MiFID II and the transparency and reporting regime: scope of the regime, trading venues, systematic internalisers and large trader reporting system reporting service providers. EU financial services law setting out which investment services and activities should be licensed across the EU and the organisational and conduct standards that those providing such services should comply with.
The legislative proposals were the subject of intense political debate between the European Parliament, the Council of the EU, and the Commission. However, informal agreement between the EU institutions was finally reached in February 2014. The final MiFID II and MiFIR texts were published in the Official Journal of the EU on 12 June 2014 and entered into force 20 days later on 2 July 2014. Entry into application will follow 30 months after entry into force on 3 January 2017. The implementing measures that will supplement MiFID II and MiFIR will take the form of delegated acts and technical standards. ESMA’s proposals for technical standards. The deadline for responses to the CP and DP has now closed.
ESMA is expected to provide advice on the delegated acts to the Commission by the end of 2014 and drafts of the technical standards by the middle of 2015. The financial crisis exposed weaknesses in the functioning and transparency of the financial markets. This led to a commitment by the G20 summit to improve the transparency of financial and commodities markets, mitigate systemic risk, and protect against market abuse. Increased transparency boosts investor protection, reinforces confidence, addresses previously unregulated areas, and ensures that supervisors are granted adequate powers to fulfil their duties. Transparency requirements under MiFID II and MiFIR generally fall into two categories. Secondly, transaction reporting which involves notifying the competent authority of identifying reference and post-trade data. Increased transparency will have implications for market participants in respect of additional costs, enhanced technology and the development of other market infrastructure.
However, the result will provide greater power to the competent EU authorities to monitor systemic risk and market abuse. This note gives a brief introduction to the impact of transparency and reporting on different market participants to provide some scale of the changes for those impacted. Transparency requirements will be calibrated for different types of instruments and different types of trading, such as central order book, quote driven, hybrid and periodic auction trading systems. Pre-trade transparency obligations to make public bids and offer prices and depth of trading will be extended to apply to a new category of trading venue, OTFs, as well as RMs and MTFs and will also apply to actionable indications of interest.
There is a new provision for carve-outs to pre-trade transparency allowing for deferral of pre-trade data. What constitutes sufficiently large in scale for these purposes has not yet been defined, and further information on this issue is expected in the technical standards. Further information is also expected regarding the length of delay which can be allowed for the publication of information when deferral is granted and the meaning of the requirement that publication generally be ‘as close to real time as possible’. RMs, MTFs and OTFs will have to offer pre-and post- trade transparency data separately and to publish it free of charge within fifteen minutes of publication of a transaction. The European Commission will clarify further details of the pricing and timing elements of the pre-and post-trade transparency regime.