03 July 2023

ICMA: Political agreement reached on MiFIR review

ICMA welcomes the agreement to remove the pre-trade reporting requirement related to Request-for-Quotes (“RFQs”) to systematic internalisers (SIs). ICMA has long argued that the regime is disproportionately onerous and generally not used.

On 29 June 2023, the trilogue discussions between the EU Council and European Parliament (EP) for the Markets in Financial Instruments Regulation (MiFIR) Review came to their political conclusion.

ICMA also commends an improvement to post-trade transparency for sovereign bonds traded in the European Union (EU). Currently the regulation provides for National Competent Authorities (NCAs) to elect for the aggregation of trades in their respective sovereign bond markets. This limits the amount of useful information available to market participants. The co-legislators appear to have agreed on the European Parliament’s proposal allowing for NCAs to elect for: (a) the omission of the publication of the volume of an individual transaction for an extended time period not exceeding six months; or (b) the deferral of the publication of the details of several transactions in an aggregated form for an extended time period not exceeding six months. This is a largely welcomed improvement on the existing sovereign bond aggregation framework which allows for trades to be aggregated indefinitely.

ICMA is pleased to learn that a proposal by the EP for the application of deferrals to be applied by the eventual consolidated tape provider (CTP), in addition to those applied by APAs (Authorised Publication Arrangements) and trading venues, has been deleted. While some market participants point to the potential efficiency and consistency of having a single point of application, many feel that this is incompatible with the current reporting ecosystem and would lead to additional cost and risks. It is also noted that such a significant change to market architecture should have been proposed much earlier in the regulatory process to allow for sufficient scrutiny as well as a cost-benefit analysis.

ICMA and its members note, however, that relatively little focus was given to the highly important topic of bond market transparency, and that the legislative discussions were dominated by politically sensitive issues related to the equity consolidated tape. Nonetheless, technical discussions are expected to continue over the coming weeks, and ICMA believes that there is still the opportunity for some constructive refinements to ensure that the EU bond transparency and consolidated tape are fit for purpose.

In particular, ICMA and its members are concerned about the calibration of the deferrals regime for bond markets, which ideally should have been established as part of the Level 2 regulation and informed by data. As it currently stands ICMA believes that the deferrals for larger trades, and those in illiquid bonds (the so-called categories 4 and 5) run the risk of being too short to afford sufficient protection for liquidity providers. ICMA also questions the split calibration of category 4 deferrals (with price being reported within two days, and size later) noting that it is relatively easy to infer a lot of information about a bond trade from seeing the price alone, including whether it is a “risk trade” (i.e. a market-maker has taken the trade onto their books), the direction of the trade and its relative size.

ICMA will continue to engage with the co-legislators on these and other technical points with the objective of ensuring the best possible outcome for EU bond market post-trade transparency and that EU capital markets remain highly efficient and globally competitive.

ICMA

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