Amendments to the Markets in Financial Instruments Regulation (MiFIR)

In “An Economy that Works for People”

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The rulebook of the European Union (EU) governing the participation in EU capital markets consists of a directive and a regulation on Markets in Financial Instruments - respectively, MiFID (Directive 2014/65/EU) and MiFIR (Regulation 600/2014).

Today, financial instruments, such as stocks and bonds, are traded in the EU across about 500 execution platforms (across all asset classes). The information is very fragmented and only few big players are able to have a comprehensive overview of the market.

On 25 November 2021, the Commission tabled a proposal for a regulation amending MiFIR (and MiFID) with a view to enhance market data quality and consolidation. The amendments were aimed at leading to the creation of an EU consolidated tape, where both financial institutions and retail investors would observe in a single place the price and specific information such as volumes and timing of transactions. The amending regulation would harmonise and enhance transparency rules as a whole, ensuring the level playing field between stock exchanges and market participants.

On 23 March 2022, the European Economic and Social Committee (EESC) adopted an opinion on the file supporting the establishment of consolidated tapes for the following asset classes: shares, exchange-traded funds, bonds and derivative financial instruments. The EESC also recommends that the Commission undertake more action to further develop the equities culture, which remains uneven across Europe, and take measures to improve consumer education.

In its opinion of 1 June 2022, the European Central Bank (ECB) welcomes the main objective of the proposal, i.e. the enhancement of market data transparency by 'creating a new regulatory framework for the production of a "consolidated tape" for trade data'. To the ECB, the proposal includes 'significant changes' to the pre- and post-trade transparency rules, and favours the integration of EU capital markets. The ECB is 'specifically interested' in these legislative proposals in view of the performance of the monetary policy.

The Council started discussions on 29 November 2021 and published its mandate for negotiations on 16 December 2022. Overall, the Council considers that the proposal constitutes an important step to strengthen market transparency, and it would empower investors, especially smaller investors, thanks to easier access to the necessary data to invest in stocks and bonds. The Council proposes to modify the deferral times which should be based on the liquidity of a bond, structured finance product and emission allowance, and the size of transactions. Moreover, masking price and volume of transactions for very large trades by bond liquidity providers should not exceed four weeks for derivatives traded outside organised markets. The European Securities and Markets Authority (ESMA) would determine the duration of these deferrals.

In Parliament, the Committee referral was announced on 27 January 2022. The Committee on Economic and Monetary Affairs (ECON) is the Committee responsible; rapporteur Danuta Huebner (EPP, Poland). On 2 march 2023, ECON Committee adopted its report for the interinstitutional negotiations, and the Committee's decision to enter into interinstitutional negotiations was announced in plenary on 13 March 2023.

The report on MiFIR Amendments includes new provisions on derivative market margins and notes that, given the current definition of systematic internalisers, it is likely that there is an excessive number of them, making the event of double reporting very likely. The report suggests that the link between systemic internalisers and post-trade discovery be removed, and the status of 'designated reporting entity' would be established and the list made public by ESMA. The report on the amending regulation also proposes that the market data contributor receives a remuneration (at least) based on the costs incurred to provide the data, and retail investors should have access to the data.

On 29 June 2023, a provisional agreement was reached, of which three main points can be highlighted. First, the provisional agreement provides for an EU-wide consolidated tape that would provide the best bid and offer prices, as well as the transaction volumes. Real-time information would be delivered without the identification of the trading venues; post-trade data would identify the trading venue. Regulated trading venues will have to provide pre- and post-trade information to a CTP as close to real time as is technically possible. ESMA will assess by June 2026 whether the consolidated tape framework indeed mitigates information asymmetries, and whether the EU has become a more attractive market place. Free access to information on CTPs should be granted to retail investors, academics and civil society organisations (for research purposes), as well as public authorities.

Moreover, receiving payments for forwarding client orders for execution – known as 'payment for order flows' – will be banned, taking effect immediately, except for specific countries for which the ban will have to be applicable by mid-2026.

Regarding derivative instruments on commodities and emission allowances, the Commission's review of position limits and position management controls would focus on facilitating energy transition, food security, markets' resistance to external shocks and achieving competitive and liquid markets. The Member States would also have to enable regulated markets to temporarily halt or constrain trading in emergencies, or if there is a significant price movement in a financial instrument.

The agreement was adopted by Parliament in Plenary on 16 January 2024, and by Council on 20 February 2024. The final act was signed on 28 February 2024 and published in the Official Journal on 8 March 2024.

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Further reading:

Author: Issam Hallak, Members' Research Service, legislative-train@europarl.europa.eu

As of 20/09/2024.