Section 1 of the consultation invites views from all stakeholders on their general experience of the MiFID II / MiFIR framework that was implemented in January 2018. The review's stated objective is to increase the transparency and attractiveness of European public markets and to ensure that European markets are ready for digital developments.
The consultation takes the form of a questionnaire and invites responses on whether the MiFID II / MiFIR framework needs improvement, its compliance costs and value, and whether there are impediments to its implementation from national legislation or market practices. The consultation also asks whether there are barriers to investors accessing financial instruments to meet their investment needs and whether the MiFID II / MiFIR framework has levelled the playing field between different types of execution venues.
The Commission has asked detailed questions on priority areas for review in section 2, part 1:
The establishment of an EU consolidated tape is addressed in questions 7 to 30.1. As a result of having multiple competing trading venues and alternative trading systems, investors and smaller firms do not have an overall picture of the trading landscape. An EU consolidated tape which would consolidate EU trading data could provide real-time information post-trade or pre-trade to potentially remedy this perceived issue.
The investor protection section addresses multiple issues including access to simple and transparent products and protection of retail investors, which are covered in questions 31 to 33. The issue of relevance and accessibility of adequate information are addressed in questions 32 to 36.1, which also include questions on phasing out paper-based information. The issues around developing an ESMA database comparing investment products are detailed in questions 37 to 39.1. Client classification is also addressed with views sought on creating a new classification of semi-professional clients in questions 40 to 45.1. Product oversight, governance and inducements are addressed with a focus on exploring whether to simplify the rules on governance and imposing an outright ban on inducements. (Questions 46 to 52.1)
Distance communication with a focus on the necessity to tape phone calls is covered in questions 53 to 54.1. The quality of reports on best execution is also explored, including the cost of reporting as against the benefit to investors in questions 55 to 57.1.
Research-unbundling rules and SME research coverage
The MiFID II / MiFIR framework imposed rules on unbundling research and execution services in order to increase transparency of research prices, to prevent conflicts of interests and ensure research costs are incurred in the best interests of clients. An assessment of these rules is invited by question 58 in narrative format. Various options to address a decline in research on SMEs are explored in questions 59 to 68.1.
The Commission is exploring the possibility of recalibrating the rules on pre-trade transparency and position-limits in order to encourage more euro denominated commodity derivatives trading. These rules have been criticised for being too restrictive. The existing rules and possible alternatives are explored in questions 69 to 76.1.
The Commission is also gathering evidence in section 2 part 2 on the below areas. The Commission has indicated that these additional areas do not require review at this stage, although this stance could change depending on the nature of consultation responses.
Derivatives trading obligation (Questions 77 to 80.1)
Multilateral systems are addressed (Question 81) due to concerns that emerging electronic platforms offer functionality similar to MTFs or OTFs but are not required to comply with the regulatory requirements under current MiFID II definitions
Double volume caps (DVCs) were introduced by MiFID II to limit "dark pool" trading but are criticised for their complexity and the fact that the cap draws trading away from traditional venues. Stakeholder experiences with DVCs and their impact on transparency are sought at question 82
Non-discriminatory access was introduced by MiFIR to facilitate competition and prevent discriminatory treatments in order to reduce costs. A number of opt-outs and transition periods were applied initially but the majority of these will end by July 2020. Questions 83 to 85 seek feedback from market stakeholders that will be used to prepare reports for the European Parliament and the Council
Digitalisation and new technologies are explored in questions 86 to 91.1 in order to capture information to feed in to a new Digital Finance Strategy that will promote digital finance and address any risks arising. These questions focus on aspects not already covered by other recent Commission consultations
Spot FX contracts are not currently defined as financial instruments under MiFID II / MiFIR. The Commission indicates that some stakeholders are concerned at this regulatory gap. Questions 92 and 93 seek to establish views on whether this prevents misbehaviours in the area of spot FX transactions and what recommendations stakeholders believe would improve the regulatory framework.
Finally, section 3 invites additional comment on the consultation on any area not already covered. There is an opportunity to raise any issues not raised in the consultation that merit further consideration particularly in relation to investor protection, financial stability and market integrity. There is also a facility to upload position papers, reports or matters not covered in the questionnaire.
A&L Goodbody has a dedicated Financial Regulation team to advise firms authorised under MiFID on all aspects of the European framework, domestic regulation and engagement with pan-European and Irish regulators.