The European Commission has announced a delay to the implementation of MiFID II (the latest piece of EU legislation dealing with the regulation of investment services within Europe). MiFID II will amongst other things introduce greater regulation of certain markets where complex financial products can currently be traded with limited reporting or transparency requirements. Greater regulation of these types of trading arrangements was widely viewed as one of the key lessons learnt from the global financial crisis.
On 10 February 2016, the European Commission announced a 12 month delay to the implementation of the Markets in Financial Instruments Directive (commonly referred to as MiFID II) by setting a proposed new implementation date of 3 January 2018. The Commission cited “exceptional technical implementation challenges faced by regulators and market participants” as the reason for the delay. The proposal will also impact on the implementation of the Market Abuse Regulation (MAR) which is due to apply from 3 July 2016 (and which relies on MiFID II for a number of its definitions and interpretations but will instead have to look to MiFID I for those definitions and interpretations until the MiFID II implementation date).
The delay to MiFID II (and the related measures under the MAR) will mean the proposed new regulatory regime for organised trading facilities (OTFs), which are operated by investment firms and facilitate the buying and selling of complex non-equity financial products such as derivatives, bonds, structured finance products or emissions allowances, will also be delayed until the new MiFID II application date.
The new rules in part reflect the European Commission’s desire that trading in financial instruments is carried out as far as possible on organised venues which are adequately regulated. OTFs bring more organised trading venues within the sphere of regulation.
Greater transparency in OTFs was considered by many to be one of the key lessons learnt from the global financial crisis, it being widely recognised that there was a need to make trading on OTFs more transparent and to reduce the systemic risks (of market collapse) that arise through the lack of transparency of trading in such complicated high value products.
The 2018 target date will mean it has taken almost a decade (since the GFC) to get the regulatory framework in place across the EU. The position can be contrasted with the US where the Dodd Frank Act was brought in to address similar (and other) issues in 2010.
As a result there is still no comprehensive set of rules in the UK (whether under MiFID I or as issued by the Financial Conduct Authority) to cover the buying and selling of financial products through OTFs other than the requirements under EMIR (the European Market Infrastructure Regulation) for reporting and risk mitigation in relation to derivatives.