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ESMA Updates Statement on the Impact of Brexit on the MiFIR Trading Obligation for Shares

On May 29, the European Securities and Markets Authority (ESMA) published a revised statement outlining its approach relating to the trading obligation for shares (TO) under Article 23 of the Markets in Financial Instruments Regulation (MiFIR), if the United Kingdom were to leave the European Union (Brexit) without a withdrawal agreement (no-deal Brexit) and without an equivalence decision made by the European Commission.

ESMA explains that its first public statement on this issue published in March 2019 (for more information, see the March 22 edition of Corporate & Financial Weekly Digest) significantly reduced the scope of the TO in the event of a no-deal Brexit. However, its new statement is intended to further mitigate potential adverse effects of the application of the TO and to reflect concerns raised by some stakeholders about its earlier guidance.

ESMA believes that an approach to the TO based only on the ISIN of the share would be more likely to minimize risk of market disruption that conflicting EU and UK TOs may create. Therefore, it has decided that the EU TO would not be applied to the 14 GB ISINs included in its previous guidance. Under this revised approach, ESMA assumes that all European Economic Area (EEA) shares (that is, with ISINs from all EEA states) are within the scope of the EU TO. GB ISINs, meanwhile, are outside the scope of the EU TO.

ESMA explains that this approach will avoid any overlaps if the United Kingdom adopts an approach that does not include EEA ISINs under the UK TO. However, if EEA ISINs are included in the scope of the UK TO, this would introduce overlapping obligations and potentially damaging consequences for market participants.

On the same date, the UK Financial Conduct Authority (FCA) published its response to ESMA’s statement. While the FCA states that it is encouraged by ESMA’s revised approach, it believes that applying the EU TO to all shares with EEA ISINs would still cause market disruption, leading to fragmentation and reduced liquidity in both the EU and UK. It explains that a number of shares with EEA ISINs have both a listing and their main or only significant center of market liquidity on UK markets. Therefore, the ISIN that a share carries does not and should not determine the scope of the TO.

The FCA believes that reciprocal equivalence remains the best way of dealing with overlapping TOs in the European Union and United Kingdom, especially in light of the fact that the United Kingdom has on-shored the same regime. However, in the absence of reciprocal equivalence, the FCA suggests that both UK and EU TOs should be applied in a way that maintains the status quo for a limited period of time after Brexit, enabling longer term solutions to be found.

The FCA adds that, if there is no equivalence determination, it will engage with market participants and trading venues about steps to protect the integrity of UK markets and to ensure that participants in the United Kingdom can continue to achieve high standards of execution for their clients.

ESMA’s statement is available here.

The FCA’s statement is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IX, Number 165


About this Author

John Ahern, Financial Attorney, London, Katten Law Firm

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

+44 (0) 20 7770 5253
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 and regulations. 

+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...

+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...