Financial Services Regulation and Compliance - Investment Firms January 2024
European
European Parliament adopts proposed amendments to MiFID II and MIFIR
On 16 January 2024, the European Parliament announced that it had adopted the proposed legislation to amend (the proposed amendments) the Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) in order to enhance financial market data transparency, optimise orderly trading and prohibit payments for forwarding client orders.
The proposed amendments are intended to:
- reduce information asymmetries between market participants
- improve orderly trading in commodity derivatives concerning energy and food
- ensure investor protection by banning the practice of receiving payments for forwarding client orders for execution (payment for order flows)
The proposed amendments will now be sent to the Council of the EU for formal adoption.
ESMA publishes updated opinion on pre-trade transparency waivers for equity and non-equity instruments
On 8 January 2024, the European Securities and Markets Authority (ESMA) published an updated opinion on the assessment of pre-trade transparency waivers for equity and non-equity instruments (the opinion). It summarises the considerations on which ESMA’s opinions on pre-trade transparency waivers issued under Articles 4(4) and 9(2) of MiFIR are based.
The opinion covers:
- large-in-scale waivers
- order management facility waivers
- negotiated transactions waivers
- size specific to the financial instrument (SSTI) waivers
- combinations of waivers
- applying for a pre-trade transparency waiver
The opinion does not represent new ESMA guidance but aims at communicating ESMA’s position regarding the compliance of the intended waivers with the applicable legal provisions in order to contribute to a level playing field.
ESMA and NCAs to coordinate supervisory activities on MiFID II pre-trade controls
On 11 January 2024, ESMA announced the launch of a Common Supervisory Action (CSA) with National Competent Authorities (NCAs), with the objective of assessing the implementation of pre-trade controls (PTCs) by EU investment firms using algorithmic trading techniques.
PTCs are used by investment firms to limit and prevent sending erroneous orders for execution to trading venues. In response to the May 2022 flash crash, ESMA and NCAs have focussed their attention on the implementation of PTCs in the EU, gathering evidence through questionnaires submitted to a sample of EU investment firms.
The objective of this CSA is to gather detailed insights as to how investment firms use PTCs across the EU. The rules governing the use of PTCs are set out in MiFID II and in the Commission Delegated Regulation 2017/589 which specifies the organisational requirements of investment firms engaged in algorithmic trading.
Remarkable resilience of financial markets in a higher-for-longer interest-rate environment
On 31 January 2024, ESMA published its first risk monitoring report of 2024 (the report), setting out the key risk drivers currently facing financial markets.
ESMA’s chair, Verena Ross, noted that ESMA was observing a financial system which had shown high resilience, but markets looked to remain very sensitive with risks of corrections continuing to be high. Ross noted that financial stability and investors will be impacted by increasing interest rates which are expected to remain higher for longer, which has a negative impact on credit quality and real estate valuations. The report also provides an update on structural developments and the status of key sectors of financial markets during the second half of 2023.
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.
Date published: 26 February 2024