On January 20, the European Forum of Securities Associations (EFSA) published a letter to the European Commission (the Commission) outlining the changes they would like to see to the Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) (together, MiFID 2/R). This is in anticipation of the Commission’s review of MiFID 2/R in July 2020.

In relation to market structure, EFSA set out the following “key issues”:

• in general, the EU should make “the necessary equivalence determinations” and/or reduce the extraterritorial application of the rules, in order to “maintain the EU’s attractiveness as a listing location for issuers;”

• regarding the share trading obligation (STO), the scope is too broad and that the rules disadvantage EU-based investment managers by encouraging investors to access liquidity outside of the EU;

• regarding the “tick size regime” for systematic internalizers (SIs), which requires EU trading venues to adopt a minimum increment for financial instruments depending on the liquidity and price, the current rules “inhibit appropriate price formation;”

• the status of SIs in the trade reporting hierarchies give them an unfair competitive advantage, and that there can otherwise be uncertainty about which counterparty should report. To resolve this, counterparties should be able to agree who will report; and

• the definition of SIs sometimes inappropriately applies to certain derivatives traders.

EFSA also have concerns about the following:

• data quality continues to be too low and, while EFSA supports a “properly constructed [consolidated tape], this would not resolve the “conceptual flaws” and “insufficient enforcement” of MiFID 2/R requirements;

• the rising cost of market data is a “significant issue,” and ESMA should address this by enforcing “existing regulatory requirements;”

• costs and charges disclosures should be “simplified and proportional,” and firms should be able to provide different disclosures to wholesale and retail clients;

• product governance rules are not proportionate and, in the context of ordinary shares and bonds, should be aligned with the primary market requirements;

• best execution requirements are creating “large volumes of unhelpful data,” and there is not enough clarity regarding the scope and format of the reporting; and

• as a result of the unbundling rules, there is less research being produced, especially concerning small- and medium-sized enterprises (for more information, please see the September 27 edition of Corporate & Financial Weekly Digest).

EFSA’s letter is available here.