Latest developments in market reforms

On 28 September 2015, ESMA published its final draft RTS on the MiFID II, MAR and CSDR. These regulations are amongst the most important in the post-crisis reform agenda and will significantly alter how European financial markets operate by increasing their transparency, safety and resilience as well as investor protection. The magnitude of these changes should not be ‘underestimated’, ESMA warns, and will require firms to carefully consider how it will impact their implementation programmes.

In preparing for MiFID II, ESMA published over 400 pages of technical explanations underpinning their rules, not counting the actual 30 or so draft RTS and ITS which were finalised. This has provided industry which much needed details on several of the most controversial elements of the new regime, from EU-wide commodity derivatives positions limits to rules governing high-frequency-trading. There was also further details on the thresholds for the pre- and post-trade transparency regimes for equity-like instruments, a newly introduced liquidity assessment for non-equity instruments and improved disclosure requirements to strengthen the best execution regime, amongst many other things. But a significant piece of the MiFID II jigsaw remains missing. We are still waiting on the European Commission to publish its delegated acts (expected in November/December) on many of the outstanding investor protection questions.

Concurrently to the MiFID II release, ESMA published final draft RTS on MAR, as part of measures to strengthen the existing market abuse framework by extending its scope to new markets, platforms and behaviours. The final draft technical standards focused on:

  • the conditions under which transactions in buy-back programmes and stabilisation measures are not considered market abuse;
  • requirements for market participants conducting market soundings and for competent authorities establishing accepted market practices;
  • specific requirements to report suspicious orders and transactions;
  • rules for public disclosure of insider information and  the delays of such;
  • specific formats for establishing insider lists and for the notification and disclosure of managers’ transactions; and
  • specific arrangements on how to present investment recommendations or other information recommending or suggesting an investment strategy.

Some changes have been made, including new guidance for market soundings where there is more than one disclosing market participant (both must comply with MAR).

Finally, ESMA published final draft technical standards on CSDR, a package of reforms designed to harmonise the authorization and supervision of central securities depositories within the EU. The draft RTS set out many authorisation and operational standards that are similar to those that apply to other market utilities, such as CCPs. ESMA’s final draft technical standards deal with cooperation requirements among national authorities, requirements for third-country recognition and risk monitoring tools, record keeping, investment policy, reconciliation measures. While this RTS is significant for depositories, investment firms are still waiting on settlement discipline standards that have a more direct impact on industry, especially around mandatory buy-in.

The RTS and ITS now pass to the Commission, EP and Council for adoption which should happen within the next three months (assuming no challenge to content). The MiFID II delegated acts are a different story though. The FCA suggests they might not be available until November or even December this year – meaning firms will have less than a year to get ready for some of the most fundamental aspects of MiFID II.


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