MiFID II – The road ahead

In a speech held on 19 October 2015, as part of the FCA’s MiFID II conference, David Lawton, the FCA’s Director of Markets Policy and International, talked about the road and steps ahead in regards to the upcoming directive and in particular, the draft technical standards and delegated acts – implementing measures, which are starting to be published and reaching a more finalised state (the technical standards are expected to be finalised in the first quarter of 2016, while the delegated acts are expected to be finalised before December 2015).

MiFID is one of the most impactful pieces of EU legislation and without a doubt one of the cornerstones of the EU financial markets, the directive will bring about numerous changes in the areas of, among others, transparency for equity, non-equity trading, regulation of OTFs, authorisation of firms utilising high frequency trading and dark trading. Given the scale of the directive, its implementation will be a heavy task for the industry. In order to make the implementation process smoother for firms, the FCA will actively engage with firms and consult on the upcoming changes. In his speech, Mr Lawton outlined that the FCA’s strategic engagement with firms would consist of the following activities:

  • keeping firms and their advisors up to date with regular postings on the FCA website, including background pieces, links to important documents and recent news. The FCA will be further focusing on the use of this resource as it is the easiest way for the regulator to reach large numbers of firms at once;
  • adding content and signposting to other material in regular FCA communications (such as Regulation Round Up and the MarketWatch
newsletter);
  • organising, and speaking at, conferences and events in order to address any questions firms might have; and
  • continued in-depth discussions with trade association representatives about the variety of issues that matter to the different industry sectors, the notes from each of these meetings are being included on the FCA’s website.

Other ideas, from webinars, online videos and face-to-face workshops, will also be considered, and the FCA welcomes feedback on how to best help firms and communicate with them.

Among the numerous changes taking place as a result of MiFID II, in his speech Mr Lawton discussed the following:

  • appropriateness of pre-trade transparency for bonds. ESMA will be seeking to find the right balance between improving transparency to aid price discovery and ensuring that market liquidity is not detrimentally affected by too much transparency. Around 4% of bonds traded today will be captured by the full scope of the new requirements, or around 2,000 different bonds (a large number of which are sovereign bonds);
  • measures around the regulation of commodity derivatives. Limits could be set for different commodity derivatives, such that firms could only hold a position up to a limit, which could be set between 10% and 40% of deliverable supply of the commodity. After having received feedback from firms, the cap will now fall between 5% and 35% of deliverable supply or open interest, depending on the time to maturity of the
 In the case of non-financial entities there will be hedge exemptions to allow them to offset the risks from their commercial activities;

In his discussion of the above, Mr Lawton emphasised how important it is for firms to appreciate the spirit and intent of the legislation for implementation. For this reason, firms should already be preparing for the 2017 implementation date and should seek support from the FCA in regards to any enquiries they might have. The FCA will be assisting firms via numerous events and engagement activities, including direct engagement through their specially trained Supervisors and Contact centre. Mr Lawton urged firms to make use of the utilities provided to them by the FCA in order to ensure a smooth and sufficient implementation process.

To view the full speech by David Lawton from the MiFID II conference please follow this link.

Should you require any further advice or information on MiFID II, Cleveland & Co, your external in-house counsel, are here to help.

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