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“At our last exchange you highlighted concerns as to the methodology to be applied for the liquidity assessment of bonds and the degree of accuracy of liquidity classifications. We took careful note of those concerns and went back to the drawing board to re-assess the two approaches that the ESMA Board had considered at some point: the Classes of Financial Instruments Approach (COFIA) and the Instrument by Instrument Approach (IBIA). Views on which approach is best are very much split between different groups of stakeholders. We have worked, over the last few weeks, on both options in order to find the right balance between accuracy, predictability and cost-efficiency which will be the main principles guiding the final decision of the ESMA Board.
For the ancillary activity test we are aware that the stakes are high and we take careful note of the concerns expressed from the energy and other non-financial sectors. ESMA is certainly willing to approach this important test cautiously. However, let me also emphasise that the public discussion often goes in the wrong direction suggesting that the ESMA test is not right because it may require a MIFID licence for some non-financials.
However, that is the whole point of the test in the first place: the exemptions from financial regulation should be narrowed, opaque parts of the market should be reduced and large non-financial players conducting activities identical to financial players, should compete on a level playing field. We think that creating a test that will exempt all non-financial players, including those that are substantially involved in speculative trading in commodities derivatives, would clearly be against Level 1. ESMA instead is proposing a real test while designing it in a cautious and pragmatic way.
Finally, let me emphasise that for all three issues mentioned the applicable legal tool is the RTS. This implies that, depending on market developments and experiences obtained after MIFID 2/MIFIR has come into force, we can adjust and calibrate the RTS. Of course, changing an RTS will again entail the full rule-making process, including scrutiny by your Committee and the power of the Parliament to object.”