27 February 2015

Executive Director of ESMA delivers keynote speech on MiFID II

Speech held at ABA/Law Society Capital Markets Conference in London.

“When developing technical standards and advice ESMA needs therefore to ensure that pre- and post-trade transparency for equity, equity-like and non-equity instruments is increased, in particular for those instruments, such as derivatives, that are still far from being traded in a fully transparent market. There are endless debates about the relation between transparency and liquidity and whether there is a trade-off between them. We tend to see the MiFID II mandate as one aimed at increasing transparency in a manner that does not “damage”, but instead improves, the functioning of the market.

We are aware of the significant impact that our future regulatory work under MiFID II may have on liquidity within EU financial markets. This is not a completely new element of our work. We already monitor and assess securities markets in order to identify trends, potential risks and vulnerabilities and report comprehensively on these issues on a regular basis. In doing so we pay particular attention to liquidity risk, as this can easily be altered by drivers such as financial innovation, prudential regulation, the interest rate environment, regulatory standards and the business cycle to name just a few.

Protecting the liquidity of non-equities markets is of paramount importance. At the same time, even if the concept of liquidity in the equity market cannot be mechanistically extended to the bond and derivatives markets, this does not necessarily imply that transparency rules should in all cases be more lenient for non-equities compared to equity. As I said earlier, the right calibration of the thresholds, which will be based on different parameters from those provided for the equity market, will ensure that the ability of trading firms to provide liquidity will not be undermined and that the impact on trading costs for investors will not limit the ability of governments and companies to raise capital. In a nutshell, we aim at switching on the light without turning-off the tap.”

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