The introduction of a specific market segment for SMEs

The Commission questioned the members about the idea of creating, in order to promote the SME markets better and to assist SMEs to create growth in the SME sector, a specific category within the regulated markets/MTFs, and the requirements this segment should meet. The Commission stressed that this proposal does not intend to break down existing SME markets but, through the establishment of harmonised rules and of a common regime, to facilitate their exercise and to boost the creation of similar structures in other Member States. While there was general consensus that SMEs access to capital markets should be enhanced, some members were sceptical about introducing a new market segment, and thought that the SME issue requested a holistic approach, i.e. the compliance with IFRS or accounting requirements, the consistency with the proportionality regimes under other EU Directives. ESMA considered that the existence of SME markets in some Member States is the proof that the current framework is sufficient.

The European Commission assured the ESC members that it was considering the feedback from those Member States where SMEs markets existed, and that the idea is to build on existing experience in order to enhance the creation of a quality label, without reducing investor protection or confidence or obliging existing SME markets to qualify under the new SME regime.

Pre trade transparency requirements for equities

The ESC members were invited by the Commission to express their comments on the question of maintenance of existing pre-trade transparency waivers and the criteria for granting these waivers.

The ESC members generally supported the idea of maintaining the current pre-trade transparency waivers and also the proposal for introducing more specific criteria to grant them at Level 1. ESMA's active and complementary role should also be better defined in order to harmonise the application of the waivers further.

ESMA expressed a view that all current pre-trade transparency waivers should be retained. However, the treatment of stubs of large in scale orders should be clarified through a change to the Level 1 text. In addition, the role of the reference price waiver has also been debated within ESMA.

Pre- and post-trade transparency for various classes of non-equities

Enhanced pre- and post-trade transparency requirements in relation with non-equities, bonds and derivatives in particular, was strongly supported by the delegations, while the need to calibrating this properly to the different asset classes and types, instead of a one-size-fits-all approach, was emphasised.

ESMA was in favour of harmonised pre-trade transparency for bonds traded on a regulated market/MTF, and stated that no recommendations were made regarding bonds traded OTC. The general requirement for post-trade transparency should be further calibrated by asset class. In relation to transparency requirements for derivatives, ESMA's view is that the regime could concern liquid derivatives eligible for central clearing.

The Commission agreed that calibration was required. In addition, the Chairman reminded that both mandatory clearing and mandatory trading, where appropriate and subject to similar EMIR requirements, have to be put in place to be compliant with G20 commitments.

Consolidation of trade data

The Commission asked the ESC members about their view on consolidated tape for equities, especially regarding their comments and preferences in relation with the three options mentioned in the Public consultation paper, and on extending consolidation of non equities trade data.

Divergence among ESC members arose when debating their support of one of the three Public consultation options. Some delegations supported a centralised solution, with either one public or private entity, as it implied not only the existence of a single platform but also of a single body in charge of the consolidation of data, easier to supervise. Others were sceptical about a centralised option as it might hinder competition and innovation on this market, and thus supported the decentralised solution.

In general, members agreed that the improvement of data quality, of standardisation and access - on reasonable commercial grounds - to data should be a priority. The Commission took note of the ESC members' views and support of competition in this field, and indicated that even if consolidation of equities trade data was a priority, consolidated tape for non-equities is also necessary.

Algorithmic and high frequency trading (HFT)

The Commission indicated that while algorithmic and high frequency trading are an important phenomenon of contemporary markets, this should be better regulated under MiFID. Some members declared that HFT, currently not specifically addressed in the Directive, should be authorised as an investment activity if a firm has direct access to a trading venue. These members also opposed fixing thresholds for the authorisation.

Some members and ESMA considered that HFT should be addressed through the internal controls and risk management in place at HFT firms and at trading venues. Also, in ESMA's view the competent authorities should have the capacity to oversee software on an ex post basis.

The "flagging" of HFT orders was suggested by some members, whereas others thought this idea would need to be further discussed. The role of circuit breakers, minimum tick sizes, minimum latency between orders and stress testing of trading systems was also discussed, with most members being supportive of establishing an information obligation on circuit breakers when applied by a venue, and coordination in case it needs to be applied somewhere else.

The idea of defining Level 1 rules and fixing a Level 2 mandate was strongly supported. In relation to this mandate, one member suggested that ESMA should be given the tools to adapt the requirements to technological and market evolution in this field. Surveillance powers and control of orders should also be improved.

Cooperation among trading venues

ESC members expressed their general support to enhanced and qualitative exchange of information between venues in order to strengthen the market surveillance even if some of them asked for further debate (i.e. type of information, tools, etc) on this point. Some representatives were sceptical towards the idea of empowering a "leading venue" to suspend or interrupt the trading in a specific order, and did not see the added value of this proposal.

ESMA called for harmonised powers regarding the suspension procedures, as past experience in this field was not encouraging and supported a review of MiFID to address this problem, notably that of the discretion for other competent authorities to follow a trading suspension. ESMA voiced its support of a system where the other markets have no local discretion. In addition, ESMA said that problems of system disruption should be made public, but in those cases it should not be mandatory to follow a trading suspension in the disrupted platform.

The Commission's services took note of these comments and agreed that the question of supervisory powers and the role of coordination to be granted to ESMA is very important. Further analysis was to be undertaken in relation to circuit breakers.

Interaction with EMIR

The Chairperson reassured ESC members about inconsistency and overlapping risks between EMIR and MiFID regimes: MiFID requirements are activity-based, whereas reporting under EMIR is based on thresholds. Requiring mandatory trading of derivatives on a regulated platform is not overlapping with EMIR provisions. This would only lead to an improved degree of transparency, in light of the G20 commitments related to derivatives (manage counterparty risks, bring some derivatives on regulated trading venues and ensure more transparency, mitigate market abuses).

The Commission agreed that ESMA should be granted a role as regards the elaboration and application of criteria on liquidity and clearing.

Limiting the scope of execution only

As regards the question of the scope of the "execution-only" provision, the Commission's representative asked the ESC members whether they consider that all UCITS should continue being classified as non-complex instruments for the purpose of the execution only regime.

The Commission accepted that there was place for refining the execution only regime, and was considering the relevant criteria for identifying complex or non-complex instruments. Criteria could eventually be developed in Level 2 measures.

Strengthening the rules for investment advice

The Commission's first queries were related to the need, if any, of having a harmonised definition for "independent advice", of requiring investment firms to ensure the ongoing suitability of a product, or to specify whether they consider a broad list of products when giving advice.

ESMA also agreed that there was a margin for improvement, and suggested that the review of the MiFID could be the occasion for introducing a clearer Level 1 legal basis for subsequent Level 2 and Level 3 provisions on inducements.

Full meeting summary