On December 15 2011 the Financial Supervisory Authority (FSA) submitted its response to the European Commission's proposal(1) for the EU Markets in Financial Instruments Regulation (MiFIR)(2) and the EU Markets in Financial Instruments Directive II (MiFID II).

This update summarises the key points of the FSA's opinion.


Trade transparency
The commission proposed to extend the transparency rules to equity-like instruments (eg, depository receipts, exchange-traded fund certificates and similar financial instruments that are issued by companies) in addition to shares. The FSA wishes to improve transparency in financial instrument trading, but stressed that this objective should not override the efficiency of certain product types. As an example, the FSA highlighted the conditions for a liquid fixed-income market in Sweden.

The commission chose to regulate different product types of financial instruments together in the same articles. Consequently, the detailed provisions for different products will be managed in delegated acts. Waivers are based on a large amount of criteria, as stated in Article 8 of the MiFIR. The FSA suggested that the transparency rules for different types of products be managed in different chapters. Consequently, it will be possible to adjust both the requirements and waivers in the MiFIR according to the demands and conditions of each product type.

Pre-trade transparency
Due to quality issues regarding information on over-the-counter trading and the lack of consolidated information at a reasonable cost, the commission has proposed to strengthen further the obligation to publish trade-related information (eg, trade rates). The FSA wishes to improve market information, particularly in light of the debate on the consequences of major developments in trading (eg, fragmenting and high-frequency trading).

Administrative penalties and measures
The FSA expressed its reservations on the proposal to strengthen the ability of the European Securities and Markets Authority and other competent authorities to intervene, prohibit or restrict the marketing, distribution and sale of certain financial instruments or specific financial activities. The FSA would consider meeting the objectives of such proposals by effective risk management, capital requirements and non-discriminatory access to central counterparty clearing houses more appropriate. Furthermore, the FSA stated the importance of ensuring that the criteria on how and when prohibitions or restrictions may be invoked are clear and detailed in order to safeguard predictability and uniform application.


Algorithmic trade
Due to increased electronic and algorithmic trading, sound practice in this field must be established. The FSA agreed to the proposal relating to trading venues and investment firms' control systems in relation to algorithmic trading. However, the FSA stated that it finds the proposed requirement that a party performing algorithmic trading simultaneously must be a market maker to be unconsidered.

Investor protection
The FSA welcomed clarified rules on providing investment services and strengthening investor protection. The FSA did not object to the introduction of a ban on portfolio management firms accepting inducements from third parties. However, the FSA raised concerns that the proposal regarding independent investment advice will have only a marginal impact on investor protection while the basic problem will persist. The FSA stressed the importance of tailoring investor protection to each client category in order to ensure sufficient flexibility.

The FSA welcomed high demands on the management of investment firms and market operators, especially regarding experience and knowledge. Furthermore, the FSA saw the adoption of rules that clearly state that it is management's collective responsibility to meet the requirements as a positive development. However, the FSA was hesitant to introduce prescriptive regulations regarding institutions' management without considering national discrepancies. It believes that an expressed requirement of independence for the board chairman and one or several board members, rather than detailed competence requirements, would be more efficient in order to create a strong management structure.

The FSA viewed the proposal to extend the competent authorities' penalty possibilities as a positive development. Furthermore, the FSA held that the introduced liability provisions for board members and the chief executive officers (CEOs) of investment firms and market operators may increase the incentive for management to participate actively in ensuring compliance with the regulatory framework. The liability provisions may, however, be limited to the board of directors and the CEO. The same applies to the FSA's ability to issue a temporary ban against any person exercising certain functions within the firm.

The FSA found that important provisions will be transferred to delegated acts. Instead, it felt that more specific provisions and criteria should be implemented on Level 1 in order to tighten the framework for the delegated acts.


The FSA will continue to assist the Ministry of Finance with comments on the proposals relating to the MiFIR and MiFID II. The FSA has emphasised that its comments are preliminary and may change.

For further information on this topic please contact Niclas Rockborn or Julia Asplund at Gernandt & Danielsson Advokatbyrå by telephone (+46 8 670 66 00), fax (+46 8 662 61 01) or email ([email protected] or [email protected]).


(1) COM (2011) 652.

(2) COM (2011) 656.