European engagement
Ahead of the MiFIR review, AMAFI Chairman Stéphane Giordano, along with several members of the European Action Committee, presented AMAFI’s priorities (AMAFI / 21-31) to a number of key European figures, including Tilman Lueder (Head of Unit, Securities Markets, DG FISMA), the representatives of Slovenia, the Netherlands, Germany and Finland, the Spanish and Italian securities supervisors (CNMV and CONSOB), and ESMA.
One major topic of the discussions, particularly those with Mr Lueder, was the creation of an EU consolidated tape (AMAFI / 21-28), a central plank in the reforms proposed by the European Commission. Other issues covered included the transparency/liquidity tradeoff for the bond market (AMAFI / 21-29), the DTO’s scope of application, the cost of market data and the regime for OTC derivatives and reference data.
Investor protection – AMAFI’s priorities
AMAFI finalised in June a position paper on investor protection (AMAFI / 21-35 FR and 21-35 EN) that set out proposed amendments and built on discussions held in 2019 (AMAFI / 19-109, 19-110, 19-111). The aim was to reiterate and clarify the association’s priorities in the light of the measures already taken, particularly on inducements (see below). Designed to buttress AMAFI’s initiatives in this area, the paper provided input for work on the European Commission’s retail investment strategy.
In July, AMAFI also finalised the consolidated version of MiFID II as amended by the Quick Fix package (AMAFI / 21-36) and made it available to its working groups.
Inducements
In the context of questions raised by the inducements regime, discussions on the question of quality of service enhancement (see Info AMAFI 150) were wrapped up and member guidance published in mid-September (AMAFI /21-52).
Work also continued over the summer aimed at publishing a study on inducement practices and the resulting costs for investors. The study, due for release in October, will be accompanied by a survey showing that while investors believe investment advisory services to be important, they are reluctant to pay for them directly. This finding supports the case for maintaining the inducements regime
ESMA held a consultation earlier this year on technical standards for position limits in commodity derivatives markets. AMAFI said in its feedback that, overall, ESMA’s proposals were appropriate for the stated goals of the MiFID II Quick Fix package, namely to simplify the position limit regime and introduce a system that will better support the development of new, less liquid contracts (AMAFI / 21-45).
But AMAFI also voiced scepticism about some of the proposals for technical standards on position management controls. It argued that the proposals, including one to introduce the notion of “close links” to the monitoring of participant positions, impose new obligations that are incompatible with the business of trading venues dealing in commodity derivatives.
As planned, following a two-year observation period, the French securities regulator, AMF, conducted an overall review of the accepted market practice (AMP) for liquidity contracts created by AMF Decision 2018-01. Accordingly, on 31 March 2021, it submitted a new draft AMP to ESMA, which responded with a negative opinion (Info AMAFI 150).
On 23 June 2021, the AMF decided to disregard ESMA’s opinion and published Decision 2021-01 on renewing the implementation of liquidity contracts in equity securities under the accepted market practice. The French financial community, including AMAFI (see press release), welcomed the decision, which is supported by detailed analyses, as mentioned in the explanatory memo published by the Authority pursuant to MAR Article 13(5).
Acting through its Liquidity Contract Group, AMAFI is updating its standard liquidity contract and accompanying memo. It is also drafting a charter to clarify the commitments of market members acting under liquidity contracts to help them implement the obligations resulting from the AMF’s decision. These documents will be discussed with the AMF in the near future, with the intention of publishing them in October.
The 2021 annual meeting of the International Organization of Securities Commissions (IOSCO) was cancelled due to the Covid-19 pandemic and replaced by a series of virtual meetings held in November 2021.
As part of the gathering, the International Council of Securities Associations (ICSA) organised a virtual bilateral meeting between finance industry representatives and several chairs of IOSCO committees.
The meeting broached a number of priority areas for IOSCO, such as raising the level of professionalism in sustainable finance and the need for global standards to enable different markets to interact more effectively. The meeting also covered other key concerns for IOSCO, notably the impact of Covid-19 on secondary-market functioning, risks connected with the development of the OTC derivatives market, and the challenges posed by the development of cryptoassets, the rise of neo-brokers and growing cybersecurity challenges.
MiFIR Review
The European Commission adopted on 25 November the proposal to review the Markets in Financial Instruments Regulation. The introduction of a European consolidated tape (CT) is a central plank of the new framework and a key policy issue for the Commission. The new CT will provide near real-time pre- and post-trade data for equities and post-trade data for bonds. On the sensitive matter of market-data costs, the proposal calls for a regulatory technical standard (RTS) to clarify the “reasonable commercial basis” concept.
Other key reforms will bring tougher restrictions for multilateral trading facilities and systematic internalisers on the equity market, while the transparency regime for bonds is also set to be strengthened and deepened.
With the branches of European firms still at a competitive disadvantage owing to the dual application of European and UK derivatives trading obligations (DTOs), Member States will be able to ask the Commission to suspend the European DTO under certain conditions. The proposal also transposes ESMA’s clarification about the scope of the share trading obligation.
MiFIR transparency regimes
AMAFI responded to ESMA’s consultation on the review of MiFIR transparency regimes (AMAFI / 21-57). Overall, it welcomed most of the proposals to streamline reporting and improve the identification of transactions. Harmonisation efforts should help to identify addressable liquidity and distinguish “technical” trades from price-forming ones. This is a significant step forward, not to mention a pre-requisite for establishing a European consolidated tape.
Conversely, AMAFI pointed out that the proposed amendments to the transparency rules for ETF trading fall within the scope of Level 1 measures and should not have been included in the technical consultation. It also drew ESMA’s attention to the potential costs associated with the proposed changes and called for the modifications to be conducted in a manner consistent with the MiFIR review.
Best execution reports
On 24 September 2021 ESMA began a consultation on best execution reports (ESMA35-43-2836) in which it suggested amendments to the current arrangements as part of the MiFID II review. The proposals include technical amendments to RTS 27 and 28, which set best execution reporting requirements for execution venues and investment firms, respectively.
As regards execution quality reporting by trading venues (RTS 27), AMAFI said the proposed overhaul would not make the disclosures more meaningful, and it called for these reports to be scrapped, as they include redundancies with existing mechanisms used by institutions to determine their best execution policy.
AMAFI also reiterated its general position on execution quality reporting by investment firms (RTS 28) (AMAFI / 21-35). In AMAFI’s view, these reports are not sufficiently valued by customers: wholesale customers have their own execution analysis systems, while the disclosures are too technical to be considered useful to the retail segment. Accordingly, these reports, too, ought to be scrapped. However, if they are kept, AMAFI supports some of the amendments proposed by ESMA, such as the clarifications on best selection reporting and the elimination of the distinction between “passive” orders that provide liquidity by indicating a willingness to buy or sell and “aggressive” orders that absorb liquidity through execution in the order book.
