Europe’s wholesale financial markets risk being hampered by a lack of clarity around the revised MiFID II regulation, claims the Association for Financial Markets in Europe (AFME).

The AFME says the imprecision of the MiFID II/MiFIR text has hampered bank’s implementation projects and could impact markets, liquidity and investor choice around equities, fixed income and derivatives. 




This is one of the most wide-ranging shake-ups of the European trading landscape and Julian Allen-Ellis, director of MiFID at AFME, says wholesale banks have prepared as best they can.

“Wholesale banks are used to regulatory change and adept at dealing with uncertainty but there are just 100 days before the changes are to be implemented and the industry is left debating key interpretive issues in the text,” he says.

"The industry is left debating key interpretive issues in the text."

He adds that the AFME supports the overarching policy objectives of the MiFID review but the Association’s steering committee still has some fundamental concerns.

Members report solid progress on their implementation and readiness programmes despite a number of open issues.  AFME is supporting members’ MiFID implementation with continuing advocacy activity and supporting industry consensus on outstanding priority issues including systematic internaliser activity and identification; the share trading obligation; investment research and inducements; post-trade reporting; deferrals; and cost and charges issues.

"ESMA is not capable or not willing to make the requisite data available to the industry that would enable the banks to comply."

Among the many remaining questions and issues around the systematic internaliser regime, the availability of high quality, sufficiently granular static data, integral to determining post-trade reporting responsibility, is particularly vexing. It is fundamental to know which legal entity is an SI on a security by security basis to determine who has the responsibility to perform single-sided post-trade reporting.

The proper source of this information should be European Securities and Markets Authority (ESMA).  However, ESMA and the Commission envisaged the emergence of an industry source. The fragmented landscape of APAs across the Union means this industry remains elusive.

 “The problem is that ESMA is not capable or not willing to make the requisite data available to the industry that would enable the banks to comply with the regime,” says Allen-Ellis. “We are seeking an industry solution and establishing further clarity over how to comply with the regime in the absence of a golden source of SI data.”


International worries


Another concern among wholesale banks is around the share trading obligation and in particular access to third country non-EEA venues. Investment firms are still waiting on the Commision to hear which third country trading venues will be deemed equivalent for the purpose of the share trading obligation.

“The list of equivalent third-country venues is still outstanding, with just 100 days to go to the go live date of MiFIDII/MiFIR.”

The AFME is also focused on the detail around restrictions on the provision and receipt of investment research. The rules dictate that sell-side firms must unbundle execution commissions from payments for research for their clients.

Significant concerns remain with respect to the interoperability of the regime with US restrictions on the receipt by broker dealers of hard dollar payments for research. 

“The policy objective was to improve transparency around the pricing and provision of investment research.  However, the precise status of FICC research, the status of macro research, the status of corporate access and concierge services all remain open to debate across the industry.” says Allen-Ellis.




The UK’s Brexit negotiations with the EU have also had an effect on core concepts within MiFID II, particularly around how market particiants in third country jurisdictions can access EU markets.

With the review of MIFID, the Commission has attempted to create a harmonised regime for granting access to EU markets for firms in third countries. However, the regime is limited in scope to the cross-border provision of investment services and activities provided to per se professional clients and eligible counterparties.

"The Commission has attempted to create a harmonised regime for granting access to EU markets for firms in third countries."

ESMA is reportedly by and large not dealing with any third country issues due to political sensitivities in light of UK’s Brexit negotiations and the potential for the UK itself to become a third country in the future.

So what happens if wholesale banks do not receive the additional clarity they are asking for before the fast-approaching January implementation date?

“Our members are preparing for MiFIDII/MiFIR as best they can,” says Allen-Ellis. “The industry has had to make working assumptions and make interpretative best efforts on their journey towards MiFIDII/MiFIR readiness for 3rd January 2018.”

He confirms that AFME and members are continuing their ongoing engagment and close cooperation with NCAs, ESMA and the European Commission.