MiFIR Review

The European Commission adopted on 25 November the proposal to review the Markets in Financial Instruments Regulation. The introduction of a European consolidated tape (CT) is a central plank of the new framework and a key policy issue for the Commission. The new CT will provide near real-time pre- and post-trade data for equities and post-trade data for bonds. On the sensitive matter of market-data costs, the proposal calls for a regulatory technical standard (RTS) to clarify the “reasonable commercial basis” concept.

Other key reforms will bring tougher restrictions for multilateral trading facilities and systematic internalisers on the equity market, while the transparency regime for bonds is also set to be strengthened and deepened.

With the branches of European firms still at a competitive disadvantage owing to the dual application of European and UK derivatives trading obligations (DTOs), Member States will be able to ask the Commission to suspend the European DTO under certain conditions. The proposal also transposes ESMA’s clarification about the scope of the share trading obligation.

MiFIR transparency regimes

AMAFI responded to ESMA’s consultation on the review of MiFIR transparency regimes (AMAFI / 21-57). Overall, it welcomed most of the proposals to streamline reporting and improve the identification of transactions. Harmonisation efforts should help to identify addressable liquidity and distinguish “technical” trades from price-forming ones. This is a significant step forward, not to mention a pre-requisite for establishing a European consolidated tape.

Conversely, AMAFI pointed out that the proposed amendments to the transparency rules for ETF trading fall within the scope of Level 1 measures and should not have been included in the technical consultation. It also drew ESMA’s attention to the potential costs associated with the proposed changes and called for the modifications to be conducted in a manner consistent with the MiFIR review.

Best execution reports

On 24 September 2021 ESMA began a consultation on best execution reports (ESMA35-43-2836) in which it suggested amendments to the current arrangements as part of the MiFID II review. The proposals include technical amendments to RTS 27 and 28, which set best execution reporting requirements for execution venues and investment firms, respectively.

As regards execution quality reporting by trading venues (RTS 27), AMAFI said the proposed overhaul would not make the disclosures more meaningful, and it called for these reports to be scrapped, as they include redundancies with existing mechanisms used by institutions to determine their best execution policy.

AMAFI also reiterated its general position on execution quality reporting by investment firms (RTS 28) (AMAFI / 21-35). In AMAFI’s view, these reports are not sufficiently valued by customers: wholesale customers have their own execution analysis systems, while the disclosures are too technical to be considered useful to the retail segment. Accordingly, these reports, too, ought to be scrapped. However, if they are kept, AMAFI supports some of the amendments proposed by ESMA, such as the clarifications on best selection reporting and the elimination of the distinction between “passive” orders that provide liquidity by indicating a willingness to buy or sell and “aggressive” orders that absorb liquidity through execution in the order book.