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DRAFT REPORT (COM(2021)0726) – C90438/2021 – 2021/0384(COD))

On the proposal for a directive of the European Parliament and of the Council amending Directive 2014/65/EU on markets in financial instruments

ECON-PR-735505

Committee on Economic and Monetary Affairs · Rapporteur: Danuta Maria Hübner

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The rapporteur's draft report sets out Parliament's first-reading position on a directive amending Directive 2014/65/EU on markets in financial instruments. It limits the systematic internaliser regime to firms meeting qualitative criteria or opting in, and decouples that status from trade reporting through a 'designated reporting entity' concept. It deletes the best-execution reporting requirements in Article 27(3) and (6), moves retail best-execution rules to MiFIR, and asks ESMA to draft regulatory technical standards for professional clients. It requires trading venues to verify that issuers have obtained the ISO 17442 Legal Entity Identifier, and extends to regulated markets the rule on at least two materially active liquidity providers. It allows third-country shares to use the tick size of the most relevant third-country venue.

Committee position. The rapporteur proposes to amend the Commission proposal to reduce fragmentation, level the playing field, boost international competitiveness and encourage retail participation, notably by simplifying the systematic internaliser regime, deleting best-execution reporting requirements and clarifying best-execution rules.

Key points

  1. A new recital states that the systematic internaliser regime should be limited to firms meeting qualitative criteria or opting in, and that Regulation (EU) XX/XXXX introduces a 'designated reporting entity'.
  2. Recital 7 is amended to delete the best-execution reporting requirements in Article 27(3) and (6) of Directive 2014/65/EU, as the consolidated tape will provide the relevant data.
  3. A new recital states that Article 27(2) should be deleted because retail best-execution rules move to Regulation (EU) XX/XXXX, and that ESMA should draft regulatory technical standards on order execution policy under Article 27(5) and (7).
  4. Article 2(1), point (d)(ii) is amended to exempt non-financial entities executing risk-reducing transactions on a trading venue from the membership or participation requirement.
  5. Article 4(1), point (20) is amended so the systematic internaliser definition applies only where qualitative criteria are met or where a firm opts in, removing the quantitative thresholds.
  6. A new Article 16(10a) requires investment firms that are market data contributors to have arrangements meeting the data quality standards in Article 22b of Regulation (EU) No 600/2014.
  7. Article 18 is amended to require market operators and investment firms operating an MTF or OTF to verify that issuers of traded transferable securities have obtained the ISO 17442 Legal Entity Identifier.
  8. Article 27(1), second subparagraph is deleted, and paragraphs 2, 3 and 6 are deleted; paragraph 7 is amended to remove references to the deleted paragraphs.
  9. Article 27(10) is replaced so ESMA develops regulatory technical standards on criteria for defining and assessing order execution policy under paragraphs 5 and 7, covering retail and professional clients.
  10. Article 47(1) gains a point (fa) requiring regulated markets to give at least two materially active liquidity providers each the opportunity to interact with the independent order flow for price formation.
  11. Article 49(2) gains a point (ba) allowing shares with a non-EEA ISIN, or shares under Article 23(1)(a) whose most relevant market is in a third country, to use the same tick size as that third-country venue.
  12. Article 51(3), first subparagraph is replaced to require regulated markets to verify that issuers of admitted transferable securities have obtained the ISO 17442 Legal Entity Identifier and comply with disclosure obligations.

Who is affected

  • Investment firms: the systematic internaliser definition changes and reporting is decoupled, with smaller firms facing a lighter regime.
  • Non-financial entities: they keep an exemption for risk-reducing transactions on trading venues.
  • Market operators and investment firms operating MTFs or OTFs: they must verify issuers' Legal Entity Identifiers.
  • Regulated markets: they must verify issuers' Legal Entity Identifiers and give two liquidity providers access to order flow.
  • Issuers of transferable securities: they must obtain the ISO 17442 Legal Entity Identifier.

Figures and deadlines

  • ISO 17442 Legal Entity Identifier required for issuers of transferable securities.
  • At least two materially active liquidity providers must have the opportunity to interact with independent order flow.
  • ESMA must submit draft regulatory technical standards within 9 months after the date of entry into force of the Directive.

Legal basis: Article 294(2) and Article 114 of the Treaty on the Functioning of the European Union.