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MiFID : Beyond Implementation

MiFID : Beyond Implementation. Sofia, Bulgaria. Overview. MiFID post-implementation MiFID enforcement/application Impacts of MiFID Market changes MiFID reviews Non-equity transparency Commodity derivatives Other reports Further developments The international dimension

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MiFID : Beyond Implementation

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  1. MiFID : Beyond Implementation Sofia, Bulgaria

  2. Overview • MiFID post-implementation • MiFID enforcement/application • Impacts of MiFID • Market changes • MiFID reviews • Non-equity transparency • Commodity derivatives • Other reports • Further developments • The international dimension • Financial turmoil

  3. MiFID Transposition checking • Core Commission function (Level 4 Lamfalussy) • First phase: completeness check • Have the provisions been implemented? • State of completeness check shown in the ‘Lamfalussy league table’ on COM’s website • Second phase: quality check • How have the provisions been implemented? • We intend to consult with trade associations • Ask them to identify known instances of inconsistent application or transposition • Help us to focus on real, practical issues

  4. Intended impacts of MiFID • A catalyst for significant innovation and market structure changes • Increase competition between trading venues and cross-border • Increase trading volumes and financial information flows • Will make full electronic trading more attractive • Create deeper, more liquid integrated capital markets • Lower costs for issuers and investors

  5. Market changes so far • Very encouraging • A range of new trading venues and services have already been announced • Trading: Project Turquoise, Chi-X, Equiduct, SmartPool, Plus Markets, etc… • Existing exchange services upgraded (cheaper, faster) • New trade/transaction reporting services : Markit Boat, Omgeo, ICMA TRAX2, LSE, Reuters, Deutsche Börse, etc… • Other services for firms to assist in compliance/service delivery • Consolidation among major exchanges picks up pace • LSE-Borsa Italiana • NYSE-Euronext • Nasdaq-Dubai-OMX

  6. Non-equities market transparency • Detailed transparency provisions apply to shares only • Trading venues (regulated markets, MTFs and systematic internalisers) • Firms subject to post-trade obligations for OTC trades • Pre-trade exemptions available e.g. crossing networks • Delayed publication of post-trade information possible for large trades under a ‘sliding scale’ • Article 65(1) MiFID – Commission to report on whether to extend beyond shares

  7. Non-equities market transparency • Report published 4 April • No need to extend MiFID beyond shares • Market best placed to address concerns re retail access to bond prices • Self-regulatory solutions from ICMA and SIFMA • COM will monitor developments

  8. Commodities review – main issues • Exemptions for non-investment firm commodities companies Articles 2.1.i, 2.1.k • Parallel exemptions for commodities houses from Basel II rules • Scope of Market Abuse Directive • Third Energy Package (September 2007) • Review of transparency for spot and derivatives • Review of record-keeping for spot • Reports due mid and end-2008

  9. Commodities - issues at stake • Level playing field • Between businesses dealing in same instruments • Between Member States (uneven transposition) • Appropriate level of regulation for commodities business • Prudential (less systemic risk) • Conduct of business (little retail involvement) • Benefit of greater transparency in energy?

  10. Some early messages • Early consensus on: • Need for exemption for own-account hedging • Need to avoid extending financial regulation to physical market (retain MiFID definitions of financial instruments) • Timetable • Mandates due mid-2008 • Public hearing 25 September 2008 • Report end-2008

  11. Other MiFID reports • Report Legal base Initial Date • Transparency Extension L1 Art. 65.1 31/10/2007 • Article 27 Mifid L1 Art. 65.2 31/10/2008 • Consolidation of information L1 Art. 65.4 30/4/2008 • Best Execution data L2 Dir. Art. 44.5 31/10/2008 • Block Trades L2 Reg. Art. 40.3 31/10/2009 • Definition of transaction criteria for liquid shares L2 Reg. Art. 40.1 At least every two years • Tied agents L1 Art. 65.3 c) 30/4/2008 • Telephone recording L2 Dir. 51 31/12/2009  New target date: one single report – mid 2010

  12. International dimension Why ? • Globalisation: trade, investment and capital movement are booming • More efficient global allocation of capital • Avoid spillover effects of legislations • Promote EU regulatory model • Support global expansion of EU FS industry • Convergence towards international standards • Have an offensive position in multilateral or bilateral negotiations

  13. International dimension cont. How ? • Informal regulatory dialogues : Commissioner and DG level • With Min Fin, Central Banks and regulatory agencies • US: Started in 2003 with SEC, FED and Treasury • SOX, deregistration, reinsurance collateral • Basel II, audit et accounting • Japan et China : started in 2005 • Russia et India : started in 2006

  14. International dimension cont. Results • US: Deregistration, accounting road map, Basel II, 1st step for audit oversight equivalence • China : retail banking market opening, accounting convergence • Japan: convergence between Japanese GAAP and IFRS • Russia : approximation of EU legislation, preferential access for EU companies • India : exchange of information, follow-up of FS liberalisation

  15. Mutual recognition • G7/G8, SEC have both raised this possibility • We are strongly supportive, so long as our ‘red lines’ are maintained: • Open and transparent criteria for granting of market access • COM plays the leading role for EU • EU States to grant market access only to firms/exchanges from comparably regulated jurisdictions • EU rules apply to EU financial markets • No regulatory spill-overs

  16. Mutual recognition with the US • Joint SEC/COM statement on 1/2/08 • Issues to be clarified • Mutual recognition process – allocation of responsibilities between COM, SEC, CESR • Principles • Scope (entities, products, investors) • Mutual recognition in practice (MoUs)

  17. Implications of financial instability for financial regulation • Important to have a globally convergent approach to regulation • Importance of lifetime financial education • Risk transfers sometimes not effective • More work needed on capital calibration for complex products and on banks’ ability to identify risk concentrations • Role of credit ratings agencies

  18. More information • Commission MiFID web pages: tinyurl.com/yyulyz • MiFID texts, transposition info, Q&A • CESR MiFID databases: mifiddatabase.cesr.eu • CESR MiFID Level 3 (guidance): tinyurl.com/2bj2oq

  19. Thank you

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