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June 21, 2018

The ESMA Chair Steven Maijoor spoke at the FESE Convention 2018 in Vienna about the achievements and current priorities of the implementation of the second Markets in Financial Infrastructure Directive (MiFID II). He highlighted that MiFID II has been in place for nearly six months and now is a good time for a preliminary review. He discussed the findings of the assessment of ESMA on the first months of MiFID II as well as issues identified in the area of secondary markets on which ESMA intending to focus in the coming months. Finally, he briefly examined the need for a third-country regime for trading venues in MiFID II.

He suggested that it appears that trading flow previously executed under one of the two waivers covered by the double volume cap is flowing to Systematic Internalizers and periodic auction trading systems. Periodic auction trading systems are increasingly attracting trading flow and, since the first suspension of dark trading in March, trading volumes on periodic auction trading systems have tripled. This has triggered a concern that some periodic auction systems may be designed with the intention to circumvent the double volume cap. Therefore, ESMA is conducting a fact-finding exercise on the different periodic auction trading systems to understand the various features of these systems. If deemed necessary, this may result in further ESMA measures or recommendations.

Moreover, following the application of MiFID II, ESMA was made aware of substantial increases in the costs of market data, reaching at times up to 400% compared to prices charged prior to January 03, 2018. In addition, ESMA received complaints from stakeholders that not all trading venues and Approved Publication Arrangements publish the required information in accordance with the reasonable commercial basis principles in MiFID II. ESMA is gathering further information on this issue and will assess the feedback over the summer—and in particular test the level of compliance with the rules in place. Should it be necessary, ESMA may provide later this year further guidance on how these rules should be applied. ESMA is also considering to propose an amendment to the tick size methodology with a two-fold aim: addressing the level playing field issue when the most liquid market is outside the EU and ensuring that a harmonized tick size continues to apply across all EU trading venues for any given instrument. To that end, ESMA intends to issue a consultation paper around mid-July. The consultation paper is likely to suggest different options for setting an appropriate tick size for instruments with their most liquid market outside the EU.

With respect to Brexit, he added that to ensure a consistent approach and to ensure that risks for the EU related to third-country venues are addressed, it is essential to introduce a harmonized EU regulatory and supervisory framework governing third-country venues. EC has been proposing to amend the MiFIR equivalence conditions for third-country investment firms ahead of Brexit and ESMA would welcome an initiative by EC with respect to third-country trading venues. He said he believes that a third-country regime for trading venues would cover both regulated markets and trading venues operated by investment firms or their equivalent, as there seems to be little justification to treat them differently. Any regime should ensure that a trading venue in the third country complies with requirements which are equivalent to those for EU trading venues, and that the EU has the supervisory tools to address risks relevant to the EU. There also needs to be adequate information exchange. He concluded that these are some preliminary thoughts and ESMA would be ready to provide further technical advice to the EU institutions on this issue, if required.


Related Link: Speech

Keywords: Europe, EU, Securities, MiFID II, Trading Venues, Brexit, Third Country Regime, Equivalence, ESMA

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