ISDA, FIA, GFXD and the GFMA Commodities WG (hereinafter the Associations) welcome the opportunity to respond to the consultation launched by the German Ministry of Finance on the outcomes of the MiFID II/ MiFIR full implementation after one year of experience and in the view of the future report that the European Commission will publish in March 2020.

The implementation of MiFID II/ MiFIR has been one of the most ambitious implementation exercises carried out by the industry in the past few years due to MiFID II/R overhauling existing regimes and addressing all investment services in all asset classes.

The constant dialog between the Associations and National Competent Authorities (NCAs) and ESMA has been helpful and has enabled both markets participants and regulators to understand and apply the legislative and regulatory framework. In this respect the various ESMA Q&As, opinions and consultations have been of significant importance.

Members of the Associations have been operating under MiFID II/ MiFIR rules and requirements for over a year now and have an understanding of where the legislation has worked well and where clarification or re-calibration would be appreciated.

Executive Summary

MiFID II/R has always been the cornerstone of the EU financial legislation for the following reasons:

• MiFID II/R defines the conditions upon which investment firms are licensed to provide investment services and the content of conduct of business rules they have to comply with;
• MiFID II/R defines trading venues and the conditions upon which trading venue operators can provide services;
• MiFID II/R defines financial instruments and covers all asset classes accessible to wholesale and retail investors.

The Associations consider that it remains questionable whether MiFID II/ MiFIR has met its objectives in increased and effective transparency. Market participants have constantly reported outstanding problems associated with the implementation of data and reporting rules and calibration of transparency since the full application date of the framework. Although NCAs and ESMA have been provided with feedback about all these deficiencies, the Associations note that no re-calibration has been seriously considered so far to make the regime more effective and based on an appropriate cost-benefit analysis.

The Associations strongly believe that the focus of the review should be to simplify the rules, to increase the efficiency of the requirements and to reduce disproportionate costs and burdens imposed by the current MiFID II/R framework. Some of these suggested clarifications or simplification would require changes to the level 1 texts whereas others can be done through a revision of level 2 measures (Regulatory Technical Standards or Implementing Technical Standards) or level 3 Q&As.

The Associations strongly believe that the approach should be a ‘Refit’ of MiFID II/ MiFIR and that a complete re-write of the existing legislation would be inappropriate. Not only has MiFID II/R been implemented relatively recently but the industry, as well as regulators, are currently facing considerable uncertainty and implementation challenges associated with Brexit. As an example, where the framework is based on EU metrics (e.g. the systematic internaliser regime or calibration of the transparency regime), ESMA should concentrate on the impact of Brexit and the calibration of rules once UK data is no longer included in the calculation of the EU metrics.

The Associations also have strong concerns that the European legislation does not provide a horizontal approach to regulatory reporting. The co-existence of many different overlapping and sometimes inconsistent reporting regimes (MiFID II/R, Short Selling Regulation (SSR), Securities Financing Transactions Regulation (SFTR), Regulation on Wholesale Energy Market Integrity and transparency, (REMIT) is considered an area where European policy makers should seek a more harmonised regulatory framework in line with the European Commission’s commitment to better regulation. The Associations support the EC’s Fitness Check on Supervisory Reporting that was launched in December 2017 and believe it would be sensible for any adjustments to MiFID II/R reporting to be coordinated with any plans that the EC has under the Fitness Check on Supervisory Reporting.

The Associations recommend the recognition of equivalence between EU and UK financial services rules and trading venues after Brexit as critical for the continuity of financial services activities. The UK has on-shored EU financial legislation and aims to remain aligned to the existing EU framework. When considering new legislative proposals, both the EU policy makers and the UK authorities will need to pay attention to the risk of misalignment between both regimes.

More specifically, the Associations support improvements to the existing framework. Data and reporting, mandatory systematic internaliser regime, transparency and equivalence of trading venues are the main areas of concerns for the Associations’ members. The other areas where re-calibration or clarifications would be deserved include the treatment of packages under the transparency regime and the derivatives trading obligation, the commodity derivatives position limits and hedging exemption, the costs and charges rules and the consolidated tape for non-equity financial instruments.