The Malta Financial Services Authority (MFSA) has issued a Circular notifying the financial services industry of the adoption, on 23rd April 2014, of updated rules for MiFID II by the European Parliament.
The new rules will comprise 2 pieces of legislation, as follows:
- The Directive (MiFID II) governing authorisation and organisation of trading venues and investor protection which amends specific requirements relative to the provision of investment services, the scope of exemptions from the current Directive (MiFID I), organisation and conduct of business requirements, powers available to competent authorities, sanctions and rules applicable for third party firms.
- A directly applicable regulation (MiFIR) which sets out requirements in relation to the disclosure of trade transparency data to the public and transaction data to competent authorities, authorisation and ongoing obligations applicable to providers of data services, mandatory trading of derivatives on organised venues and specific supervisory actions regarding financial instruments and positions in derivatives.
Summarily, the salient provisions of the legislation broadly consist of:
- The introduction of a market structure framework geared towards closing loopholes and ensuring that trading, wherever appropriate, takes place on regulated platforms. Accordingly, shares and non-equity instruments are subjected to a trading obligation and investment firms operating an internal matching system which executes client orders in shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments on a multilateral basis are required to be authorised as a Multilateral trading facility (MTF). Moreover, non-equity instruments are also required to trade on a new multilateral trading venue, the Organised Trading Facility (OTF).
- Establishment of a principle of transparency for non-equity instruments such as bonds and derivatives and bolstering of pre- and post-trade transparency regimes to include non-equity instruments.
- Strengthened supervisory powers and a harmonised position-limits regime for commodity derivatives to improve transparency, support orderly pricing and prevent market abuse.
- Non-discriminatory access to trading venues and central counterparties (CCPs).
- Introduction of trading controls for algorithmic trading activities, which will include the requirement for all algorithmic traders to be properly regulated and to provide liquidity when pursuing a market-making strategy.
- Enhanced investor protection achieved by introducing heightened organisational requirements, such as client asset protection or product governance, which also strengthen the role of management bodies and strengthened conduct rules such as an extended scope for the appropriateness tests and reinforced information to clients.
- Harmonisation of administrative sanctions and cooperation.
- Harmonisation of rules relative to granting access to EU markets for firms from third countries.
The Directive and the Regulation are expected to enter into force in June 2014.