The European Commission has proposed a one year extension to the application date of the MiFID II legislative package (i.e. MiFID II and MiFIR). Member States are required to transpose the MiFID II Directive by 3 July 2016 and MiFID II is scheduled to apply as of 3 January 2017. Under the Commission's proposal, national competent authorities (NCAs) and market participants will have an additional year to comply with MiFID II. The proposed new application date is 3 January 2018, but the date by which Member States must adopt and publish the relevant provisions, 3 July 2016, remains unchanged. Further, the extension will not have an impact on the timetable for adoption of the Level 2 implementing measures under the MiFID II Directive and MiFIR. The proposed delay will also affect aspects of the Market Abuse Regulation (MAR) and the Regulation on improving securities settlement and regulating central securities depositories (CSDR).
To implement its proposed delay, the European Commission has published:
a draft Directive amending the MiFID II Directive as regards certain dates, in particular, Article 93, which is amended to provide that Member States must apply the laws, regulations and administrative provisions necessary to comply with the MiFID II Directive from 3 January 2018, rather than 3 January 2017; and
a proposal for a Regulation amending MiFIR, MAR and the CSDR as regards certain dates.
The Commission is proposing the application date extension as a result of the complex technical data infrastructure that needs to be established so that MiFID II can operate effectively. In the proposed Directive and Regulation, the Commission explains that the absence of data needed to be collected and processed for MiFID II to become operational will impact on a number of areas, in particular, transaction reporting, the transparency framework, commodity derivatives and microstructural regulation (that is, requirements in relation to algorithmic trading and high frequency trading that are dependent on data). The MiFID II investor protection rules, conduct of business rules and certain associated organisational requirements will not be directly affected by the lack of data, with the exception of best execution, where the scope of the disclosure is designed by reference to there being a liquid market and other transparency concepts.
Impact on MAR
The new market abuse framework under MAR will apply to certain MiFID II definitions and concepts. MAR applies from 3 July 2016 and includes a provision ensuring that, before the original MiFID II application date (i.e. 3 January 2017), the concepts and rules under MiFID will apply. To ensure legal certainty for the period between the original MiFID II application date and the new MiFID II application date of 3 January 2018, the Commission's proposed Regulation will amend MAR to clarify that:
references to the MiFID II Directive and MiFIR shall, before 3 January 2018, be read as references to the correlating provisions of MiFID and the concepts and rules as set out in MiFID should thus be used until the new MiFID II application date; and
provisions referring to concepts that will be introduced by MiFID II, including organised trading facilities (OTFs), small and medium-sized enterprises (SME) growth markets, emission allowances or auctioned products based thereon, will not apply until the new MiFID II application date.
Impact on CSDR
The proposed Regulation will amend the CSDR to clarify (for the period between the original MiFID II application date and the new MiFID II application date):
the application of the rules on settlement discipline to multilateral trading facilities applying for registration as SME growth markets in accordance with MiFID II. Specifically, these rules will allow MTFs meeting the criteria for an SME growth market under MiFID II to apply a longer extension period for the settlement of transactions whilst their registration as an SME growth market under MiFID II is still ongoing; and
that, to achieve legal certainty and a clear and coherent legislative framework for trading and settlement, to the extent the CSDR relies on MiFID II definitions and concepts, the rules and concepts set out in MiFID should be used until the new MiFID II application date.
The Commission considers that a one-year extension should provide sufficient time for ESMA, national competent authorities and operators to put in place the necessary infrastructure for data collection, reporting and the transparency threshold calculations. In its press release, the Commission notes that a period of 30 months between the adoption and entry of application of MiFID II has already been foreseen to take account of the level of complexity involved. The one year extension is therefore strictly limited to what is necessary to allow the IT implementation work to be finalised.