MiFID/MiFIR Regulation Updates Transition

On March 27, 2024, the European Securities and Markets Authority (ESMA) released guidance on transitioning to the updated MiFID/MiFIR Regulation, specifically addressing Regulation 2024/791 and Directive 2024/790 changes. This guidance clarifies the application of new and existing rules, focusing on significant areas such as the volume cap mechanism, equity and non-equity transparency, the systematic internaliser regime, designated publishing entities, and reporting enhancements. Key highlights include transitioning from a dual to a single volume cap and the continued application of the current double volume cap until the new rules take effect, 18 months post-implementation. ESMA also outlines its plans to develop draft technical standards and provide further detailed guidance, ensuring stakeholders are well-prepared for the MiFID/MiFIR Regulation updates.

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MiFID II and MifIR Regulation Review: What will happen?

Comprehensive guide on MiFID/MiFIR Regulation complexities, covering 2022-2023 updates, MiFID II evolution, legislative journey, and impacts on EU/UK financial firms. Essential for understanding changes in the EU financial markets’ regulatory framework.

GrandAlessandro Micagni

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MiFID II/MiFIR Regulations for Enhanced Market Transparency

The EU Council adopted new MiFIR and MiFID II rules to improve market data transparency, offering better data access, establishing consolidated tapes, and banning payment for order flow, impacting compliance and trading in the EU.

GrandAlessandro Micagni

The MiFID II/MiFIR regulatory landscape is on the cusp of significant changes that promise to reshape the governance of financial markets within the European Union. Scheduled for March 28, 2024, the implementation of Regulation (EU) 2024/791 (the "MiFIR revision") and Directive (EU) 2024/790 (the "MiFID II revision") heralds a new era of enhanced market transparency, reporting obligations, and regulatory compliance. Managed by the European Securities and Markets Authority (ESMA), these updates are poised to introduce a host of benefits for stakeholders across the financial sector.

Key Highlights of the Upcoming MiFID II/MiFIR Revisions:

• Introduction of New Regulations: The "MiFIR revision" and the "MiFID II revision" are set to elevate transparency levels and enhance reporting obligations across the EU's financial markets.

• Managed by ESMA: These pivotal updates are spearheaded by ESMA, ensuring a uniform transition and adherence to the revised regulatory framework.

• Focused on Transparency and Compliance: Aiming to boost the transparency of both equity and non-equity markets, these revisions align with international standards for market integrity and investor protection.

• Simplification and Efficiency: By refining trade oversight mechanisms and market data dissemination, ESMA intends to make financial market processes more straightforward and efficient.

• Benefits for a Broad Audience: The enhancements are designed to advantage a diverse group of stakeholders, including investors, market operators, and other participants, fostering a transparent and fair trading environment.

What These Changes Mean for Stakeholders:

• A Superior Level of Market Transparency: The regulatory overhaul aims to provide clearer insights into trading activities, benefiting market transparency on a grand scale.

• Enhanced Reporting Obligations: With a focus on improving the detail and frequency of reporting, stakeholders can anticipate more rigorous compliance requirements.

• Robust Regulatory Compliance Frameworks: Strengthened regulations will ensure that financial markets operate within a more secure and well-regulated environment.

• Preparation is Key: Market participants are encouraged to familiarize themselves with the forthcoming changes to navigate the transition smoothly.

As we approach the implementation date, the anticipation builds for what is set to be a transformative period in EU financial market regulation. This initiative marks a significant advancement towards ensuring that European financial markets operate under the highest standards of transparency, fairness, and efficiency, cementing the EU's status as a frontrunner in global financial market regulation. Stakeholders are urged to stay informed and prepare for a future where the financial landscape is more transparent, accessible, and aligned with the evolving needs of the market and its participants.

Singular Volume Cap Mechanism under MiFID II/MiFIR Regulation

The MiFID II/MiFIR regulatory framework is set to undergo a critical transformation with the introduction of a singular volume cap mechanism, moving away from the traditional dual volume cap system. This change, slated for implementation 18 months post the latest regulatory updates, signifies a substantial shift in how trade oversight and market data dissemination are managed across the European Union's financial markets.

Key Aspects of the Singular Volume Cap Mechanism:

• Strategic Transition: From a dual volume cap to a singular volume cap approach, aimed at streamlining regulatory processes and enhancing market transparency.

• Implementation Timeline: Set for activation 18 months after the regulatory updates, allowing market participants ample time to adjust.

• Benefits of the Transition:

• Simplifies the regulatory landscape, making compliance more straightforward for market participants.

• Reduces the administrative burden on financial institutions, facilitating a more efficient market environment.

• Ensures continuity in trading activities, preventing market distortion by maintaining the existing dual volume cap system until the singular cap is operational.

• Objective: To provide a transparent, manageable, and understandable framework that boosts investor confidence and ensures the EU's competitive edge in global financial market regulation.

Impact on Market Participants and Regulatory Compliance:

• Seamless Transition: The existing dual volume cap system remains as the standard until the singular volume cap is implemented, ensuring no disruption to trading activities.

• Enhanced Market Integrity: By consolidating regulatory mechanisms, ESMA promotes a market environment characterised by high transparency and integrity.

• Global Regulatory Leadership: The move reaffirms the EU's commitment to adapting and evolving its regulatory framework in response to the dynamic global financial market landscape.

Preparing for the Changes:

• Stay Informed: Market participants are encouraged to closely follow updates on the implementation of the singular volume cap mechanism.

• Anticipate Benefits: The financial community should prepare to leverage the streamlined regulatory framework for enhanced market efficiency and transparency.

This pivotal update within the MiFID II/MiFIR regulations underscores a broader commitment to refining the oversight of financial markets, ensuring that the European Union's financial sector remains robust, transparent, and efficient. As we approach the implementation of the singular volume cap mechanism, it's crucial for all stakeholders to engage proactively, gearing up to embrace a regulatory environment optimized for the contemporary needs of the financial markets under the MiFID II/MiFIR Regulation.

Systematic Internaliser Framework

The forthcoming revisions under the MiFIR regulation are set to usher in significant enhancements to market transparency and the Systematic Internaliser (SI) framework, marking a critical shift in how financial markets within the European Union assess and report equity and non-equity instruments. These updates, spearheaded by the European Securities and Markets Authority (ESMA), aim to refine existing protocols and introduce new standards that better align with the evolving landscape of global financial markets.

Market Transparency and SI Framework:

• Enhanced Liquidity Assessment Protocols:

• Transitioning liquidity assessment for equity instruments from free float to market capitalization.

• Necessary amendments to Commission Delegated Regulation (EU) 2017/567 to ensure seamless alignment with the revised framework.

• Refinement of Transparency Obligations for Non-Equity Instruments:

• Streamlining pre-trade transparency requirements, focusing primarily on central limit order book and periodic auction trading systems.

• Strategic exclusion of Request for Quote and voice trading systems from transparency obligations post-amendment.

• Transformative Updates to the Systematic Internaliser (SI) Framework:

• Introduction of recalibrated minimum quote sizes for SIs dealing in equities.

• New provisions enabling the matching of orders at the midpoint of current bid and offer prices, effective from March 28, 2024.

• Bolstering Post-Trade Transparency through Designated Publishing Entities (DPEs):

• NCAs empowered to designate firms responsible for disclosing transactions via approved arrangements.

• DPEs to play a pivotal role in ensuring accurate and timely reporting of transaction data.

Impact and Preparation for Market Participants:

These regulatory enhancements are designed to foster a trading environment characterized by heightened transparency, competitive fairness, and increased market efficiency. By focusing on these critical areas, ESMA not only aims to enhance the functionality and accessibility of market data but also to ensure that the European financial markets remain robust, transparent, and adaptable to the needs of diverse market stakeholders.

• Market Efficiency: The focused approach on transparency and SI framework adjustments is expected to enhance overall market efficiency, ensuring fair and competitive trading conditions.

• Investor Protection: With DPEs set to ensure prompt and accurate transaction reporting, the integrity of the market and the protection of investors are significantly reinforced.

As the MiFID II/MiFIR regulatory revisions draw near, stakeholders across the financial markets are urged to stay informed and prepare for the transition. This proactive engagement is crucial for leveraging the benefits of the updated regulatory framework, ensuring that market participants can navigate the new landscape with confidence and compliance.

Embracing the Future of Financial Regulation:

The strategic overhaul within the MiFID II/MiFIR regulations underscores ESMA's commitment to advancing market transparency and regulatory compliance, meeting the contemporary demands of the financial market. As we approach the implementation of these critical updates, the financial community is poised to embrace a regulatory environment optimized for transparency, efficiency, and investor protection.

Reporting Protocols and Digital Systems with MiFID II/MiFIR Regulation Updates

The impending MiFIR revision is poised to catalyze groundbreaking reforms in transaction reporting within the European Union's financial markets, signifying a critical evolution in regulatory standards aimed at enhancing data accuracy and transaction scope. This initiative is strategically aligned with the European Union's Strategy on supervisory data, marking a shift towards a more data-centric approach in regulatory oversight and compliance.

Key Highlights of the Transaction Reporting Reforms:

• Expansion of Reporting Framework:

• Inclusion of specific Over-The-Counter (OTC) derivatives to broaden the spectrum of scrutinized financial instruments.

• Introduction of detailed reporting requirements to document transactions with greater specificity and clarity.

• Enhanced Granularity in Reporting:

• Aimed at significantly improving the quality and utility of collected data.

• Facilitates effective monitoring, analysis, and anomaly detection by regulatory authorities.

• Alignment with EU's Supervisory Data Strategy:

• Synchronizes transaction reporting practices with the EU's overarching goals for supervisory data.

• Enables regulatory bodies like ESMA to gain deeper insights into market dynamics, manage risks, and maintain market integrity.

Advancements in Digital Infrastructure for Optimal Compliance:

In preparation for these extensive reporting reforms, ESMA is proactively enhancing its digital infrastructure to ensure seamless integration of the new standards. These technological upgrades are essential for accommodating the changes brought about by the MiFIR revision and laying the foundation for future regulatory developments.

• Key Technological Upgrades:

• Implementation of systems to support the newly introduced singular volume cap mechanism, simplifying market oversight.

• Development of a Designated Publishing Entities (DPE) register in collaboration with NCAs, crucial for boosting post-trade transparency.

• Importance of Technological Agility:

• Upgrading digital systems emphasizes the need for regulatory frameworks to be technologically agile and responsive.

• Aims to enhance the efficiency of the MiFIR revision implementation and prepare for future enhancements.

Preparation for Market Participants:

As these comprehensive reporting reforms and digital system adjustments unfold, it's imperative for financial sector participants to remain informed and prepared for the upcoming transitions. The MiFIR revision's strategic enhancements are designed to strengthen the foundations of market transparency, regulatory compliance, and financial stability throughout the EU.

• Stay Informed: Market participants are encouraged to closely follow updates on the reporting reforms and digital infrastructure adjustments.

• Embrace the Enhancements: Preparing for the strategic improvements introduced by the MiFIR revision will be key to leveraging the benefits of a more transparent, compliant, and stable financial market environment under the MiFID II/MiFIR Regulation framework.

These pivotal updates underscore the EU's dedication to harnessing technology to elevate financial market oversight, ensuring that the regulatory landscape is robust, adaptable, and in sync with the rapidly evolving global financial market dynamics.

Market Transparency with Upcoming MiFID II/MiFIR Regulation Updates

The countdown to the MiFID II/MiFIR regulatory revisions is narrowing, and the European Securities and Markets Authority (ESMA) is guiding financial markets through a carefully structured transition. This phase is crucial for integrating enhanced transparency and improved reporting standards central to the updated regulatory framework. Against the backdrop of these changes, ESMA's strategy focuses on ensuring a smooth adaptation process for comprehensive compliance across the financial industry.

Key Highlights of the Transition Phase:

• Strengthening Market Transparency:

• This period marks a significant effort to bolster the infrastructure supporting market transparency.

• ESMA aims to refine systemic internaliser regulations and optimize the flow of financial transactions and reference data.

• Commitment to Regulatory Excellence:

• The push for strategic reforms reflects ESMA's commitment to fostering an environment where advancements in transparency are realized.

• This initiative aligns with the dynamic needs of global financial markets, aiming to maintain regulatory relevance, effectiveness, and contribution to market stability.

Preparing for Regulatory Changes:

• Call to Action for Stakeholders:

• ESMA urges all market participants, including financial institutions and trading platforms, to prepare for the forthcoming changes.

• Entities are encouraged to thoroughly review the updates and assess their operational impacts.

• Importance of Preparation and Engagement:

• This preparatory phase is vital for adapting processes, systems, and strategies to meet the updated MiFID II/MiFIR standards.

• Proactive engagement and readiness are essential for leveraging the benefits of the revised framework, ensuring entities operate efficiently in a transparent and accountable market.

Looking Forward to the Future of Financial Regulation:

• A Transformative Journey:

• The transition towards the enhanced MiFID II/MiFIR framework signifies a major leap in financial market regulation.

• This journey, marked by ESMA's dedication to regulatory innovation, ushers in a new era of market transparency, accountability, and integrity.

• Market Community on the Cusp of Change:

• As the implementation date approaches, the financial community stands at the threshold of significant shifts.

• Embracing these updates with readiness and adaptability is crucial for thriving in the future regulatory landscape, affirming the EU's leadership in global financial market regulation.