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Markets and Securities Services | Issue 46
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The current MiFID regime
MiFID currently applies pre-trade and post-trade
transparency rules specifically to shares that are
admitted to trading on a regulated market (RM)
(regardless of how they are in fact traded, be it on a
multilateral trading facility (MTF) or over-the-counter
(OTC)). For post-trade transparency, investment
firms trading OTC are required to make public details
of transactions to which they are a party. However,
such publication is only required to be made once
per transaction. Where both parties to a transaction
are investment firms, the MiFID Implementing
Regulation
3
provides that one of the following must,
by agreement between the parties, arrange to make
the information public: the investment firm that:
a) sells the share; b) acts on behalf of or arranges
the transaction for the seller; c) acts on behalf of or
arranges the transaction for the buyer; or d) buys
the share concerned. In the absence of such an
agreement, the relevant investment firm is identified
sequentially from point a) to d), until the first point
that applies to the facts. Asset managers have,
therefore, not been responsible for the publication
of post-trade information with brokers traditionally
agreeing to undertake such requirements.
The new regime
MiFID is being replaced by MiFID II and MiFIR,
both of which take effect on 3 January 2018. The
transparency regime is set out in MiFIR, which,
as directly applicable law, should ensure uniform
transparency rules across the European Union
(EU) with less scope for variations in national
implementation.
Many of the details of the transparency regime
are clarified in two delegated regulations covering
equity instruments
4
(Equity DR) and non-equity
instruments
5
(Non-Equity DR) (together the
Delegated Regulations), both of which were
adopted by the European Commission (EC) on 14
July 2016. These Delegated Regulations introduce
regulatory technical standards (RTS) and are often
referred to as RTS1 and RTS2, respectively. The
RTS were developed by the European Securities
and Markets Authority (ESMA) and were published
in September 2015.
6
The MiFIR transparency regime:
• Retains the concepts of pre-trade and
post-trade transparency.
• Impacts trading undertaken on or off EU trading
venues, being RMs, MTFs or the new concept of
an organised trading facility (OTF).
• Introduces transparency obligations on
systematic internalisers (SIs) and other
investment firms that trade OTC.
• Greatly increases the instrument scope
from shares to:
— Shares, depositary receipts, ETFs, certificates
and other similar financial instruments traded
on a trading venue (equity instruments).
— Bonds, structured finance products, emission
allowances and derivatives traded on a trading
venue (non-equity instruments).
This article does not look at the detail of when
transparency obligations apply. However, where
this is the case, the transparency regime varies
depending on: 1) whether the trading is taking
place a) on an EU trading venue or b) with an SI or
otherwise by an investment firm trading OTC; and
2) whether the instrument in question is an equity
instrument or non-equity instrument.
For both equity instruments and non-equity
instruments, the pre-trade (Articles 3 and 8
MiFIR) and post-trade transparency obligations
(Articles 6 and 10 MiFIR) of trading taking place on
INCREASED TRANSPARENCY:
THE IMPACT ON ASSET MANAGERS
Increasing transparency across markets is one of the key aims of the recast
Markets in Financial Instruments Directive (MiFID II)
1
and related regulation (MiFIR).
2
It is hoped that a more transparent market will result in a stronger financial system.
This article focusses on the transparency regime under MiFIR, looking at the
practical impact of post-trade transparency on asset managers and what
increased market transparency may mean for the market.