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August 16, 2017

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ESMA Updates MiFID II Q&As on Market Structures, Commodity Derivatives and Transparency

On April 5, the European Securities and Markets Authority (ESMA) announced that it had published four new questions and answers (Q&A) providing guidance on implementation of the revised Market in Financial Instruments Directive (MiFID II) and Market in Financial Instruments Directive Regulation (MiFIR).

The new Q&As are included in updated versions of the following MiFID II Q&As:

  • market structures topics (available here)—updated in relation to direct electronic access and algorithmic trading, multilateral and bilateral systems, organized trading facilities and systematic internalizers (SI), and riskless transactions.
  • commodity derivatives topics (available here)—updated in relation to position limits.
  • transparency topics (available here)—updated in relation to transparency generally and equity transparency.
  • market data topics (available here)—updated in relation to reporting on the seniority of a bond, inflation indexed bonds and transaction reporting.

ESMA’s Q&As clarify that the key characteristic of an SI’s activity is to provide liquidity bilaterally to clients by trading at risk. However, SIs, which are functionally similar to a trading venue, would need to seek authorization. This would be the case for SIs meeting the following criteria:

  • where arrangements between the SI and a client go beyond a bilateral interaction, and where the SI does not undertake risk facing activity;
  • where the arrangements in place are used on a regular basis and qualify as a system or facility (as opposed to ad-hoc transactions); and
  • where transactions arising from bringing together multiple third-party buying and selling interests are executed OTC, outside the rules of a trading venue.

ESMA highlights that the above does not prevent SIs from hedging the positions arising from the execution of client orders, as long as it does not lead to the SI executing non-risk-facing transactions and bringing together multiple third-party buying and selling interests. This is intended to cover the issue highlighted by ESMA in its letter to the European Commission on February 1.

©2017 Katten Muchin Rosenman LLP


About this Author

Carolyn H. Jackson, International Attorney, Katten Muchin law firm

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws...

+44 0 20 7776 7625
Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring and documentation relating to OTC derivatives and structured products.

Prior to joining Katten, Nathaniel was a member of the US Regulatory and the Derivatives and Structured Finance practices at Allen & Overy LLP.

+44 0 20 7776 7629
Neil Robson, private equity fund managers counselor, Katten Law Firm, London

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...