Last Friday, the Irish EU Presidency published a new draft compromise of MiFID II. The resulting piece of legislation includes several new additions but preserves – without exception – the more onerous existing clauses.
The central changes in the new draft are an obligation for investment firms to trade on a regulated platform (with exceptions) and a clamping-down on matched principal trading and trade execution for all market participants.
Should the current draft come into force, investment firms would be forced to trade via a regulated market, organised trading facility (OTF), multilateral trading facility (MTF) or systematic internaliser. The only exceptions to this are where the trade is effectively a one-off or where it is carried out between eligible/professional counterparties in a way that does not contribute to the price discovery process. Should this clause make it into the final draft, there will be big questions over the scope of these exceptions.
In addition, MTFs are now subject to a complete ban on executing matched principal trades, and OTFs a partial ban, which only allows trading in certain instruments and only where the client is informed. However, an investment firm may operate ‘an internal electronic client matching system which executes client orders’ as long as it is authorised as either an OTF or an MTF.
Concerns have also been resurrected over existing clauses such as the definition of a ‘significant firm’ and the imposition of strict liability for trading errors and risk control failures.
Needless to say, there are many uncertainties still to be ironed-out by ESMA.
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