Updates From The Deutsche Boerse Buy-Side Working Group

Stephen Hanks from the FCA provided some interesting feedback about MIFID II progress at the Deutsche Boerse Buy-Side Working Group (April 21) which we were speaking at and attending. We wanted to share some of the key points we learned at the event.

Broad points of interest:

• The finalised delegated acts for MiFID II should be published next week (week commencing 25 April) closely followed the week after with MIFIR delegated acts.
• The FCA advised that with regards to the waiver volume caps, the debate continues around the appropriate calculation approach. This highlights the ongoing industry concerns regarding these caps being exceeded and all activity in a security being fully lit. As discussed at the working group, it is too early to assess the impact this could potentially have.
• Questions also remain about principle trading by an institution operating an MTF and what the firm operating the MTF could put through the platform.
• The FCA also suggested that EU level discussions implied that systematic internalisers would not be able to use matched principal activity as their primary trading model on the SI platform as such activity is considered to fall outside the purpose of the SI regime. The FCA advised that questions also around price improvement under the SI regime should also be dealt with in the delegated acts to be published in the next couple of weeks.

From a transparency perspective the FCA provided the following comments:

• Regarding the establishment of a CTP for equity securities, no indications of interest have been received by authorities from potential service providers.
• For non-equity securities there will now be a phased approach for SSTI.
• The FCA confirmed that size thresholds for bonds and the present 100k euro threshold was also being looked at by ESMA.
• As per recent statements, ESMA will also be producing new advice for non-equity transparency.

From a transaction reporting perspective:

• ESMA is also reviewing the definition of an ARM and what activities would trigger the requirement to register as an ARM. Debate has been raised as a result of there being unregulated intermediaries conducting key activities between the regulated firm and its ARM. This would mean that regulators would only have locus over a portion of the process and not all of it.
• The FCA advised that although there are questions around the benefits of including ‘short selling’ flags in the transaction report, this will remain a requirement.

The main take away here is clearly the timing around the publication of the finalised acts. This will firm up requirements being created under the legislation. Those managing the MiFID II projects have been waiting for the acts to be finalised to progress the work required which is significant for all financial firms. The acts are also bound to raise further discussion points and once published, will provide the platform for progressing with the Level 3 work.