MiFID II / MiFIR Review: European Council publishes final compromise texts

The Council of the European Union (Council) has published final compromise texts for proposed amendments to the Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II) and Markets in Financial Instruments Regulation (Regulation (EU) 600/2014) (MiFIR) (together the MiFID II framework), which reflect the provisional political agreement that was reached with the European Parliament (Parliament) in June 2023. The changes are in wholesale market areas, which buy side and sell side practitioners should note.

Background

MiFID II Review Process

The MiFID II framework includes a mandatory review and reporting process to assess the overall functioning of the regime after two years of application. It requires the European Commission (Commission) to present a number of reports to the Parliament and the Council on certain aspects of the functioning of the MiFID II framework following consultation with the European Securities and Markets Authority (ESMA). Accordingly, in May 2019, ESMA received a formal request from the Commission to provide technical advice on the relevant subject areas that the Commission was required to provide reports on.

In addition, in February 2020, the Commission launched a public consultation on proposed changes to the MiFID II framework, which closed on 18 May 2020.

Commission’s MiFID II proposals

Following receipt by the Commission of the requested technical advice from ESMA and its own public consultation, the Commission published its proposals to amend the MiFID II framework on 25 November 2021. The proposals, which were put forward primarily to improve access to market data and trade transparency, included:

  • a legislative proposal for a directive amending MiFID II
  • a legislative proposal for a regulation amending MiFIR.

MiFID II legislative process

On 29 June 2023, following negotiations between the Council and the Parliament that began in December 2022, the Council and the Parliament announced that they had reached provisional agreement on the proposed amendments to the MiFID II framework, to be implemented via a directive to amend MiFID II and a regulation to amend MiFIR.

Publication of final compromise texts

On 18 October 2023, the Council published the final compromise texts with regard to the revision of the MiFID II framework. The final compromise texts reflect the provisional political agreement that was reached between the Council and the Parliament in June 2023.

Some of the key proposals are as follows:

  • Establishment of EU-wide consolidated tapes or centralised data feeds for different kinds of assets, bringing together key market data provided by multiple platforms (such as stock exchanges and investment banks) on which financial instruments are traded. This will make it easier for both professional and retail investors to access accurate and up to date information such as the price of instruments and the volume and time of transactions.
  • A general ban on ‘payment for order flow’ (PFOF) (a practice through which brokers receive payments for forwarding client orders to certain trading platforms). However, certain Member States, where PFOF is more common, will have until 30 June 2026 to implement the ban provided PFOF is only provided to clients within that Member State. Practitioners will note that implementation will bring the EU closer to the UK position where there has been a long standing PFOF ban.
  • Regulated markets must be able to temporarily halt or constrain trading in an emergency or if there is a significant price movement in a financial instrument within a short time period. In exceptional cases, they must be able to cancel, vary or correct any transaction.

The chair of the Permanent Representatives Committee’s letter to the chair of the Parliament's Committee on Economic and Monetary Affairs stated that should the Parliament adopt the compromise texts in the form agreed, at first reading, the Council would proceed to adopt the legislative acts.

Next steps

The proposed legislative acts must be formally adopted by the Parliament and the Council before they can be published in the EU’s Official Journal and enter into force.

Key contacts

For more information please contact Patrick Brandt (Partner), Kevin Allen (Partner), Christopher Martin (Of Counsel), Louise Hogan (Associate), Sarah Lee (Senior Knowledge Lawyer) or any member of ALG's Financial Regulation Advisory team.

Published: 16 November 2023