Regulatory Technical Standards on access in respect of benchmarks was published in the Official Journal of the European Union. The RTS supplement the Markets in Financial Instruments Regulation. MiFIR provides for non-discriminatory access to benchmarks for the purposes of clearing and trading for central counterparties and trading venues. This includes access to the licenses of, and information relating to, benchmarks which are used to determine the value of some financial instruments for trading and clearing purposes. The RTS specifies that a person with proprietary rights to a benchmark must, upon request, make available to CCPs and trading venues the information necessary to perform their clearing or trading functions. For CCPs, the functions include the appropriate risk management of relevant open positions in exchange-traded derivatives, including netting, and compliance by the CCP with its obligations under the European Market Infrastructure Regulation. For trading venues, such functions include the initial assessment of the characteristics of the benchmark, the marketing of the relevant product and the support of the price formation process for the contracts admitted or being admitted to trading. The RTS state that the provision of price and data feeds must include the feed of the benchmark’s values and the prompt notification of any inaccuracy in the calculation of the benchmark values and of the updated or corrected benchmark values.  The RTS also sets out general conditions on the provision of information through licensing and the minimum conditions that a benchmark owner must set for licensing agreements. 

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The Financial Conduct Authority published an interim report following its Asset Management Market Study. As per The Terms of Reference, the FCA investigated three core areas: (i) how asset managers compete to deliver value; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. The FCA also looked at whether there are any barriers to innovation that prevent investors from obtaining better results.

The FCA found that, based on the evidence produced, a weak price competition exists in a number of areas of the asset management industry. The lack of competition has a material impact on the investment returns of investments as a consequence of their payments for asset management services. The FCA reviewed product development and innovation in the asset management market and concluded that there is some evidence of innovation and limited evidence of any significant structural or regulatory barriers to entry. The FCA is of the view that despite the interim finding raising concerns about how effectively competition drives value for investors in the asset management sector, there are also some competitive pressures building in parts of the market and this is likely to continue. 

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The European Securities and Markets Authority launched a consultation on pre-trade transparency rules for package orders under the Markets in Financial Instruments Regulation. Package transactions are transactions executed by investment firms, either on their own account or on behalf of clients, which are made up of a number of interlinked, contingent components. Their aim is to reduce transaction costs and assist in risk management. When the legislation delaying the implementation of the MiFID II package was published, MiFIR was revised specifically to require public disclosure of bid and offer prices for package orders. Definitions for package orders and package transactions were also added. National regulators are able to waive the obligation for package orders which meet certain conditions, such as where the package order includes a financial instrument for which there is not a liquid market (unless there is a liquid market for the package order as a whole).

ESMA is required to prepare draft Regulatory Technical Standards by February 28, 2017, setting out the methodology for determining the package orders for which there is a liquid market. ESMA is required to assess whether packages are standardized and frequently traded in preparing the RTS.

ESMA's consultation paper considers the treatment of packages for transparency purposes, taking into account the pre-trade transparency regime for package orders in the EU and the US and sets out ESMA's proposed methodology for determining package orders for which there is a liquid market. The consultation closes on January 3, 2017. ESMA will finalize the draft RTS for submission to the European Commission by the end of February 2017.

View the consultation paper.

The European Banking Authority and the European Securities and Markets Authority launched a joint consultation on proposed Guidelines on the Assessment of the Suitability of the Members of Management Body and Key Function Holders. The revised Markets in Financial Instruments Directive and the Capital Requirements Directive require firms to assess the suitability of members of their management body. Firms subject to CRD must all assess the suitability of all key function holders that have a significant influence over the direction of the firm. The proposed Guidelines provide criteria for assessing the individual and collective knowledge, skills, experience, reputation, honesty, integrity and independence of members of the management body. The proposed Guidelines also include a framework for assessing whether individual members of management commit sufficient time to performing their duties, set out how diversity should be taken into account in the selection process for members of the management body and provide for appropriate financial and human resources to be allocated to induction and training.

View the consultation paper.

The Prudential Regulation Authority published its final rules for transposing passporting and algorithmic trading aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The PRA also published its responses to the feedback it received on its proposed rules which were included in the consultation paper published on March 24, 2016.

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The European Securities and Markets Authority issued detailed reporting instructions and XML schema under its Financial Instruments Reference Data System. FIRDS covers the requirements under both the Markets in Financial Instruments Regulation and the Market Abuse Regulation for reference data collection, transparency reporting obligations, submission of the Double Volume Cap data and the transaction exchange reporting mechanism.

View ESMA's announcement.

The European Securities and Markets Authority published a Final Report providing its responses to the feedback on the proposed Guidelines on transaction reporting, order record keeping and clock synchronization under the MiFID II package. The final Guidelines were also published. The MiFID II package, which comprises the Markets in Financial Instruments Regulation and the revised Markets in Financial Instruments Directive as well as the related technical standards, imposes transaction reporting and order record keeping obligations on investment firms, approved reporting mechanisms, trading venues and systematic internalizers. The Guidelines focus on the preparation of transaction reports and order data records for various scenarios and aim to harmonize across Member States the approach to compliance with the MiFID II requirements. The Guidelines also include examples for reporting specific financial instruments with a focus on derivatives and provide further clarification on specific legislative provisions in the MiFID II package, on terms such as “reportable events” and “gateway-to-gateway latency”.  The Guidelines will apply from January 3, 2018 in line with the application date of the MiFID II package.

View ESMA's Final Report and final Guidelines.

The European Securities and Markets Authority published draft Guidelines on trading halts by regulated markets under the revised Markets in Financial Instruments Directive. MiFID II requires regulated markets to temporarily halt or constrain trading if there is a significant price movement in a financial instrument (equity, equity-like and debt instruments) on that market or a related market in a short period. Regulated markets must also, in exceptional cases, cancel, vary or correct any transaction. ESMA is required to develop Guidelines on the calibration of those trading halts, taking into account the liquidity of the different asset classes and sub-classes, the nature of the market model and types of users. ESMA is also proposing Guidelines, at its own initiative, which set out how trading halts should be communicated to market participants and other venues and on the procedure and format of submissions by regulated markets to national regulators setting out the parameters for halting trading. The Guidelines will apply to national regulators, trading venues (regulated markets, MTFs and OTFs) and all trading systems allowing or enabling algorithmic trading. The consultation closes on December 6, 2016. ESMA intends to finalize the Guidelines in Q1 2017.

View the consultation paper. 

The European Securities and Markets Authority published draft Guidelines on the target market assessment for the new product governance requirements in the revised Markets in Financial Instruments Directive. The product governance requirements require firms which manufacture and distribute financial instruments and structured deposits to act in their clients’ best interests during all the stages of the life-cycle of products or services. The requirements in MiFID II were further specified in secondary legislation which was adopted by the European Commission in April 2016. ESMA's proposed Guidelines focus on the ‘target market assessment’, which has been identified as the most important for achieving consistent application of the product governance requirements across the EU. 

The proposed Guidelines set out, amongst other things, the determination of the potential target market by the manufacturer or distributor in terms of categories to be considered and differentiation on the basis of the nature of the product manufactured or distributed, regular reviews to assess whether products and services are reaching the target market and the distribution of products manufactured by entities not subject to the MiFID II product governance requirements by MiFID II distributor firms. ESMA has also included practical examples and case studies on the application of certain aspects of the proposed Guidelines. The consultation closes on January 5, 2017. ESMA will consider the feedback it receives and intends to publish a final report in Q1 or Q2 2017. 

View the consultation paper.

The European Securities and Markets Authoritypublished draft Guidelines on the requirements for the management body of market operators and Data Reporting Services Providers respectively. The revised Markets in Financial Instruments Directive requires all members of the management body of any market operator to be of sufficiently good repute, possess sufficient knowledge, skills and experience to perform their duties, to commit sufficient time to perform their functions and to act with honesty, integrity and independence of mind. Market operators must also promote diversity and allocate adequate human and financial resources to the induction and training of the management body. Similar requirements are placed on the management body of DRSPs but DRSPs are not required to promote diversity and allocate adequate human and financial resources to the induction and training of the management body.

The proposed Guidelines will apply to the management body of market operators which are the individuals who operate a regulated exchange and to DRSPs. Investment firms operating a multilateral trading facility, an organized trading facility or banks operating a trading venue will not be subject to the proposed Guidelines. Instead the management bodies of operators of these other types of trading venues will be subject to separate Guidelines developed under other provisions of MiFID II and the Capital Requirements Directive which ESMA and the European Banking Authority are expected to consult on soon. The consultation closes on January 5, 2017. ESMA will consider the feedback it receives and intends to publish a final report in Q1 or Q2 2017.

View the consultation paper. 

The European Securities and Markets Authority published a consultation paper containing draft Regulatory Technical Standards specifying the scope of the consolidated tape for non-equity financial instruments under the Markets in Financial Instruments Directive II. The RTS on the scope of tape for equity instruments was previously endorsed by the European Commission on June 2, 2016. ESMA's proposed draft RTS will amend the endorsed RTS on the equity consolidated tape by adding a list of non-equity asset classes that are to be included in the CTP electronic data stream. The list includes classes of bonds (excluding exchange traded commodities and notes), structured finance products, securitized derivatives, interest derivatives, foreign exchange derivatives, contracts for differences and emission allowances.

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The Financial Conduct Authority launched its third consultation on the implementation of the revised Markets in Financial Instruments Directive in the UK. The consultation paper is split into two parts. The first part is on conduct of business requirements and covers topics such as inducements, research, client categorization, disclosure requirements, independence, dealing and managing, suitability, appropriateness and investment research. The second part covers a range of issues such as product governance, supervision and authorization, knowledge and competence requirements and perimeter guidance. 

The FCA's conduct of business proposals follow on from its Discussion Paper published last year which covered two general issues: whether the MiFID II conduct rules should apply to insurance-based investments and pensions and whether the MiFID II rules applicable to the activities of advising on or selling structured products should be incorporated into the FCA's Conduct of Business sourcebook. On the first issue, the FCA has decided to wait until EU implementing measures under the Insurance Distribution Directive are finalized before it sets out its proposals. The FCA is intending to consult on implementing the IDD in 2017. On the second issue, the FCA has decided to proceed with incorporating such MiFID II rules into the Conduct of Business sourcebook. The FCA is proposing to apply individual conduct rules to those activities, which is in line with the provisions in MiFID II. 

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The European Securities and Markets Authority published a discussion paper on the trading obligation for derivatives under the Markets in Financial Instruments Regulation. The trading obligation is applicable to classes of derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation, (ii) are admitted to trading on at least one trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. ESMA is required to prepare Regulatory Technical Standards setting out which derivatives (or a subset of derivatives) that have been declared subject to the clearing obligation (currently comprising only certain interest rate swaps and credit default swaps) will also be subject to the trading obligation and the date on which the obligation will take effect. ESMA is seeking feedback on its approach to implementing the trading obligation for derivatives, including its application to certain types of counterparties and the possibility of the obligation being phased in, and on its initial assessment of some classes of derivatives that might become subject to the obligation. The discussion paper also sets out how the trading obligation has been implemented in other jurisdictions, such as the US, Japan, Switzerland, Mexico, Argentina and China. 

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HM Treasury published a consultation paper on amending the definition of regulated advice under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to bring it in line with the definition of “investment advice” set out in the Markets in Financial Instruments Directive. The consultation follows the Financial Advice Market Review, conducted by HM Treasury and the Financial Conduct Authority last year, which assessed how consumers could access advice on their finances more easily. The FAMR recommended that the government should consult on amending the definition of regulated advice in accordance with the MiFID definition, to the effect that only advice which makes a personal recommendation would be regulated. The consultation proposes a revised definition and seeks feedback on the costs and benefits of this change and any potential risks by November 15, 2016.

View the consultation page.

The Financial Conduct Authority published a second consultation paper on implementation of the Markets in Financial Instruments Directive II and the associated proposed changes to the FCA Handbook. The first consultation paper, published on December 15, 2015, related to issues associated with the FCA’s regulation of the secondary trading of financial instruments. The proposals in the second consultation paper are relevant to many different firms, including investment banks, inter-dealer brokers, stockbrokers, investment advisers, corporate finance firms, trading venues, investment managers and prospective Data Reporting Services Providers. The Consultation Paper includes full implementation of relevant parts of MiFID II, consistent with FCA pronouncements that roll-out of MiFID II will not be affected by the Brexit vote.

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The European Commission adopted a Commission Delegated Regulation in the form of Regulatory Technical Standards supplementing the Markets in Financial Instruments Regulation. MiFIR will, from January 3, 2018, require an investment firm to report complete and accurate details of transactions in financial instruments no later than the close of the following business day to its national regulator. One of the purposes of the reporting obligation is for national regulators to undertake market surveillance, including to monitor for market abuse.

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The European Commission adopted a Commission Delegated Regulation in the form of Regulatory Technical Standards specifying the organisational requirements of investment firms engaged in algorithmic trading. The adopted RTS supplement the revised Markets in Financial Instruments Directive (MiFID II) by specifying the systems, procedures, arrangements and controls to be put in place and maintained by investment firms to address the risks that may arise in financial markets due to the increased use and development of trading technology. The adopted RTS also outlines requirements of systems and controls for investment firms acting as general clearing members (those not involved with algorithmic trading). 

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The European Securities and Markets Authority submitted two amendments to the European Commission on the final draft regulatory technical standards on transaction reporting obligations under the Markets in Financial Instruments Regulation. The draft RTS were first submitted on September 25, 2015. The final draft RTS outlines transparency requirements for trading venues and investment firms in respect of shares, depositary receipts, exchange-traded funds, certificates and other financial instruments such as bonds and derivatives.

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The FICC Markets Standards Board published a draft standard for Reference Price Transactions for the fixed income markets. This is the first standard that the FMSB has published since it was established in June 2015 in response to the Fair and Effective Markets Review conducted by the HM Treasury, the Bank of England and the Financial Conduct Authority. The FMSB’s objective is to improve conduct in the wholesale Fixed Income, Currency and Commodities markets. Feedback on the proposed standard was due by September 8, 2016. The standards serve as a supplement to applicable law, rules and regulation and seek to deal with traders’ conflicts of interests where hedging entered into by the liquidity provider could influence the reference price transaction. Once finalized, the standard will apply to all FMSB member firms (just over 30 firms to date) on a global basis. 

View the proposed standard.

EU legislation postponing the implementation date of the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation was published in the Official Journal of the European Union. The MiFID II package will now formally not apply until January 3, 2018 instead of 2017. The postponement includes all of the technical standards and national laws although member states will need to transpose the requirements into national laws by July 3, 2017. In addition to the provisions delaying the implementation date, certain substantive amendments have also been made to the original texts of MiFID II. For example, Securities Financing Transactions, as defined in the new Securities Financing Transactions Regulation, will be excluded from the pre- and post-trade transparency obligations under MiFID II and there are revisions to specifically require the public disclosure of bid and offer prices for package orders.

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The European Securities and Markets Authority published an updated document on its approach to waivers to certain pre-trade transparency requirements under the current Markets in Financial Instruments Directive. MiFID I allows national regulators to grant waivers to regulated markets and multilateral trading facilities from certain pre-trade transparency requirements for shares based on the market model or the type and size of orders. ESMA first published the document in August 2015, setting out examples of pre-trade waivers under MiFID I. The document is intended to assist national regulators in ensuring that their supervisory practices are in line with ESMA’s opinions and to assist firms by clarifying the content of the MiFID I requirements.

View ESMA's document.

The European Commission adopted a Commission Delegated Regulation supplementing the Markets in Financial Instruments Regulation. Under MiFIR, a new trading obligation is introduced for shares and other sufficiently liquid instruments.  Such instruments must be traded on EU regulated exchanges or trading platforms or third country recognized exchanges and trading platforms. The trading obligation applies generally to third country entities that would be subject to the clearing obligation under EMIR if they were established in the Union. The trading obligation will apply to derivatives transactions pertaining to a class of derivatives that has been declared subject to the trading obligation, provided that the contract has a direct, substantial and foreseeable effect within the Union or where such obligation is necessary or appropriate to prevent the evasion of any provision of this Regulation. The adopted Regulation sets out the regulatory technical standards on the direct, substantial and foreseeable effect of derivative contracts within the European Union and the prevention of the evasion of rules and obligations, and therefore establishes when third country counterparties would be subject to the trading obligation mandated by MiFIR. 

The European Parliament adopted at first reading the European Commission’s proposals for a new Directive and Regulation to extend the implementation of MiFID II by one year to January 3, 2018. In addition, the provisional text of the Directive adopted by the European Parliament clarifies the exemption for persons dealing on own account with respect to market makers. An expanded exemption would apply for direct electronic access and own account dealing activities, when this is done for hedging or treasury management purposes. The provisional text of the Regulation adopted by the European Parliament excludes securities financing transactions from transparency requirements for trading venues, systematic internalisers and investment firms trading OTC, specifies the circumstances in which pre-trade transparency requirements do not apply to certain package transactions and amends the Market Abuse Regulation and the Central Securities Depositories Regulation. The proposed Directive and Regulation will now be put forward to European Council under the normal legislative procedure. 

View the provisional text of the Directive.

A Commission Delegated Regulation supplementing the Markets in Financial Instruments Directive with regard to regulatory technical standards concerning the data to be published by execution venues on the quality of execution of transactions was adopted by the European Commission. MiFID II requires that, for financial instruments subject to the trading obligation, each trading venue and systematic internaliser (and for other financial instruments, each execution venue) make data available to the public relating to the quality of execution of transactions on that venue on at least an annual basis. The adopted Regulation specifies the content, format and periodicity of data relating to quality of the execution to be published by execution venues. 

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The European Commission adopted a Delegated Regulation on RTS setting out the standards for non-discriminatory access for central counterparties and trading venues to licenses of, and information relating to, benchmarks. The Markets in Financial Instruments Regulation provides for such access so as to allow for the determination by a CCP or trading venue of the value of certain financial instruments for trading and clearing purposes. The adopted RTS provide the list of information to be provided by a benchmark owner to a trading venue or CCP requesting access. The information requested must be necessary for the CCP or trading venue to perform its clearing or trading function. The adopted RTS provide that, for trading venues, those functions are, at least: (i) an initial assessment of the characteristic of the benchmark, (ii) the marketing of the relevant product and (iii) the support of the price information process for contracts admitted or being admitted to trading. For CCPs, the relevant functions are (i) risk management of relevant open positions in exchange-traded derivatives, including netting, and (ii) compliance with the requirements under the European Market Infrastructure Regulation. The adopted RTS also set out the price and data feed information to be provided as well as the composition, methodology and pricing information required to allow a CCP or trading venue to understand how each benchmark value is created and the actual benchmark values. 

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The European Commission adopted a Delegated Regulation on RTS which set out the requirements for trading venues to provide pre- and post-trade transparency data. MiFIR requires data to be publicly available in an unbundled format. The adopted RTS set out the level of disaggregation by which trading venues should offer data - by asset class, by country of issue, by the currency in which the financial instrument is traded and whether the data comes from scheduled daily auctions or continuous trading. Market operators and investment firms operating a trading venue should also offer any combination of disaggregation on a reasonable commercial basis on request and may offer bundles of data. Where it is not possible to determine the asset class to which an instrument belongs unambiguously, market operators and investment firms operating a trading venue should determine which criteria the relevant financial instrument meets. 
 

The European Commission adopted a Delegated Regulation on Regulatory Technical Standards on the authorization and organizational requirements for, and publication of transactions by, Data Reporting Services Providers. The revised Markets in Financial Instruments Directive will introduce requirements for DRSPs to be authorized and supervised for their data reporting services, including the operation of Approved Publication Arrangements, Consolidated Tapes and Approved Reporting Mechanisms. The adopted RTS set out the requirements for authorization and ongoing supervision of DRSPs, including the provision of information to be provided to a national regulator when a DRSP is applying for authorization under MiFID II and the organizational requirements covering, amongst others, conflicts of interest, outsourcing, business continuity, IT security and connectivity. The adopted RTS also provide for the publication arrangements that a DRSP must have in place relating to machine readability, scope of data to be provided, non-discrimination and non-duplication. 

The European Securities and Markets Authority published an Opinion specifying the criteria for establishing, under the revised Markets in Financial Instruments Directive, when the activity of a firm is to be considered “ancillary” to the main business of the firm at a group level. Under the current MiFID, eligible firms trading commodity derivatives can rely on exemptions, for ancillary activities, avoiding the need to become regulated as an investment firm. MiFID II narrows the ancillary activity exemption considerably. ESMA is required to develop RTS to specify the criteria which must be taken into account for the revised exemption. They have specified at least the following two elements: (i) the need for ancillary activities to constitute a minority of activities at a group level; and (ii) the size of their ancillary trading activity compared to the overall market trading activity in that asset class. ESMA submitted draft RTS to the Commission on September 28, 2015. On March 14, 2016, the Commission indicated its intention to endorse the draft RTS, subject to a number of changes. In particular, the Commission requested that ESMA include, when proportionate and appropriate, a capital-based test for groups that have undertaken significant capital investments, relative to their size, in the creation of infrastructure, transportation or production facilities or groups that undertake activities or investments which cannot be hedged in financial instruments. The Opinion published is in response to the Commission’s request.

The European Commission adopted two Delegated Regulations with Regulatory Technical Standards which will supplement the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. The first RTS, relevant to MiFIR, set out the criteria that the European Securities and Markets Authority must use to assess whether derivatives that have been declared subject to the clearing obligation (under the European Market Infrastructure Regulation) have sufficient third-party buying and selling interest to be considered sufficiently liquid for the trading obligation to apply. MiFIR will introduce a trading obligation, whereby standardized volumes of sufficiently liquid non-equity instruments must be traded on a regulated market, multilateral trading facility, organised trading facility or equivalent third country platform (and not OTC).

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A Commission Implementing Regulation containing Implementing Technical Standards on the information to be provided to national regulators by investment firm and market operators of multilateral trading facilities and organized trading facilities was published in the Official Journal of the European Union. The ITS supplements the revised Markets in Financial Instruments Directive, setting out the information that the operator of a MTF or OTF will need to provide to its national regulator on the specific functionality of the trading system so that its national regulator can assess whether the system fits within the definition of an MTF or OTF and also assess compliance with the requirements under MIFID II for an MTF or OTF. The information to be provided includes, amongst other things, the asset classes of financial instruments traded on the platform, the rules and procedures that ensure non-discriminatory access to the platform, arrangements for market making and rules on suspension or removal from trading of a financial instrument. MTFs or OTFs will also need to notify their regulators of any material changes to the information previously submitted. The RTS also sets out the format for the provision of this information. An OTF is a new category of trading platform that the MiFID II Directive and Markets in Financial Instruments Regulation will introduce. The ITS will apply from the date that the MiFID II Directive applies from.

View the ITS.

A Commission Delegated Regulation outlining the Regulatory Technical Standards on when financial instruments should be removed or suspended from trading was adopted by the European Commission. The adopted RTS will supplement the revised Markets in Financial Instruments Directive, which requires a market operator of a regulated market, multilateral trading facility or organized trading platform to suspend or remove from trading financial instruments which no longer comply with the rules of the trading platform. 

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A Commission Delegated Regulation outlining the Regulatory Technical Standards for the admission of financial instruments to trading on regulated markets was adopted by the European Commission. The adopted RTS will supplement the requirements set out in the Markets in Financial Instruments Directive which requires a regulated market to have clear and transparent rules regarding the admission of financial instruments to trading. Such rules must ensure that any instruments admitted to trading are capable of being traded in a fair, orderly and efficient manner (and in the case of transferable securities, are freely negotiable).
 

A Commission Delegated Regulation, outlining the Regulatory Technical Standards on ratios of unexecuted orders to transactions, was adopted by the European Commission. The adopted RTS will supplement the requirements set out in the Markets in Financial Instruments Directive on algorithmic trading for both investments firms and trading venues. 

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The European Securities and Markets Authority published a Final Report on the revised draft Regulatory Technical Standard on transaction reporting under the Markets in Financial Instruments Regulation. ESMA is proposing amendments to the final draft RTS submitted to the European Commission on September 28, 2015. ESMA’s final draft RTS included a non-definitive list of example transactions which would not attract the reporting obligation under MiFIR, but that list that was silent on acquisitions or disposals that were solely the result of a transfer of collateral. The amendment updates the list to include collateral transfers as a type of “transaction” that should not be reported under MiFID II. The definition of transaction in the RTS is based on the concepts of “acquisition” or “disposal” of a financial instrument. ESMA concluded that including transfers of collateral, as a reportable transaction, would lead to a significant increase in reported data that is not susceptible to market abuse which would serve only to burden the market. Details of collateral are already reported under EMIR and will be reported under the Securities Financing Transaction Regulation for some transactions.  ESMA has submitted the Final Report to the Commission with the intention of having it taken into account in the context of the Commission’s endorsement of the final draft RTS.

View the update and final report.

The European Securities and Markets Authority published two Opinions proposing amendments to two of its draft Regulatory Technical Standards under the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, together known as MiFID II. In September 2015, ESMA submitted the two final draft RTS to the European Commission for endorsement. In April 2016, the Commission requested ESMA to amend each of the final draft RTSs. ESMA’s opinions are in response to the Commission’s request. 

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The European Commission adopted a Delegated Regulation supplementing the Markets in Financial Instruments Directive with regard to organizational requirements and operating conditions for investment firms. The adopted Delegated Regulation outlines specific organizational requirements for investment firms performing investment services and ancillary services. In particular, the adopted Delegated Regulation provides procedures for compliance, risk management, complaints handling, personal transactions, outsourcing and conflicts of interest as well as the additional organizational requirements for underwriting and placing services and the production and dissemination of investment research. The adopted Delegated Regulation outlines the operating conditions for investment firms. It also specifies the rules which an investment firm must comply when providing services or ancillary services to clients. For example, it requires information to be provided to clients and potential clients on the costs and charges associated with investment services and financial instruments. The adopted Delegated Regulation further specifies that information, which is to include an explanation of the risks arising from the insolvency of the issuer and related events, such as a bail in, must also be provided. 

The European Commission published three separate letters rejecting European Securities and Markets Authority draft technical standards and requesting amendments in accordance with the Markets in Financial Instruments Directive II. The first letter concerns draft regulatory technical standards on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives. The draft RTS submitted by ESMA lays down the criteria for whether bonds and structured finance products are considered to be liquid and further sets out the parameters and methods for the calculation of those thresholds above which waivers or deferrals may be granted. The Commission largely agreed with the approach taken by ESMA in drafting the standards, however, it stated that the definition of liquidity and the factors for determining the waiver threshold should be reviewed with a more cautious approach. The Commission concluded that it would not endorse the draft RTS until the approach to defining a liquid market for bonds is further aligned with the approach for all other non-equity instruments.  
 

The European Commission adopted a Delegated Directive on aspects of the revised Markets in Financial Instruments Directive covering rules for the safeguarding of client financial instruments and funds, product governance requirements and inducements. 

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The European Securities and Markets Authority published a peer review report on compliance with the suitability requirements under the existing Markets in Financial Instruments Directive. The review assessed during the period January 1, 2013, to December 31, 2014 how national regulators approach supervision of firms to ensure compliance with the MiFID suitability requirements when investment advice is given to retail clients. The MiFID suitability requirements aim to ensure that firms only recommend suitable investment products to investors taking into account the client's profile.  ESMA found, amongst other things, that only some regulators provide information on the tools they use to monitor compliance with the suitability requirements, many regulators do not undertake targeted supervision projects relating to suitability and enforcement action is rare as most regulators consider that their supervisory approach is sufficient to address any issues. ESMA will analyze the findings and determine areas where further convergence between the approaches taken by national regulators is needed. 

View the review report.

The Prudential Regulation Authority published its proposals for transposing certain aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The PRA's proposals relate to the passporting regime and algorithmic trading only – the PRA will consult on other aspects related to MiFID II in due course. 

View more. 

The European Securities and Markets Authority published translations of its guidelines on the assessment of the knowledge and competence of individuals providing investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of investment firms. Under the revised Markets in Financial Instruments Directive, an investment firm is required to ensure that individuals giving investment advice or providing information about financial instruments, investment services or ancillary services to clients have the necessary knowledge and competence to do so and satisfy the firm's obligations on suitability, appropriateness and reporting and provision of information to clients. Where requested by its national regulator, an investment firm may be requested to demonstrate that these requirements have been met. National regulators must publish the criteria that will be used to assess such knowledge and competence. ESMA's guidelines, which apply to national regulators and investment firms, specify criteria for the assessment of knowledge and competence, establishing the minimum standards that staff providing the relevant services should meet. The guidelines will come into effect on January 3, 2017.
 

The European Securities and Markets Authority published three letters from it to the European Commission concerning certain Regulatory Technical Standards under the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, together known as MiFID II. The Commission wrote to ESMA on March 14, 2016, notifying ESMA that amendments are required to the RTS on position limits for commodity derivatives, non-equity transparency requirements and on the exemption from licence requirements under MiFID II for commodity trading firms (the ancillary activities exemption). ESMA has confirmed that it will act swiftly in preparing its Opinions on the proposed amendments. It is as yet unknown whether the other RTS produced by ESMA last year have been accepted by the European Commission.
  
View the letters.

Commission Implementing Regulation on implementing technical standards on the timing, format and template of notifications to regulators by trading venues of financial instruments was published in the Official Journal of the European Union. In accordance with Market Abuse Regulations trading venues are required to notify regulators daily with information relating to the trade of financial instruments. The ITS required trading venues to report to their national regulators on the financial instruments which were subject to a request for admission to trading or admitted to trading or traded on the trading venue and set out, in accordance with the MAR, the required format and details of trading activity that must be provided. The information required for example, for the trade of Derivatives, includes the expiry date, price multiplier and underlying issuer. The full list of requirements are contained in the Annex to the ITS. It is intended that the related reporting obligations under the Markets in Financial Instruments Regulation will align with the obligations under these ITS. The ITS will apply from July 3, 2016.

View the ITS.

Commission Implementing Regulation on the implementation of technical standards regarding the timing, format and template of notifications to regulators by trading venues of financial instruments was published in the Official Journal of the European Union. In accordance with the Market Abuse Regulation, trading venues are required to notify national regulators daily with certain transaction information. The ITS sets out the required format and details of trading activity that must be provided. With regards to derivatives trading, for example, information relating to the expiry date, price multiplier, and underlying issuer must be disclosed. The full list of requirements is contained in the Annex to the ITS. It is intended that the related reporting obligations under the Markets in Financial Instruments Regulation will align with the obligations under these ITS. The ITS will apply from July 3, 2016.

View the ITS.
 

The European Commission adopted a Delegated Regulation, in the form of Regulatory Technical Standards, detailing the content of the financial instrument reference data that must be supplied to regulators. The adopted RTS will be made under the Markets Abuse Regulation and Markets in Financial Instruments Regulation.  They establish requirements for regulated entities to provide instrument reference data to regulators, which are then transmitted by regulators to the European Securities and Markets Association. The adopted RTS details which financial instruments are to be included as part of the reported instrument reference data. The adopted RTS also outlines ESMA's responsibility to review, assess, consolidate and publish the data on its website using automated processes. This adopted RTS will apply from July 3, 2016. 

View the adopted RTS.

View the Annex.

The International Swaps and Derivatives Association published a paper which analyzes the regulatory frameworks in the US and EU for the supervision and oversight of trading platforms and aims to provide principles for the recognition of EU trading platforms by the US Commodity Futures Trading Commission. Both the US and the EU have introduced rules which require certain derivatives to be traded on trading platforms. The US rules, which came into force in October 2013, provide that US persons may only trade the relevant derivatives on platforms that have registered as a Swap Execution Facility and that are subject to the oversight of the CFTC. The EU Markets in Financial Instruments Regulation, which is currently due to come into force on January 3, 2017 unless proposed legislation is passed to delay it for a year, requires certain derivatives to be traded on EU trading venues. ISDA considers that the CFTC should be able to make comparability decisions, deeming EU trading platforms comparable with those in the US, by focusing on the outcomes and core objectives of the EU regime, thereby recognizing EU trading platforms as SEFs. This would allow US persons to trade on an EU trading venue in compliance with the US trade execution rules.
 
View ISDA's paper.

The Financial Conduct Authority published the findings of its review into the research and due diligence processes that firms undertake on the products and services they recommend to retail clients. The FCA assessed 13 advisory firms and also visited seven external research and due diligence consultancy firms. Key findings that emerged from the thematic review were that most firms seek to achieve positive outcomes for their clients when undertaking research and due diligence and that there is some evidence of good practice. However, many firms do not demonstrate good practice consistently across all products and services. The FCA found that a corporate culture of challenge was a key driver of good research and due diligence. Those firms that did not have a corporate culture of challenge: (i) did not try to understand or challenge their own inappropriate bias towards products, services or providers; and (ii) inadequately managed conflicts of interest. The FCA has taken steps to address the issues found, instructing three firms to improve their research and due diligence process. The FCA has also asked one firm to complete a past business review. The FCA intends to provide firms with further communications that set out its expectations in this area in greater detail. In addition, the FCA's second consultation paper on implementing the Markets in Financial Instruments Directive, due to be published later this year, will cover requirements for research on products.

View the FCA's review report.

The European Commission proposed a one-year extension to the effective date of the Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation, collectively known as MiFID II. The proposal, if approved, would mean that national regulators would have an additional year to comply with MiFID II. The new effective date would be January 3, 2018 instead of January 3, 2017.

Read more.

The European Securities and Markets Authority published translations of its Guidelines for complex debt instruments and structured deposits under the Markets in Financial Instruments Directive II. MiFID II allows investment firms, under certain circumstances only, to provide clients with investment services that consist of execution, reception and transmission of orders only (known as execution-only orders), without the investment firm having to obtain any relevant client information to assess whether the service or product provided is appropriate for a particular client. Such products must be non-complex. ESMA's Guidelines identify those complex products for which execution-only services may not be provided, setting out a non-exhaustive list of examples of such products. National regulators have two months to notify ESMA whether or not they comply with the Guidelines. The Guidelines will apply from January 3, 2017.
 
View the Guidelines.

The European Supervisory Authorities published a letter, dated January 26, 2016,  from their Chairpersons to the European Commission on issues arising in the regulation and supervision of cross-selling financial products in the EU. The ESAs – the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority – are responsible for preparing guidelines on the supervision of cross-selling of financial products for each of the securities, banking and insurance sectors. However, due to discrepancies between EU primary legislation which governs such cross-selling practices across the different sectors, the ESAs are unable to provide harmonized guidelines. The primary legislation includes the Mortgage Credit Directive, the Payment Accounts Directive, the Insurance Mediation Directive and the revised Markets in Financial Instruments Directive.  Differences identified relate to the formal wording of the legislation, scope, level of granularity and date of application. The ESAs consider that a more harmonized approach across the sectors would be beneficial for consumers, financial institutions engaged in cross-selling and national regulators supervising the practice. The ESAs therefore urge the Commission to consider reviewing the underlying legislation, including within the Commission's current consultations on Retail Financial Services in the Banking and Insurance Sectors and/or its Call for Evidence on the regulatory framework in financial services.
 
View the ESA's letter.