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The MiFID2/R Level 1 rules, in conjunction with the Level 2 and Level 3 rules adopted at European level, have brought about major changes for the financial sector. The European Commission's report on various aspects of the regime, to be submitted in accordance with MiFID Article 90 by March 2020, provides a starting point for reviewing its ramifications for investors and financial market participants.
Brexit
The United Kingdom’s prospective withdrawal from the EU adds further context to considerations on revisions to MiFID2/R. AFM has not sought to address in this response the various matters that relate to the MiFID2/R framework in the context of a “no deal” Brexit, on which AFME has produced separate analysis, or the future EU-UK relationship in financial services. As acknowledged by several European authorities, it will be necessary to consider MiFID2/R provisions and calibrations designed for the EU28 in the context of the future bilateral relationship with the UK. It looks forward to engaging with the BMF and other authorities on these issues as they are considered.
Capital Markets Union
The future of the EU capital markets is highly dependent on the advancement of Capital Markets Union (CMU) project. As the primary rulebook for EU financial markets, the MiFID2/R framework is central to advancing CMU objectives to strengthen the capacity of EU capital markets, reduce fragmentation and improve efficiency and investor choice.
Market structure
The impact of the regime on market structure is highlighted first in this response as a particular area where the new rules have, as noted in the BMF’s consultation, brought about major changes for end investors, investment firms and market infrastructures. AFME supports evidence-based regulation and would encourage policymakers to carry out a robust analysis of the European trading landscape and then consult on possible changes to the share trading obligation, the double volume cap and tick size regimes. As currently defined, for example, the share trading obligation results in detrimental outcomes for end-investors in certain circumstances and limits the ability of firms to deliver best execution to their clients.
Market data costs
Market data costs have increased significantly since MiFID2 and data licenses are complex for investment firms consuming this primary input. MiFID2/R requires trading platforms to make pre- and post-trade market data available on a “reasonable commercial basis”. Notwithstanding this requirement, consumers of market data report significant price increases most notably from the primary exchanges. AFME urges policymakers to address these concerns as a priority.
Investor protection
AFME supports the transparent communication of cost and charge information to end clients but considers that further thought should be given to the utility and content of the mandatory costs and charges provisions for wholesale clients. Since those clients in the main actively negotiate their costs and charges, AFME would support the introduction of the ability for them to opt out of receiving the mandatory standardise information on costs and charges.