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JWG regulatory trading digest - MiFID II technical standards published

Published in Automated Trader Magazine Issue 38 Autumn 2015

After months of waiting ESMA has published the long-awaited MiFID II Technical Standards, leaving implementation teams across the industry with hundreds of pages to get to grips with. The much delayed Technical Standards were largely met with relief from an industry nervous about meeting the 3 January 2017 implementation deadline.

ESMA noted that the publication of an RTS on indirect clearing has been delayed. It seems other parts may also have been delayed, with this publication short eight RTS that were included in the last publication back in December of last year, most notably, two covering record keeping requirements.

The picture is further blurred by the fact that we are yet to see the publication of the European Commission's Delegated Acts, which are just as crucial in determining how MiFID II will ultimately reshape the industry. Current publication estimates for the Delegated Acts range from November to January.

Despite this it still represents, by far, the most clarity on what the final rules will be that we have seen so far. The publication confirms that MiFID II will represent the biggest change to the regulatory framework in living memory. It represents an extremely complex puzzle, but at least now we have one of the corner pieces on the table.

These regulatory technical and implementing standards (which essentially cover everything other than investor protection) run to 552 pages - and every word counts. Clearly some time is needed to digest it all.

On top of this, ESMA published technical standards for MAD/R (Market Abuse Directive/Regulation) and CSDR (Central Securities Depositories Regulation), both of which have key points of crossover with MiFID II, meaning a total headache- inducing 2505 pages were published in one day.

The good news is that, in key areas such as transaction reporting (where we remain with 65 fields), the new text doesn't look too far away from the version that the industry has been working from since the summer. However, there are still areas of change, even in transaction reporting. For instance, ESMA has tightened up the rules around using Legal Entity Identifiers, removing some qualifying and exempting criteria.

There are also areas of fairly substantial change from what we had previously seen. In terms of bond transparency ESMA have indicated that, under the terms of the technical standards and current market data, 2,000 bond instruments will fall under the transparency thresholds. Estimates show that this will amount to 4% of the European market. Position limits in commodity derivatives are set to be determined through two sets of criteria; an asset specific market share threshold and a 'main business' threshold. Additionally, trading venues will be required to publish their market data in an unbundled manner.

The punchline from an operational point of view is clear...the industry has until December to formalise implementation plans across key work streams; whilst investor protection work stream will be contingent on the delegated acts to be published around the turn of the year. The industry must now press on full steam ahead with transparency, governance and system and controls work streams.

The conclusion to draw from these texts is that MiFID II is now as ready as it is going to be for implementation teams. Having your 'change the bank' and 'run the bank' people validating the known unknowns and building implementation assumption using a risk-based approach is the order of the day.

To achieve this, industry collaboration and vendor coordination, through working groups and trade associations, will be vital.

Round up

MiFID II may well have taken the headlines in Q3, as it has all year, and will continue to until 2017, such is the nature of initiative, but we have seen much, much more in an incredibly busy quarter for global regulators.

A lot of this activity has been in the OTC derivatives space, with the Financial Stability Board (FSB) focusing on CCP resilience, Hong Kong moving to get into line with the G20 on mandatory clearing and the transatlantic row over Trade Repository/Swap Execution Facility equivalence continuing, and all of this as the mid-2016 deadline for mandatory clearing in the EU under EMIR (European Market Infrastructure Regulation) draws closer.


The FSB (Financial Stability Board) has had a busy quarter; towards the end of September the board met in London to discuss the identification of risks associated with market liquidity finding a mismatch between the liquidity of fund investments and redemption terms and conditions for fund units. The board also discussed progress in implementing over- the-counter (OTC) derivative market reforms, with a particular focus on cross-border cooperation, an area which has generally not been living up to G20 hopes.

The FSB have also found time this quarter to publish a progress report on work to enhance CCP resilience. The report cover stress testing, monitoring and recovery planning, ultimately concluding that work in most area is being implemented to plan.


The Securities and Exchange Commission (SEC) has sent a strong message to buy side this quarter with a $4 million fine for a hedge fund that causing prime brokers to violate recordkeeping rules relating to long/short marking. They have also been busy going after big bonuses publishing a new rule on Pay Ratio Disclosure.

The rule requires publicly traded companies to publish the ratio between their CEO's pay and the pay of their median employees. This includes companies that have offices in the United States and in the rest of the world. What this means is that companies must calculate the annual total compensation of all their employees except the CEO, then the annual compensation of the CEO, and publish the ratio of the two to the public.

Meanwhile Timothy Massad, chairman of the Commodity Futures Trading Commission (CFTC), spoke this month on the continuing dispute between the US and the EU on the granting of equivalence for Swap Execution Facilities. Massad said: "I believe there is an ample basis for EU to declare us equivalent, this should have happened some time ago". However, as it stands a resolution does not appear imminent.


UK banks have been voicing their concern at the agreement over the new ring-fencing law, now set to come into force 1 January 2019. One of the main themes of the UK's regulatory response to the financial crisis obliges banks with more than £25 billion worth of deposits to fence off their riskier investment activities from consumer-facing businesses ('core services'). In particular, HSBC has confirmed the move of its 'ring-fenced' headquarters from London to Birmingham in light of this regulation.


At the same time as ESMA published the aforementioned MiFID II technical standards, they also published their Market Abuse Regulation (MAR) technical standards. A welcome development for most implementation teams in the industry, since the general approach has been to implement the two initiatives side-by-side due to a number of interdependencies. Throughout the document, it is obvious ESMA has tried to align MAR as much as possible with other regulations. ESMA has sought to align reference data and details of financial instruments and the formats in which they are submitted under both MAR and MiFIR. However, there are still variances in reporting obligations, due to some distinct differences.

In other news the European Commission has announced that it is going to conduct a full scale review of all of the regulatory changes made in light of the financial crisis. It has been suggested that this could lead to fundamental changes to core initiatives such as MiFID II and EMIR.

Hong Kong

The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) issued a joint consultation in September on introducing a first stage of mandatory clearing and reporting for OTC derivatives markets. This is a move that aims to bring the Asian financial centre into line with the G20 regulatory agenda, and in particular up to speed with European and US markets. However, considering the more than two-year delay on the implementation of mandatory clearing in the EU, it may not all be plain sailing for the Hong Kong authorities.


As with many other jurisdictions Canada has recently been focusing on balancing their regulatory framework away from a focus on the sell side and onto dealers, brokers, financial advisors and fund managers. As part of this effort, which in some respects lines up with provision aimed at fund managers and financial advisors under MiFID II in the EU, the Ontario Securities Commission (OSC) published a report into policy initiatives in this space. A key tenet of the report is the stepping up of the registration process through the use of self-assessment tools. The OSC also details a series of new initiatives that can be expected in the coming years, watch this space.

Stay tuned for our next update as we wait for those MiFID II Delegated Acts, and failing that, the regulators always like to sign off for the year with a huge pile of documentation, so we can be sure to have plenty to report on for Q4.