MiFID II Data Needs To Be Reviewed After Brexit

Shanny Basar

Robert Ophèle, chairman of Autorite des Marches Financiers, the French regulator, said the thresholds in MiFID II need to be reviewed after the UK leaves the European Union. Ophèle spoke at the second annual AFME Legal and Compliance conference in London today.

MiFID II regulations went live in the European Union at the start of this year and introduced new transparency and trade reporting requirements across asset classes.

“Data is at the core of MiFID II implementation but the quality and consistency leaves much to desired,” Ophèle added. “The data needs to be complete and accurate.”

The European Securities and Markets Authority uses the MiFID II data to determine, for example, which stocks will be suspended from trading under the double volume caps or which bonds are deemed to be liquid, and so have added transparency requirements. However Ophèle noted that after the UK leaves the European Union in March next year, these thresholds may need to be changed.

For example, 500 million transaction reports are exchanged monthly between national regulators but 72% of these are sent by the UK to other EU members, which will cease after Brexit.

“In addition, will the double volume caps still be relevant as most dark trading takes place in the UK,” he said.

One of the aims of MiFID II was to shift volumes from over-the-counter to lit markets by introducing double volume caps on trading in dark pools. However, the AMF has noted that the market share of overall lit markets has remained almost unchanged at 46% since the regulations went live.

“There has been an increasing sophistication in the use of waivers by venues,” added Ophèle. “MiFID II should not prevent innovation but at the same time innovation should not used purely be used to get around the rules.”

Large blocks, above a specified size, have a waiver from the double volume caps and volumes of electronic blocks on EU venues have been setting records. The AMF questioned the development of large-in-scale trading and periodic auctions in a report this year and said some participants are waiting to aggregate enough small orders to maintain their ability to trade on dark platforms once the waiver size is reached.

The French regulator warned: “This behaviour of postponing the execution of a client order in order to reach a LIS size that bypasses the double volume cap could directly harm the execution quality of client orders and violate the best execution obligation.”

Ophèle also question whether the third party equivalence regime will still work after Brexit.

He expects a multilateral memorandum of understanding to be agreed between the UK Financial Conduct Authority and the remaining EU 27 member states regarding mutual access to each other’s markets.

Ophèle continued that European regulators were also waiting for the announced white paper from J. Christopher Giancarlo, chairman of the US Commodity Futures Trading Commission, on cross-border swaps regulation.

“The CFTC white paper will be a game-changer,”Ophèle added.

The white paper was released this afternoon.

Giancarlo said in a statement: “I have long said that I hold reservations about the CFTC’s current approach to applying its swaps rules to cross-border activities.”

Christopher Giancarlo, CFTC

He continued that one of the adverse consequences of the CFTC’s cross-border approach is that it does not make sufficient provision for non-US regulators who have adopted comparable G20 swaps reforms.

The white paper recommends improvements including expanding the CFTC’s exemptive authority for non-US clearing houses that are subject to comparable regulation in their home country and do not pose substantial risk to the US financial system. They could then provide clearing services to US customers indirectly through non-US clearing members that are not registered with the CFTC.


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