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The Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) are the principal legislation regulating investment services and activities on the EU trading venues. With their vote on Wednesday, the Economic and Monetary Affairs Committee backed changes concerning among others data quality standards and investor protection, changes regarding market data consolidation and transparency as well as provisions on “payment for order flow.
EU-wide consolidated tape
Accurate and comparable market data is crucial to an informed decision making process. For this reason, MEPs supported an EU-wide consolidated tape (CT), an electronic system which combines sales volume and price data from different exchanges and consolidates these into a continuous live feed, providing a single reference price for each asset class (shares, exchange traded funds, bonds and derivatives)across markets.
Trading venues (except smaller markets and SME growth markets) would have to provide pre- and post-trade information to a consolidated tape provider (CTP) as close to real time as it is technically possible. This information should be also publicly available for a price based on a cost of producing the data and a reasonable margin. Competent authorities should monitor the data quality provided to the CTP by market data contributors and take the necessary measures, including sanctions, where their quality is insufficient.
Furthermore, MEPs proposed that retail investors, academics and civil society organisations using the data for research purposes as well as public authorities should have access to the consolidated tape free of charge. The tape provider should ensure that the information provided to retail investors is easily accessible and displayed in a user-friendly and understandable format.
Market structure and transparency
MEPs approved changes to the current rules on the transparency rules applicable under MiFIR. The text clarifies and simplifies the limitations on trading without pre-trade transparency (the so-called ‘dark trading’) by establishing a single volume cap that limits the amount of dark trading in an equity instrument in the EU to 7% of total trading in that instrument. They also ask European Securities and Markets Authority (ESMA) to define the size of financial transactions in equities that could benefit from a waiver from the MiFIR transparency obligations.
In addition, to ensure an adequate level of transparency and harmonise it across Europe, the text modifies the deferral times applicable to the publication of the details of transactions in bonds, structured products, emission allowances and derivatives. MEPs backed a EU-wide harmonised regime that categorises those deferrals based on the liquidity and the size of a transactions, significantly improving the current levels of transparency, making possible for all investors to be able to have faster access to transaction data and compare the prices of different financial instruments, while protecting the role of liquidity providers.
Besides, the text introduces greater flexibility by empowering ESMA to set the threshold and limits applicable to market transparency and to oversee market developments, intervening when the price formation process is threatened or the international competitiveness of EU markets is hindered.
Investor protection and orderly trading
To protect investors from sub optimal trading decisions, MEPs supported the EU prohibition of receiving payments for forwarding client orders for execution (‘payment for order flows’),
The text also mandates member states to require regulated markets to be able to temporarily halt or constrain trading in emergencies or if there is a significant price movement in a financial instrument and, in exceptional cases, to be able to cancel, vary or correct any transaction.