Court of Justice of the European Union Ruling on Scope of a Regulated Market Under MiFID
11/16/2017The Court of Justice of the European Union has given a preliminary ruling on the meaning and scope of "regulated market" under the Markets in Financial Instruments Directive following a referral by the Dutch Administrative Court of Appeal for Trade and Industry. A regulated market is defined in MiFID I as "a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments - in the system and in accordance with its non-discretionary rules - in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with the provisions of Title IIII". The definition is unchanged in MiFID II which will replace MiFID I from January 3, 2018.
The request for a preliminary ruling arose out of a dispute between 'open ended' investment funds using the Euronext Fund Services system (EFS system) to trade shares in their funds and the Autoriteit Financiele Markten, the Dutch financial markets authority. The AFM had imposed a series of charges on the investment funds under the Dutch law implementing MiFID I, because it determined that the investment funds were issuers and that the EFS system was a regulated market. The EFS system is operated by Euronext, an authorized regulated market.
The CJEU was asked whether a regulated market "covers a trading system in which multiple fund agents and brokers represent, respectively, 'open end' investment funds and investors, the sole purpose of which is to facilitate those investment funds in their obligation to execute the purchase and selling orders for shares placed by those investors". The Court noted that the EFS system does display some characteristics of a regulated market in that it is operated by Euronext (an operator of regulated markets), is subject to certain non-discretionary rules and an order placed by a broker with an agent of an investment fund results in a contract relating to the shares in that fund. The Court did not accept that the EFS system is a bilateral system and agreed that the fact that the agents and their investment funds are only required to execute orders to issue or purchase shares in investment funds that they receive via the EFS system does not prevent multiple buying and selling interests from being brought together due to the presence of those agents and brokers within the system. Furthermore, the Court agreed with the AFM that certain characteristics, such as the requirement to report transactions executed through the system, were not necessary for the EFS system to be characterized as a regulated market. Similarly, the Court stated that the degree of risk of abuse in the execution of transactions on the EFS system was not a necessary factor to take into account in the characterization of the system as a regulated market.
The CJEU held that the EFS system did "cover a trading system in which multiple fund agents and brokers represent, respectively, 'open end' investment funds and investors, the sole purpose of which is to facilitate those investment funds in their obligation to execute the purchase and selling orders for shares placed by those investors". The Dutch court must now make its decision on the particular case, taking into account the ruling of the CJEU.
View the provisional text of the judgment.