European Commission Proposes Revisions to MIFID II

The European Commission has published legislative proposals to amend the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. The proposals are part of the Commission's package of proposals to enhance the availability of information on trading and companies for investors. The main changes are set out in the proposed regulation to amend MiFIR. Some of the proposed changes are similar to those that the U.K. has made or is contemplating making as part of the Wholesale Markets Review.

Some of the changes that the Commission is proposing are:

• Removing the open access obligation for exchange-traded derivatives. Trading venues are currently required to provide open and non-discriminatory access to a CCP, with a reciprocal requirement for CCPs to provide access for trading venues, when clearing transferable securities, money market instruments and ETDs.
• Aligning the derivatives trading obligation with the derivatives clearing obligation according to the revised scope set out in the European Market Infrastructure Regulation. EMIR Refit exempted smaller Financial Counterparties from the clearing obligation and limited the scope of the clearing obligation of Non-Financial Counterparties to only apply to the contracts in the asset classes in which they exceed the clearing threshold for the particular asset class (as opposed to being obliged to centrally clear all their derivatives contracts if they exceed one of the prescribed thresholds for any asset class). This proposal will implement ESMA's recommendations published in February 2020.
• Introducing an EU consolidated tape. This would establish an obligation for trading venues to contribute market data directly and exclusively to the entities appointed by the European Securities and Markets Authority as the CT provider for each asset class. The asset classes will be shares, ETFs, bonds and derivatives. ESMA would be responsible for authorizing and overseeing CTPs.
• Moving the requirements on business clock synchronisation from MiFID II to MiFIR and extending it to systematic internalisers, approved publication arrangements and CT providers. The existing obligation applies to trading venues and their members.
• Replacing the double volume cap, which caps the amount of shares a market participant can trade under a transparency waiver, with a single volume cap set at seven percent of trades that are executed under the reference price waiver or the negotiated trade waiver.
• Banning investment firms from receiving payment for (retail) order flow, i.e., stopping the practice whereby high frequency traders pay brokers/investment firms to direct their retail orders to the HFT for execution. The objective is to ensure that these orders would instead be sent to an exchange or multilateral trading facility, which will lead to more transparency.
• Enshrining into law ESMA's view that the share trading obligation applies to shares admitted to trading on an EEA trading platform. ESMA is to maintain a list of such shares. The STO exemption for trades in shares which are non-systematic, ad hoc or irregular and infrequent would be removed because it is not clear when this exemption applies.
• Removing the authorization requirement for persons dealing on own account on a trading venue by means of direct electronic access where no other investment services are provided or performed. This follows ESMA's recommendation in its recent Report on algorithmic trading.

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