11 December 2015

AFME: Note on MAR Level 2 DTS

The BBA, AFME, ISDA and FIA Europe would like to suggest clarifications on fundamental issues that they believe will facilitate the implementation for investment firms, credit institutions, commodities firms, investors, and other financial markets participants as well as regulators.

Investment Recommendations

The scope of MAR is broader than the Market Abuse Directive 1 (MAD), and therefore more recommendations are expected to be subject to the disclosure requirements under the DTS. Furthermore, the DTS includes a number of additional disclosures, such as those set out in Article 4. These disclosures appear to be designed to provide recipients of an investment recommendation with additional information to enable them to make a better-informed investment decision. The associations note that these disclosures have been crafted with traditional, substantive independent research in mind which is based on models and employs a rating system (e.g. a system that provides a recommendation, based on a framework, for issuers or securities using terms such as buy/hold/sell). They are not appropriate for marketing communications falling within the scope of the MAR investment recommendation definition (‘in-scope marketing communications’), which are fundamentally different, in that they are sent to existing clients, are not necessarily based on models or valuations and do not include the long, reasoned, in-depth analyses that the DTS seems to presuppose.

Suspicious transactions and order reports

The associations note that ESMA has expanded the definition of ‘orders’ in Article 1.d of the DTS Annex XI beyond its ordinary natural meaning to include ‘each and every quote’. This addition is disproportionate as it would require a very large amount of additional systems development by impacted firms, because (a) existing systems tend only to capture orders, and (b) the number of quotes given by an investment firm in any given period far exceeds the number of orders placed. Combined, this will greatly increase the risk of firms not being compliant on 3 July 2016.

Insider Lists

The obligation to maintain sensitive personal data (full names, addresses, phone numbers, national ID numbers) of an individual not employed within the group of an investment firm or credit institution, i.e. employed by third parties such as lawyers, accountants, printers and the like, should rest on that individual's employers and not on the relevant firm/institution, provided that when the regulator requests the information it can be provided quickly to the firm/institution and on to the regulator and without tipping off. We anticipate significant data protection issues otherwise.

Buy-backs

Trading in own shares as part of an equity buy-back programme is not considered to be market abuse under MAR Article 5 (1) (safe harbour) if certain conditions are met.

The DTS suggests that in order to benefit from this safe harbour, transactions have to take place on a trading venue (therefore excluding OTC transactions from the safe harbour). This will cause a problem in the (not unusual) scenario in which the broker-client leg of the transaction is traded OTC (i.e. the broker buys shares on a trading venue and then sells to the client bilaterally i.e. OTC). This appears to be at odds with the objectives of the Capital Markets Union (to remove barriers to capital markets access), and the recent non-binding resolution of the EU Parliament, which encourages a wider range of investment choices and risk mitigation tools.

Full note

© AFME