices.
- Reinforcement of key supervisory powers.
When discussing each of the above issues the Commission focuses on revisions to MiFID’s framework Directive, Directive 2004/39/EC, whilst outlining necessary possible changes to MiFID’s implementing measures which would follow at a later stage.
The purpose of the consultation paper is to gather input from all stakeholders in order to inform the legislative proposals due in the spring of 2011 and the deadline for replies is 2 February 2011.
View Public consultation - Review of the Markets in Financial Instruments Directive
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Feedback Statement - CESR Technical Advice to the Commission in the context of the MiFID review - Client categorisation
22 October 2010
The Committee of European Securities Regulators (CESR) has published the Feedback Statement to its consultation on client categorisation. CESR reports that overall respondents to the consultation felt that the current MiFID rules on the categories of client, and the obligations attaching to each, were generally appropriate and do not need changing. Several respondents specifically stated their strong concerns about the possibility of the client categorisation regime being subject to amendment.
View Feedback Statement - CESR Technical Advice to the Commission in the context of the MiFID review - Client categorisation
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The FSA’s international agenda
22 October 2010
The FSA has published a paper on its international agenda.
The paper examines the way in which the FSA delivers against its priorities and commitments through its work at the EU and global level. In the paper the FSA states that it expects the Commission to publish a consultation on the MiFID review in Q4 2010.
View The FSA’s international agenda
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CESR completes its review of MiFID by issuing advice on OTC derivatives trading, post-trade transparency standards and client categorisation
13 October 2010
The Committee of European Securities Regulators (CESR) has published its latest set of technical advice to the European Commission in the context of the MiFID review. The technical advice covered:
- Standardisation and organised platform trading of over-the-counter (OTC) derivatives.
- Post trade transparency standards.
- Client categorisation.
- The remaining responses to the Commission’s request for additional information in relation to the review of MiFID presented in March 2010.
Key points in the technical advice include:
- CESR does not yet have a definitive view on the exact levels that should be reached with regards to standardisation and trading on organised trading venues of derivatives currently traded OTC. However, CESR considers that a sufficiently ambitious approach should be adopted to increase both levels.
- CESR considers that market participants should develop a higher level of legal, operational and product standardisation as this is considered beneficial for operational efficiency and the reduction of systemic risk in the OTC derivatives market.
- CESR believes that through target setting, regulators should encourage increased trading of standardised derivatives on organised trading venues.
- CESR recommends amending MiFID to make use of ISO standards and other harmonised formats mandatory for the following transparency publication fields: day, time, instrument identification, price notation, unit price, quantity and venue identification.
- CESR recommends defining trade flags for specific cases, such as benchmark trades, agency crosses, give-up/give-in trades, dark trades and negotiated trades.
- CESR recommends clarifying in MiFID which investment firm should make public a transaction not executed on a regulated market (RM) or multilateral trading facility (MTF).
- CESR suggests extending the scope of transaction reporting obligations to financial instruments admitted to trading only on MTFs and to certain OTC derivatives.
- CESR recommends that the Commission focus on analysing whether exchanges/regulators have a sufficiently extensive set of powers to manage positions across the entire life of commodity derivatives market contracts and on setting up a harmonised set of powers for them in European legislation.
View CESR completes its review of MiFID by issuing advice on OTC derivatives trading, post-trade transparency standards and client categorisation
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Feedback statement: CESR Technical Advice to the European Commission in the context of the MiFID review - Investor protection and intermediaries
6 September 2010
The Committee of European Securities Regulators (CESR) has issued a feedback statement in response to comments received to its consultation paper on the technical advice it provided to the European Commission on investor protection and intermediaries in the context of the MiFID review.
The feedback statement sets out CESR's response to various issues respondents raised in respect of the following:
- Requirements relating to the recording of telephone conversations and electronic communications: CESR’s technical advice to the Commission proposes that the existing discretion in Article 51(4) of the MiFID Level 2 Directive be replaced by a minimum harmonisation EEA recording obligation. CESR considers that such a regime would be an important step forward in terms of certainty, consumer protection, and surveillance of markets.
- Execution quality data (Article 44(5) of the MiFID Level 2 Directive): CESR proposes requiring execution venues to produce regular reports demonstrating the quality of execution in shares.
- MiFID complex vs. non-complex financial instruments for the purposes of the Directive’s appropriateness requirements: CESR’s technical advice to the Commission proposes amendments to clarify and to deliver a more graduated risk-based approach to the distinction between complex and non-complex financial instruments for the purposes of the Directive's appropriateness requirements.
- Definition of personal recommendation: CESR’s technical advice to the Commission proposes an amendment to the wording of Article 52 of the MiFID Level 2 Directive to clarify that investment advice can be provided through distribution channels.
- Supervision of tied agents and related issues: CESR’s technical advice to the Commission proposes amendments to the MiFID tied agents regime.
- MiFID options and discretions: CESR’s technical advice to the Commission proposes areas for further convergence with respect to the options and discretions in MiFID and its implementing measures.
View Feedback statement: CESR Technical Advice to the European Commission in the context of the MiFID review – Investor protection and intermediaries
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CESR proposes changes to MiFID to improve securities markets’ functioning, transparency and investor protection
29 July 2010
The Committee of European Securities Regulators (CESR) has published its first set of technical advice to the European Commission in the context of the MiFID review.
The technical advice that CESR published was four-fold and included policy proposals on:
- Equity markets.
- Non-equity markets transparency.
- Transaction reporting.
- Investor protection and intermediaries.
The technical advice also covered part of the responses to the request for additional information in relation to the MiFID review that the Commission presented to CESR in March 2010. In addition in section VI of the technical advice CESR sets out the next steps in its work on the MiFID review.
In relation to its technical advice on equity markets CESR’s main recommendations come under the following headings:
- Improving the pre-trade transparency regime for regulated markets (RMs)/multilateral trading facilities (MTFs).
- Reviewing the definition of and obligations for systematic internalisers.
- Enhancing the quality of post-trade transparency information.
- Extending the transparency obligations to equity-like instruments.
- Improving the regulatory framework for consolidation and addressing cost of market data.
- Establishing a new regulatory regime for broker crossing systems.
- Addressing certain options and discretions of MiFID.
- Tackling market micro-structural issues.
In relation to its technical advice on non-equity markets transparency CESR’s main recommendations come under the following headings:
- Re-defining the scope of a post-trade transparency regime for bonds.
- Defining a phased approach for the introduction of a post-trade transparency regime for structured finance products.
- Extending the scope to clearing eligible sovereign CDS .
- Enhancing post-trade transparency of derivatives markets.
- Conducting a post-implementation review.
- Introducing pre-trade transparency requirements for non-equity financial instruments trades on RMs and MTFs.
In relation to its technical advice on transaction reporting CESR’s main recommendations come under the following headings:
- Introducing a third trading capacity (client facilitation).
- Requiring the collection of and defining standards for client and counterparty identifiers.
- Requiring the collection of client ID when orders are transmitted for execution.
- Extending transaction reporting obligations to market members not authorised as investment firms.
CESR also published a feedback statement to its consultation on transaction reporting in the context of the MiFID review.
In relation to its technical advice on investor protection and intermediaries CESR’s main recommendations come under the following headings:
- Introducing minimum harmonised mandatory recording requirements for telephone conversations and electronic communications.
- Requiring trading venues to produce reports demonstrating execution quality.
- Clarifying the distinction between MiFID complex and non-complex financial instruments.
- Clarifying the scope of the definition of investment advice.
- Harmonising the rules for the supervision of tied agents and related issues.
- Addressing certain MiFID options and discretions.
View Press Release - CESR proposes changes to MiFID to improve securities markets' functioning, transparency and investor protection
View CESR Technical Advice to the European Commission in the Context of the MiFID Review and Responses to the European Commission Request for Additional Information
View Feedback Statement - CESR Technical Advice to the European Commission in the context of the MiFID Review - Transaction Reporting
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CESR consultation on MiFID client categorisation
12 July 2010
The Committee of European Securities Regulators (CESR) has published a consultation paper on its technical advice to the European Commission in the context of the MiFID review. The consultation paper covered client categorisation.
In the consultation paper CESR consulted on whether:
- Distinctions should be made between regulated entities for the purposes of determining which entities are to be treated as “per se” professional clients.
- It is necessary to clarify, for the purposes of the client categorisation regime, whether local authorities/municipalities can be treated as public debt bodies.
- Tests of knowledge and experience should be used more widely for client categorisation than is currently the case.
- For very complex products (such as asset backed securities and non-standard over-the-counter derivatives) the scope of the eligible counterparty categorisation should be narrowed and what standards should apply to transactions done with eligible counterparties.
The deadline for comments on the consultation paper is 9 August 2010.
View Consultation Paper - CESR Technical Advice to the European Commission in the context of the MIFID Review - Client Categorisation
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The next paper in the MiFID review: Non-equity markets transparency
7 May 2010
The Committee of European Securities Regulators (CESR) has published its latest consultation paper on the MiFID review. This time CESR's consultation covers non-equity markets transparency. It sets out possible ways of developing the recommendations CESR previously presented in 2009 on the transparency of corporate bond, structured finance products and credit derivatives markets.
In addition, as derivatives had not been previously analysed CESR also discusses in the consultation paper the possibility of a post-trade transparency regime for the most significant subset of these financial instruments: interest rate derivatives, equity derivatives, foreign exchange derivatives and commodity derivatives.
At the request of the Commission, CESR is also reconsidering whether there is a need for pre-trade transparency for corporate bonds, asset backed securities (ABS), collateralised debt obligations (CDOs), credit default swaps (CDS) and the derivatives mentioned above.
The closing date for comments on the consultation paper is 4 June 2010.
View Consultation on CESR's advice in the context of the MiFID review: Non-equity markets transparency
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CESR issues consultation papers on MiFID review
13 April 2010
As part of the process embedded in MiFID for reviewing certain provisions of the Directive, the Committee of European Securities Regulators ( CESR ) will provide the European Commission with its technical advice by July 2010 so that the Commission can report to the European Parliament on possible changes to MiFID in early 2011.
On 13 April 2010, CESR published three consultation papers on technical advice that address areas of MiFID where it has identified a need for improvement:
- Investor protection and intermediaries. The main topics covered in this consultation paper are: (1) Requirements relating to the recording of telephone conversations and electronic communications. (2) Execution quality data (Article 44(5) of the MiFID Level 2 Directive). (3) MiFID complex vs. non-complex financial instruments for the purposes of the Directive’s appropriateness requirements. (4) Definition of personal recommendation. (5) Supervision of tied agents and related issues. (6) MiFID options and discretions.
- Equity markets. The main topics covered in this consultation paper are: (1) Pre-trade transparency regime for regulated markets and multilateral trading facilities. (2) Definition of and obligations for systematic internalisers. (3) Post-trade transparency regime. (4) Application of transparency obligations to equity-like instruments. (5) Regulatory framework for consolidation and cost of market data. (6) Regulatory boundaries and requirements, inconsistencies which may have impacted the level playing field. (7) MiFID options and discretions.
- Transaction reporting. The amendments proposed in the consultation paper focus on: (1) The introduction of a third trading capacity (riskless principal). (2) Collection of client and meaningful counterparty identifiers. (3) Standards for client and counterparty identifiers. (4) Client ID collection when orders are transmitted for execution. (5) Transaction reporting by market members not authorised as investment firms.
The deadline for comments on the consultation papers is 31 May 2010.
CESR has also published a letter from the Commission requesting additional information for the MiFID review. In a number of cases, the requests have been addressed by the proposals in the consultation papers. However, in some cases CESR will launch a subsequent consultation on very specific areas.
In particular, CESR will develop further details for its proposal on the non-equity markets transparency regime published in July 2009. CESR is also analysing the criteria for and the level of standardisation necessary to achieve a higher degree of derivatives trading on organised platforms. Consultations on these two work streams will be published this Spring.
In the area of investor protection and intermediaries, CESR will also consult on certain aspects of the client classification regime on the basis of the additional questions set out in the Commission’s letter. A consultation paper is also likely to be published in relation to some of the questions regarding transaction and position reporting.
CESR will be holding a public hearing on 17 May 2010 at its offices in Paris. An agenda for the hearing will be published shortly on CESR’s website. CESR intends to publish 6 feedback statements for the three consultation papers and provide its final advice to the Commission by 31 July 2010.
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The Markets in Financial Instruments Directive (MiFID) entered into force in November 2007. Embedded in MiFID are a number of review clauses and in its work programme for 2010 the European Commission confirmed that it would now review the Directive to enhance investor confidence and create a level playing field which delivers market efficiency and transparency.
The purpose of this blog is to provide an update on the progress of the MiFID review as it unfolds over this year. Our financial services teams from across Europe will also be providing their insight into the issues as they unfold.
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