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European Commission Adopts Markets in Financial Instruments Directive (MiFID II) and MiFIR Delegated Regulations

On July 14, the European Commission (Commission) adopted several delegated regulations (Delegated Regulations) to supplement the amended and restated Markets in Financial Instruments Directive (MiFID II), and the Markets in Financial Instruments Regulation (MiFIR), respectively.

The Delegated Regulations adopted by the Commission include the following:

  • Exchange of information between competent authorities. MiFID II contains provisions to facilitate cooperation between EU regulators in relation to supervisory activities, on-site verifications and investigations. This delegated regulation further specifies the information to be exchanged between regulators for these activities, and covers information requests with respect to investment firms, credit institutions and also natural or legal persons. A copy of the delegated regulation is available here.

  • Requirements for authorization. Under MiFID II, EU regulators are required to assess a firm’s compliance with MiFID II when reviewing and processing applications for authorization. This delegated regulation further specifies the categories of information that applicant firms will be required to furnish to regulators to assist their assessment, including information on the firm’s capital, shareholders, management, organization and finances. A copy of the delegated regulation is available here.

  • Tick size. MiFID II requires EU trading venues to adopt tick size requirements set by the European Securities and Markets Authority (ESMA) in order to preserve orderly functioning of markets. This delegated regulation further details the tick size regimes for shares, deposit receipts, exchange-traded funds, certificates and other similar financial instruments.A copy of the delegated regulation is available here, and its accompanying annex, here.

  • Data standards for financial instrument reference data. MiFIR contains obligations on trading venues to provide identifying reference data to EU regulators for the purposes of transaction reporting. This delegated regulation further specifies the data standards and formats for the reference data to be provided, and includes a table of details to be reported in the annex accompanying the regulation. A copy of the delegated regulation is available here, and its accompanying annex, here.

  • Information for registration of third-country firms. MiFIR allows firms from non-European Economic Area (EEA) countries (known as “third-country firms”) to provide investment services and/or activities in the EU to eligible counterparties and professional clients, without establishing a branch, provided they register with ESMA and disclose certain information to those EU clients. This delegated regulation further specifies the information necessary for third-country firm registrations (including full name, contact details, website and details on the investment services and or activities to be performed). It also specifies that client disclosures by third-country firms must be provided in a durable medium and must be presented in a way that is easy to read (among other requirements). A copy of the delegated regulation is available here.

  • Organizational requirements of trading venues. Under MiFID II, ESMA is tasked with specifying organizational requirements for regulated markets, multilateral trading facilities and organized trading facilities that enable algorithmic trading through their systems. This delegated regulation further specifies these organizational requirements, including in relation to governance, the compliance function of a trading venue, staffing and outsourcing. It also details measures to ensure the capacity and resilience of trading venues, including in relation to due diligence of members, testing, monitoring, business continuity arrangements and the prevention of disorderly trading conditions. A copy of the delegated regulation is available here, and its accompanying annex, here.

  • Transparency in respect of equity instruments. MiFIR contains several transparency obligations for trading venues and investment firms with respect to shares, depository receipts, exchange-traded funds, certificates and other similar instruments, and also several mandates for ESMA to further specify these requirements in regulatory technical standards (RTS). This delegated regulation collates these mandated technical standards into a single regulation and sets out: 1) pre-trade transparency for trading venues (including provisions covering most relevant markets, negotiated transactions and large scale orders; 2) pre-trade transparency for systematic internalizers and investment firms trading outside trading venues; and 3) post-trade transparency for trading venues and investment firms trading outside trading venues. A copy of the regulation is available here, and its accompanying annexes, here.

  • Transparency in respect of non-equity instruments. MiFIR also prescribes pre- and post-trade transparency requirements for non-equity instruments, including bonds, structured finance products, emissions allowances and derivatives. ESMA submitted draft RTS to the Commission in September 2015. The Commission returned comments on the draft RTS in April 2016 and, as noted in our Corporate & Financial Weekly Digest edition of May 6, 2016, ESMA published an opinion addressing the Commission’s requested changes to the RTS on May 2.

A copy of the delegated regulation is available here, and its accompanying annexes, here.

As mentioned in previous updates, the European Council and European Parliament will consider the Delegated Regulations and, once formally approved, the Delegated Regulations will go into effect 20 days following their publication in the Official Journal of the European Union.

For more information, see the Corporate & Financial Weekly Digest editions of June 17June 10May 27May 20April 29 and April 15.

©2018 Katten Muchin Rosenman LLP

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About this Author

Neil Robson, private equity fund managers counselor, Katten Law Firm, London
Partner

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...

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