The outgoing Presidency has reported on progress of the negotiations towards agreement on the revised Markets in Financial Instruments Directive and Regulation (MiFID 2 and MiFIR). It reports that the Working Party on Financial Services has met 23 times, but that there is still no qualified majority in favour of all elements of the proposals. The report looks at:
- Scope and exemptions: the Presidency believes there is now agreement on narrow, clear exemptions.
- Introducing organised trading facilities (OTFs): some countries favour introducing OTFs but want the rules to be less strict than proposed. Others favour either mandating that all trading must happen on regulated markets or multilateral trading facilities (MTFs) or say that, if OTFs are allowed, the rules should be stricter. They are concerned about trading against the operator’s proprietary capital. The Presidency has proposed allowing matched principal trading on OTFs. It also proposes to limit the OTF category only to non-equity instruments and has introduced the definition of bilateral systems to ensure that trading will take place on transparent and regulated platforms. It hopes this stance will address the concerns of both sides of the debate.
- Systematic internalisation and transparency: most Member States seem to be happy with the proposals to strengthen these regimes, although there is some debate over keeping waivers for pre-trade transparency.
- Corporate governance: there is general agreement over aligning the MiFID requirements with those in the Capital Requirements Directives.
- Remuneration and inducements: most Member States favour better transparency around inducements, but some want to ban them.
- MTFs, regulated markets and SME growth markets: Member States are happy with the proposals that deal with monitoring of compliance with trading venue rules, and transparency, harmonisation and cooperation on trading suspensions and removals.
- Authorisation and operating conditions for investment firms: the main objections to these proposals relate to telephone recording but the Presidency believes it has addressed these.
- Algorithmic trading, high-frequency trading (HFT) and direct electronic access: the Presidency thinks Member States will accept the latest compromise proposals, which provide for regulation for algorithmic traders. It has also introduced a new definition of high frequency trading.
- Data reporting services and transaction reporting: the Presidency feels there is an acceptable compromise on the most controversial aspect of the proposals, which concern consolidated tape.
- Derivatives and clearing: there is a clear split of views on non-discriminatory clearing access for financial instruments. One group wants Central Counterparties (CCPs) to be able to accept for clearing transactions executed in different trading venues, to the extent those venues comply with the operational and technical requirements by the CCP. They also say trading venues should have to provide access including data feeds on a transparent and non-discriminatory basis to CCPs that wish to clear transactions executed on the trading venue. They say there should be no discriminatory practices and want to remove various commercial barriers that can be used to prevent competition in the clearing of financial instruments. The other group wants to delete these provisions, saying non-discriminatory access will lead to fragmentation at the trading level and to a reduction in liquidity. The Presidency has proposed a compromise, but Member States are not happy with it, or with other aspects of the proposals, and the Presidency expects this part of the proposals will require political guidance.
- Position management, position limits and product intervention: discussions have focused on the types of contracts that should be covered and the balance between position limits and position management tools. The Presidency thinks it has found a compromise but one Member State is questioning the legality of the powers ESMA will have under the proposals.
- Competent authorities and sanctions: several Member States expressed concern over publicising sanctions but the Presidency thinks it has reached a workable compromise.
- Third country regimes: several Member States fought to keep the current national regimes on third country firms, and resisted the proposal for “equivalence” decisions. The Presidency has allowed this but has kept the requirement for third country firms to set up branches if they wish to provide services to retail clients.
- Delegated acts and final provisions: Member States asked for many of the provisions originally proposed as delegated provisions to become binding standards issued by ESMA, and also for enough time to implement the standards. The Presidency agreed to this.
(Source: Progress Report)