From the Regulators

New framework aims to ensure secondary markets are fair, transparent and safe

By James Langton |

European regulators unveiled proposals today to implement forthcoming reforms to investor protection rules in the region, known as Markets in Financial Instruments Directive (MiFID II).

The European Securities and Markets Authority (ESMA) published proposals today that would translate the MiFID II requirements into practical rules for both industry firms and national regulators. The new framework aims to ensure that secondary markets are fair, transparent and safe and that investors' interests are safeguarded when they are being sold investment products, the ESMA says.

The reforms known as MiFID II introduce a range of changes to the functioning of secondary markets, including new transparency requirements for a broad range of asset classes; introducing the obligation to trade derivatives on regulated venues; requirements for algorithmic and high-frequency-trading (HFT) and new supervisory tools for commodity derivatives; along with certain reforms targeting retail investors.


Among other things, the key proposals aim to increase transparency for non-equity instruments, such as bonds, derivatives, structured products, and emission allowances. The rules also introduce an obligation to trade derivatives on an exchange or other regulated venue; they impose position limits and reporting requirements for commodity derivatives; and, they adopt rules governing HFT, imposing requirements on investment firms and trading venues.

The rules also address provisions to regulate access to central counterparties (CCPs), trading venues and benchmarks, designed to increase competition in these areas; and, they set requirements for a consolidated tape of trading data, including rules for tape providers, reporting, publication and sale of data.

Measures to improve investor protection, especially for retail investors, include clarifying the circumstances in which portfolio managers can receive research from third parties; product governance requirements for investment firms that manufacture and/or distribute financial instruments and structured deposits; and, enhanced cost disclosure requirements. They also set organizational requirements for firms providing independent investment advice.

"Once fully implemented, MiFID II will have a significant impact on the EU's securities markets, its users and infrastructure providers. It will bring greater transparency and improve the overall functioning of markets thus strengthening investors' trust in the financial sector," said Steven Maijoor, chair of the ESMA. Maijoor added that the implementation proposals reflect the regualator's "desire to achieve the best outcome for market users and investors".

Certain aspects of today's proposals are out for comment until March 2, 2015. And, a public hearing will be held in Paris on Feb. 19, 2015. The proposals are to be finalized by mid-2015. The MiFID II reforms are slated to take effect in January 2017.