On 20 October 2011 the European Commission tabled proposals to revise the Markets in Financial Instruments Directive (MiFID). These consist of a Directive and a Regulation.
Scope
The proposals widen the scope of MiFID’s application at firm level (e.g. to certain data providers and a broader range of commodities firms); at product level (additional instruments such as structured deposits and emission allowances will fall within scope); and to services (e.g. custody services that were previously classified as ancillary will become core investment services). The possibility of a “passport” to allow third country firms provide cross-border investment services in the European Economic Area also features in the proposals.
Key Proposals
Below is a summary of some key proposals, set out under the general MiFID II goals.
Establishment of more robust and efficient market structures and increased transparency
The introduction of a new type of trading venue – the Organised Trading Facility – into MiFID’s regulatory framework is proposed. It is anticipated that this will improve the transparency of trading activities in equity markets.
Reinforcement of supervisory powers and introduction of a stricter framework for commodity derivatives markets
In co-ordination with the European Securities and Markets Authority, national supervisors such as the Central Bank of Ireland will, in certain circumstances, be permitted to ban specific products, services or practices. Stronger supervision of commodity derivatives markets e.g. by the introduction of a position reporting obligation by category of trader, is also provided for.
Stronger investor protection
The proposals include stricter requirements around portfolio management, investment advice and offering of complex financial products such as structured products. Independent advisors and portfolio managers will be prohibited from making or receiving third party payments/other monetary gains. View a previous update of relevance on this point here.
Taking account of technological innovations
New safeguards for algorithmic and high frequency trading activities are proposed, including a requirement for all algorithmic traders to become properly regulated.
Next steps
The proposals will pass to the European Parliament and the Council of the European Union for negotiation and adoption. The timeframe around implementation of the proposals is not yet clear, however, We will provide updates on developments as they arise.
Contributed by Lorena Dunne.
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