This technical advice issued in mid-October 2010 covers three main workstreams: standardisation and organised platform trading of OTC derivatives; post-trade transparency standards; client categorisation; and the remaining responses by CESR to the Commission’s request for additional information in relation to the review of MiFID presented in March 2010.
In respect of OTC derivatives standardisation and organised platform trading, the advice contains policy measures aimed firstly at increasing the level of standardisation of OTC derivatives and secondly, at encouraging trading of eligible standardised derivatives on organised trading venues. CESR does not yet have a definitive view on the exact levels that should be reached with regard to standardisation and trading on organised trading venues of derivatives currently traded OTC.
As to post-trade transparency standards, CESR proposes a series of adjustments to be made in order to improve the overall quality of post-trade transparency with a view to reducing market fragmentation. The proposals cover reference data, transaction type standards and other trade flags and a clarification of post-trade transparency obligations to avoid duplicative publication.
CESR has also provided additional evidence to further questions tabled by the Commission pursuant to its March consultation. CESR recommends that the Commission should focus on analysing whether exchanges/regulators have a sufficiently extensive set of powers to manage positions across the entire life of commodity derivatives market contracts and on setting up a harmonised set of powers for them in European legislation. In CESR’s view, it remains to be further assessed whether or not position limits are suited to achieving the objectives of reducing volatility or limiting the impact that large positions may have on market prices.
CESR furthermore suggests defining a new position reporting regime through trade repositories, as foreseen in the Commission proposal for a regulation on OTC derivatives, central counterparties and trade repositories and recommends recognising trade repositories in the MiFID review as reporting mechanisms through which investment firms will be able to fulfil their transaction reporting obligations. CESR also suggests extending the scope of transaction reporting obligations to financial instruments admitted to trading only on MTFs and to certain OTC derivatives.
On extending reporting obligations to commodity markets firms, CESR notes that significant alternative reporting methods already exist through which regulators can obtain information on the transactions and positions of commodity markets firms currently exempted under MiFID. While extending a general transaction and position reporting obligation to commodity markets firms exempted under MiFID would have the benefits of standardising reports and affording regulators a “whole market” view, the extent of such benefit would depend on the significance of any gaps left by the alternative reporting arrangements taken as a whole CESR notes that such an extension would also involve a cost to firms and to regulators.
Finally, on client categorisation, CESR believes that the current MiFID rules are generally appropriate and do not need significant change. At the same time, CESR believes that there is scope for some clarification in the context of the professional client and eligible counterparty categories in particular.