Proposed text of MiFID II published
On 20 October 2011, the European Commission published the proposed final text of the Markets in Financial Instruments Directive (MiFID) II and accompanying regulation, the Markets in Financial Instruments Regulation (MiFIR).
The final text of MiFID II aims to enhance transparency within the financial system and build upon the rules put in place by MiFID I, which came into force in 2007. In the months leading up to the publication of MiFID II and MiFIR, there had been much speculation in the industry regarding the content of the final proposed rules. This was fuelled by two ‘leaked’ versions of the proposed texts that were widely commented on in the press.
The proposed new rules include the following provisions:
- an extension of the transparency rules for share trading under MiFID I, to apply to bonds, commodities, derivatives and structured finance
- a number of additional powers for the European Securities and Markets Authority (ESMA), who will be able to intervene in local markets to enforce the rules and ban products where necessary
- an overhaul to the European clearing market, as exchanges will be forced to allow clearing houses to access their clearing flows – thereby ending ‘vertical silos’ which restrict access to their downstream clearing houses
- the introduction of a position-reporting obligation, by category of trader, in commodity derivatives markets
- the power for supervisors to intervene at any stage of commodity derivatives trading, up to the point of imposing position limits, to prevent a disorderly market
Reaction to the proposed final texts has been mixed, as many of the proposed rules have exceeded the industry’s initial expectations. Moreover, the prescriptive rules contained in MiFIR have left some Member States concerned that they will lack sufficient flexibility to protect their own markets – an increasingly important consideration against the backdrop of the current Eurozone crisis.
However, these proposed rules are by no means final. The documents will now be submitted to the European Parliament and the European Council for further discussion and negotiation. It remains to be seen whether the initial concerns will be justified.
Treasury Committee publishes evidence from FCA inquiry
The House of Commons’ Treasury Select Committee (the Committee) has published the written evidence received in response to its inquiry into the accountability of the future Financial Conduct Authority (FCA).
The inquiry began on 18 August 2011 and is described as a “once in a generation opportunity” by Andrew Tyrie, Chairman of the Committee. The inquiry is looking at how the FCA will interact with the Prudential Regulation Authority (PRA) and the Financial Policy Committee (FPC), the objectives it will be set and the powers it will be given to meet those objectives. More widely, the inquiry will also focus on how the FCA will be held accountable for its actions, in an effort to improve conduct of business regulation going forward. Firms have also been asked to supply information to the Committee regarding the costs they incur owing to regulation.
A total of 49 written responses have been received and published, including submissions from the Financial Ombudsman Service, the Financial Services Authority and the British Bankers Association.
European Commission publishes proposed new market abuse regulation and directive
The European Commission has published its proposed text for a new Market Abuse Regulation (MAR) on insider dealing and market manipulation and a Directive (CSMAD) on criminal sanctions for these market abuses. These will replace the existing Market Abuse Directive (MAD).
The press release accompanying the publication of these proposed texts states that, “The proposal for a Regulation aims to update and strengthen the existing framework to ensure market integrity and investor protection provided by the Market Abuse Directive.” The move from a Directive to a Regulation is a strategic one, on the part of the European Commission. The Regulation will be directly applicable in all Member States and it is felt this uniform application of these proposed new rules will provide greater legal certainty throughout the European Union.
The new proposals aim to update the current rules under MAD to reflect more modern methods of trading, including multilateral trading facilities (MTFs) and organised trading facilities (OTFs). The proposed MAR also:
- creates a new offence of ‘attempted market manipulation’
- enhances the powers of the regulatory authorities, with regards to investigations and sanctions
- extends the regulations to new markets, trading facilities and over-the-counter (OTC) financial instruments
CSMAD supports the provisions in MAR and provides clear definitions of ‘insider dealing’ and ‘market manipulation’. Under CSMAD Member States are directed to criminalise inciting, aiding and abetting insider dealing and market manipulation and any attempts at committing market abuse.
These proposed texts have now been passed to the European Parliament and the Council of the European Union for further consideration.
European Commission proposes revisions to the Transparency Directive
On 25 October 2011, the European Commission published its proposed text of a Directive to amend the existing Transparency Directive. This is part of a wider initiative by the European Commission to support entrepreneurship and responsible business.
The proposed Directive includes the following provisions:
- an extension of the notification of major holdings regime to include direct and indirect holdings of financial instruments with economic interests
- the removal of the requirement to publish interim management statements
- increased powers for the authorities to impose sanctions for breaches of the transparency regime
- a simplification of the accounting rules procedures for small and medium sized businesses
The European Commission has adopted a ‘think small first’ attitude in the preparation of these proposals, with a view to improving transparency and encouraging and supporting small sustainable businesses within the EU. Amongst other things, it is hoped that these new proposals will close the existing gap in notification requirements.
The proposed Directive text has been passed to the European Parliament and the Council of the European Union for further consideration, before being adopted into law.
ESMA publishes opinion on transposition of UCITS IV
The European Securities and Markets Authority (ESMA) has published an opinion regarding the late transposition of the Undertakings for Collective Investments in Transferable Securities (UCITS) IV Directive.
UCITS IV was due to be implemented by 1 July 2011, however many countries throughout the EU have faced a number of practical difficulties which have delayed their implementation of the Directive. In particular, Belgium, France, Italy, Spain and Switzerland all failed to implement UCITS IV by the deadline. In its opinion paper, ESMA discusses the difficulties that these countries have encountered and the subsequent further difficulties they face as a result of late implementation. ESMA sets out a number of practical measures that can be put in place between Member States that will facilitate cross-border operations, in the event that one Member State party has not yet fully transposed UCITS IV.
The opinion paper also discusses:
- UCITS notifications
- the management company passport
- cross-border mergers
- mergers between UCITS established in the same Member State
- master feeder structures
ESMA has noted that its advice in the opinion paper is without prejudice to any other initiatives adopted by the European Commission regarding the late transposition of UCITS IV.
The proposal for a Regulation aims to update and strengthen the existing framework to ensure market integrity and investor protection provided by the Market Abuse Directive