16 April 2014

Reactions to EP's votes on MiFID, PRIIPS, UCITS V

EFAMA welcomes UCITS V and PRIIPs as steps to better protection of retail investors

The amendments brought to the UCITS directive will raise to an even greater level the already high-standards of protection enjoyed by UCITS investors and reconfirm its status as the 'state-of-the-art' regulation for investment funds worldwide. They should also bolster the international recognition of UCITS as the vehicle of choice for the international distribution of investment funds. In particular, the strengthening and harmonisation of the UCITS depositary regime means clients’ assets will be better protected. EFAMA is looking forward to pursuing a constructive dialogue with the European Commission and ESMA. This will involve working towards the development of measures to be adopted before the revised UCITS directive comes into force.

Since it was first discussed in 2006, EFAMA has been in favour of the PRIIPs initiative, which brings investors’ interests to the forefront. The Key Information Document (KID) required by the PRIIPs Regulation will enhance transparency and increase investor protection. By enabling investors to compare different packaged investment opportunities or products, consumers will be better equipped to make an informed investment decisions. EFAMA welcomes the agreement reached by the co-legislators on this important issue, which will play an active role in mitigating the risk of the mis-selling of investment products. As the PRIIPs regulation will apply on a cross industry basis (asset management, bank and insurance), EFAMA welcomes the willingness of policy makers to reach a level playing field in the disclosure of such products offered to consumers. However, it is only a first step, and further work will be needed to capture other similar products which are not already included in the scope of the PRIIPs regulation.

Peter De Proft, Director General of EFAMA, said: "EFAMA welcomes the adoption of the PRIIPs regulation. From the beginning, we have been strong supporters of this initiative. It is an important step towards a better protection of retail investors. The Key Investor Document – a synthetic, plain language document already well-known to UCITS investors – will enable them to make better informed investment decisions and will facilitate comparisons between different types of retail investment products, therefore contributing to a level playing field across competing retail products".

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FESE welcomes European Parliament’s vote on MiFID II

Christian Katz, President of FESE, said: "I welcome today’s plenary vote by the European Parliament on this important directive's review which has managed to find a balanced agreement that will help bolster investor confidence in our markets. As FESE, we will cooperate with issuers and market participants alike to implement the envisaged market improvements”.

FESE highlights the importance of the following positive achievements, which should bring more efficient, resilient and transparent financial markets in Europe:

• Stronger investor protection through a more robust, transparent and efficient market structure.
• A framework for the implementation of the G20 trading mandate in respect of derivatives.
• A strengthened transparency regime for equities that is flexible enough to protect investors from market impact.
• An adequate framework for technological innovations in the field of high-frequency trading.
• An increased ability for SMEs to raise capital in the EU through a specific SME markets’ label. At the same time, FESE strongly welcomed the European Commission’s ambition to extend appropriate and calibrated transparency to bonds and derivatives. FESE will continue to support all initiatives to ensure these ambitions are realised at the next level of rule definition, either within Level 2 or beyond.

Judith Hardt, Director General of FESE, said: "I would like to congratulate the European co-legislators for their excellent work and the determination they have demonstrated in dealing with equities market structure and the fragmented liquidity flow. We urge ESMA to live up to the Level 1 ambition with regard to the implementation of the trading mandates and the establishment of an appropriately calibrated transparency regime for all asset classes. We look forward to continuing our engagement with regulators and all stakeholders at Level 2."

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FOW: "Traders watchful for Mifid II detail"

The signing off of the first draft means the proposals now move over to the European Securities and Markets Authority (ESMA), which begins drawing up its plans to turn the MiFID proposals into reality with a view to putting out its own document. ESMA could publish its discussion paper, which will almost certainly be larger than the original MiFID document itself, in June or perhaps July and this is the next big milestone.

Here are some of the key areas to watch when ESMA reports:

Traders like MiFID II, at least in draft form, because it talks about pre-trade price transparency without being prescriptive about how that will be achieved, which sets it apart from the Dodd-Frank rules in the US, which ensure transparency by mandating certain execution methodologies. MiFID has not yet detailed anything, beyond some vague support for transparency, but this is where the ESMA discussion paper could be crucial. A looser interpretation than that taken in the US will allow some degree of pre-trade opacity, which would suit some traders, but it would do little to placate the US regulators who have not been seeing eye-to-eye with their European counterparts in recent years.

European commodity and energy trading firms have for many years fallen outside the grasp of the financial authorities but this is set to change with the introduction of MiFID II and the world’s top commodities shops will be watching for the ESMA paper with baited breath. MiFID II proposes changes to existing exemptions that will mean commodities traders may have to register with the authorities and, even where firms may be able to avoid this level of scrutiny, they may be bound by certain rules that mandate position limits or trading on a MTF. Under MiFID II, two of the three existing exemptions that allowed commodities trading firms to operate have been scrapped, leaving the third which is subject to new restrictions.

MiFID II is expected to take effect in either late 2016 or early the following year and there is a possible 30 month waiver on the open access rules which explains why it is not top of the priority list. Some large futures brokers have expressed frustration that it is going to take so long. "I see no reason why we have to wait that long given that there are no systemic risk issues with sharing open interest, something which has been proven in the OTC market where multiple venues clear through the same open interest pool,” said John Wilson, head of OTC clearing at Newedge.

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IM A: New markets and investor protection legislation will lead to improved industry practices

IMA is broadly positive about the agreements on MiFIR/D II, the PRIIP KIID and UCITS V voted through in the European Parliament, which deliver significant improvements to current practice that are in the interests of investors.

Whilst the final text of MiFIR/D II will allow improved market stability, it is doubtful whether it will ensure efficiency and free and fair competition.

The IMA’s regulatory affairs team is available for comment today on specific elements of the legislation, including:

• Volume cap on off-exchange trading (dark pools)
• Pre-trade transparency requirements for the bond market
• PRIIP KIID – consistent disclosure and information across non-UCITS funds, insurance-based investment products and structured products
• UCITS V – consistent investor protection standards across Europe for UCITS depositaries

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