Sittings · Document

DRAFT REPORT (COM(2021)0726) – C90438/2021 – 2021/0384(COD)) 2022-07-19

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

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

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DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

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

(COM2021(0726) – C90438/2021 – 2021/0384(COD))

(Ordinary legislative procedure: first reading)

– having regard to the Commission proposal to Parliament and the Council (COM(2021)0726),

– having regard to Article 294(2) and Article 114 of the Treaty on the Functioning of the European Union, pursuant to which the Commission submitted the proposal to Parliament (C90438/2021),

– having regard to Article 294(3) of the Treaty on the Functioning of the European Union,

– having regard to Rule 59 of its Rules of Procedure,

– having regard to the report of the Committee on Economic and Monetary Affairs (A90000/2022),

1. Adopts its position at first reading hereinafter set out;

2. Calls on the Commission to refer the matter to Parliament again if it replaces, substantially amends or intends to substantially amend its proposal;

3. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Amendment 1

Proposal for a directive

Recital 6 a (new)

Text proposed by the Commission

Amendment

(6a) Article 4(1), point (20), of Directive 2014/65/EU provides the definition of a systematic internaliser and subjects it to a number of qualitative criteria that determine whether an investment firm, on an organised, frequent, systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system. The quantitative criteria, related to the transaction reporting role of systematic internalisers, have led to a significant increase in the number of systematic internalisers in the Union and in the regulatory burden both on ESMA, which is required to assess the quantitative criteria for investment firms that qualify as systematic internalisers, and on investment firms themselves. In particular, the regulatory burden disproportionately affects smaller investment firms, which would benefit from a lighter and more flexible regime. Article 4(1), point (20), should therefore limit the systematic internaliser regime to investment firms that meet the qualitative criteria or investment firms that choose to opt-in to the systematic internaliser regime. Complementing those changes, Regulation (EU) XX/XXXX22 amending Regulation (EU) No 600/2014 introduces the concept of a ‘designated reporting entity’, decoupling the systematic internaliser status from the function of making transactions public through an approved publication arrangement.

Or. en

Amendment 2

Proposal for a directive

Recital 7

Text proposed by the Commission

Amendment

(7) Article 27(3) of Directive 2014/65/EU contains the requirement for execution platforms to publish a list of details relating to best execution. Factual evidence and feedback from stakeholders has shown that those reports are rarely read and do not enable investors or any users of those reports to make meaningful comparisons based on the information provided in those reports. As a consequence, Directive (EU) 2021/338 of the European Parliament and of the Council21 suspended the reporting requirement for two years in order for that requirement to be reviewed. Regulation (EU) XX/XXXX22 has amended Regulation (EU) 600/2014 to remove the obstacles that have prevented the emergence of a consolidated tape. Among the data that the consolidated tape is expected to provide are post-trade information regarding all transactions in financial instruments. That information can be used for proving best execution. The reporting requirement laid down in Article 27(3) of Directive 2014/65/EU will therefore no longer be relevant and should therefore be deleted.

(7) Articles 27(3) and 27(6) of Directive 2014/65/EU contain the requirement for execution platforms to publish a list of details relating to best execution. Factual evidence and feedback from stakeholders has shown that those reports are rarely read and do not enable investors or any users of those reports to make meaningful comparisons based on the information provided in those reports. As a consequence, Directive (EU) 2021/338 of the European Parliament and of the Council21 suspended the reporting requirement under Article 27(3) for two years in order for that requirement to be reviewed. Regulation (EU) XX/XXXX22 has amended Regulation (EU) No 600/2014 to remove the obstacles that have prevented the emergence of a consolidated tape. Among the data that the consolidated tape is expected to provide are pre-trade and post-trade information regarding all transactions in shares, and post-trade information regarding all transactions in other financial instruments. That information can be used for proving best execution. The reporting requirement laid down in Article 27(3) of Directive 2014/65/EU will therefore no longer be relevant and should therefore be deleted. The reporting requirement laid down in Article 27(6) of that Directive should also be deleted, as those reports have proven to be of limited value to users, and at the same time have created additional costs for the investment firms required to prepare them.

__________________

21 Directive (EU) 2021/338 of the European Parliament and of the Council of 16 February 2021 amending Directive 2014/65/EU as regards information requirements, product governance and position limits, and Directives 2013/36/EU and (EU) 2019/878 as regards their application to investment firms, to help the recovery from the COVID-19 crisis (OJ L 68, 26.2.2021, p. 14).

22 COM 727

Or. en

Amendment 3

Proposal for a directive

Recital 7 a (new)

Text proposed by the Commission

Amendment

(7a) More generally, Article 27 of Directive 2014/65/EU contains provisions related to the obligation to execute orders on terms most favourable to the client (‘best execution’). However, different interpretations of that Article by national competent authorities have led to widely diverging application of best execution requirements and of market practice supervision. That divergence is particularly evident in the different regulation across the Union of practices related to receiving payments for forwarding client orders for execution (‘payment for order flows’). Regulation (EU) XX/XXXX22 amending Regulation (EU) No 600/2014 clarifies the rules related to the best execution of retail orders, minimises supervisory divergence and bans the payment for order flows across the Union. The best execution requirement laid down in Article 27(2) of Directive 2014/65/EU should therefore be deleted, as it will be included in Regulation (EU) XX/XXXX22. However, feedback from regulators and stakeholders has shown that best execution requirements for professional clients could also benefit from further clarification. ESMA should develop draft regulatory technical standards on the criteria that should be taken into account for the purpose of defining and assessing the order execution policy under Article 27(5) and (7) of Directive 2014/65/EU.

Or. en

Amendment 4

Proposal for a directive

Article 1 – paragraph 1 – point 2

Directive 2014/65/EU

Article 2 – paragraph 1 – point d – point ii

Text proposed by the Commission

Amendment

‘(ii) are members of or participants in a regulated market or an MTF;’;

‘(ii) are members of or participants in a regulated market or an MTF, with the exception of non-financial entities that execute transactions on a trading venue that are objectively measurable as reducing risks directly related to the commercial activities or treasury financing activities of those non-financial entities or their groups;’;

Or. en

Justification

The amendment reinstates the exemption for non-financial entities, which needs to be maintained in order not to place an undue burden on non-financial entities and whose removal in the first place was unintended.

Amendment 5

Proposal for a directive

Article 1 – paragraph 1 – point 3 – introductory part

Directive 2014/65/EU

Article 4 – paragraph 1

Text proposed by the Commission

Amendment

3. in Article 4(1), point (19) is replaced by the following:

3. in Article 4, paragraph 1 is amended as follows:

Or. en

Amendment 6

Proposal for a directive

Article 1 – paragraph 1 – point 3 – point a (new)

Directive 2014/65/EU

Article 4 – paragraph 1 – point 19

Text proposed by the Commission

Amendment

(a) point (19) is replaced by the following:

‘(19) “multilateral system” means a multilateral system as defined in Article 2(1), point (11), of Regulation (EU) No 600/214;’;

‘(19) multilateral system’ means a multilateral system as defined in Article 2(1), point (11), of Regulation (EU) No 600/2014;’;

Or. en

Amendment 7

Proposal for a directive

Article 1 – paragraph 1 – point 3 – point b (new)

Directive 2014/65/EU

Article 4 – paragraph 1 – point 20

Present text

Amendment

(b) point (20) is replaced by the following:

(20) ‘systematic internaliser’ means an investment firm which, on an organised, frequent systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system;

‘(20) ‘systematic internaliser’ means an investment firm which, on an organised, frequent, systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system. The definition of a systematic internaliser shall apply only where the qualitative criteria indicating that an investment firm performs its activities on an organised, frequent, systematic and substantial basis are met, or where an investment firm chooses to opt-in under the systematic internaliser regime;’;

The frequent and systematic basis shall be measured by the number of OTC trades in the financial instrument carried out by the investment firm on own account when executing client orders. The substantial basis shall be measured either by the size of the OTC trading carried out by the investment firm in relation to the total trading of the investment firm in a specific financial instrument or by the size of the OTC trading carried out by the investment firm in relation to the total trading in the Union in a specific financial instrument. The definition of a systematic internaliser shall apply only where the pre-set limits for a frequent and systematic basis and for a substantial basis are both crossed or where an investment firm chooses to opt-in under the systematic internaliser regime;

Or. en

Justification

Current SIs regime is complex and unclear, and it has increased the regulatory burden for ESMA and investment firms, and led to an inflated number of SIs in the Union. These factors disproportionally affects smaller investment firms. The amendment introduces qualitative criteria for SIs and introduces the possibility to opt-in into the SI status. The introduction in MiFIR of designated reporting entities complete overhaul of the regime by decoupling reporting obligations and SI definition. The new regime should provide more flexibility and better clarity for market participants.

Amendment 8

Proposal for a directive

Article 1 – paragraph 1 – point 3 a (new)

Directive 2014/65/EU

Article 16 – paragraph 10 a (new)

Text proposed by the Commission

Amendment

3a. in Article 16, the following paragraph is inserted:

‘10a. An investment firm that is a market data contributor within the meaning of Article 2(1), point (34a), of Regulation (EU) No 600/2014 shall have arrangements in place to ensure it meets the data quality standards set out in Article 22b of that Regulation.’;

Or. en

Justification

The amendments seeks to mirror the provisions of Art 31(1) to ensure that not only trading venues but also investment firms are subject to data standards when they contribute market data.

Amendment 9

Proposal for a directive

Article 1 – paragraph 1 – point 3 b (new)

Directive 2014/65/EU

Article 18

Present text

Amendment

3b. Article 18 is amended as follows:

(a) the following paragraph is inserted:

‘2a. Member States shall require market operators and investment firms operating an MTF or an OTF to establish and maintain effective arrangements to verify that issuers of transferable securities that are traded under its systems have obtained the ISO 17442 Legal Entity Identifier.’;

(b) paragraph 8 is replaced by the following:

8. Where a transferable security that has been admitted to trading on a regulated market is also traded on an MTF or an OTF without the consent of the issuer, the issuer shall not be subject to any obligation relating to initial, ongoing or ad hoc financial disclosure with regard to that MTF or an OTF.

‘8. Where a transferable security that has been admitted to trading on a regulated market is also traded on an MTF or an OTF without the consent of the issuer, the issuer shall not be subject to the obligation in paragraph 2a of this Article and any obligation relating to initial, ongoing or ad hoc financial disclosure with regard to that MTF or an OTF.’;

Or. en

Justification

Introduces a reference to LEI to mirror, for trading venues, the treatment that MiFIR already envisaged for clients of investment firms. Such principle has already been implemented under the CSDR, so EU issuers are already required to obtain the LEI for settlement. However, the fact that the same LEI requirement cannot be imposed to non-EU issuer puts EU issuers at a disadvantage. The amendments therefore is essential to ensure an even playing field between EU and non-EU issuers and to operationalise the ESRB recommendations on the use of the LEI.

Amendment 10

Proposal for a directive

Article 1 – paragraph 1 – point 4 – point -a (new)

Directive 2014/65/EU

Article 27 – paragraph 1 – subparagraph 2

Present text

Amendment

(-a) in paragraph 1, the second subparagraph is deleted;

Where an investment firm executes an order on behalf of a retail client, the best possible result shall be determined in terms of the total consideration, representing the price of the financial instrument and the costs relating to execution, which shall include all expenses incurred by the client which are directly relating to the execution of the order, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order.

Or. en

Justification

In light of the proposed introduction of Article 39a in MiFIR on ‘Rules for the execution of retail order flows’, Article 27 should be modified accordingly, removing redundant provisions to enhance legal clarity.

Amendment 11

Proposal for a directive

Article 1 – paragraph 1 – point 4 – point a

Directive 2014/65/EU

Article 27 – paragraphs 2, 3 and 6

Text proposed by the Commission

Amendment

(a) paragraph 3 is deleted;

(a) paragraphs 2, 3 and 6 are deleted;

Or. en

Justification

Evidence from stakeholders show that RTS 27 and 28 reports are rarely read, do not enable users of those reports to make meaningful comparisons, and create additional costs for reporting entities. Besides, the introduction of the CT can provide valuable info to prove best execution. The reporting requirements under paragraphs 3 and 6 should be deleted as no longer relevant, but the best execution framework should be strengthened via changes to Par. 10 below. Par. 2 is removed as the provision will be moved to MiFIR. and clarified by modifications to Art 27(10) MiFID and new Art 39a in MiFIR.

Amendment 12

Proposal for a directive

Article 1 – paragraph 1 – point 4 – point a b (new)

Directive 2014/65/EU

Article 27 – paragraph 7

Present text

Amendment

(ab) paragraph 7 is replaced by the following:

7. Member States shall require investment firms who execute client orders to monitor the effectiveness of their order execution arrangements and execution policy in order to identify and, where appropriate, correct any deficiencies. In particular, they shall assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether they need to make changes to their execution arrangements, taking account of, inter alia, the information published under paragraphs 3 and 6. Member States shall require investment firms to notify clients with whom they have an ongoing client relationship of any material changes to their order execution arrangements or execution policy.

‘7. Member States shall require investment firms who execute client orders to monitor the effectiveness of their order execution arrangements and execution policy in order to identify and, where appropriate, correct any deficiencies. In particular, they shall assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether they need to make changes to their execution arrangements. Member States shall require investment firms to notify clients with whom they have an ongoing client relationship of any material changes to their order execution arrangements or execution policy.’;

Or. en

(02014L0065)

Justification

Removes reference to paragraphs 3 and 6 as they would be redundant should those two paragraph be deleted as proposed above.

Amendment 13

Proposal for a directive

Article 1 – paragraph 1 – point 4 – point b

Directive 2014/65/EU

Article 27 – paragraph 10 – point a

Text proposed by the Commission

Amendment

(b) in paragraph 10, point (a)is deleted;

deleted

Or. en

Justification

Current best execution regime proved to be ineffective. New Article 39a in MiFIR clarifies retail orders' best execution rules related, meaning that Article 27(2) should be deleted. Regulators and stakeholders also show that requirements for professional clients could benefit from further clarification. ESMA should develop RTS on the criteria for defining and assessing order execution policy of investment firms, differentiating between professional and retail clients and ensuring that the current divergence in supervisory interpretations is minimised, or at least reduced.

Amendment 14

Proposal for a directive

Article 1 – paragraph 1 – point 4 – point b

Directive 2014/65/EU

Article 27 – paragraph 10

Present text

Amendment

(b) paragraph 10 is replaced by the following:

10. ESMA shall develop draft regulatory technical standards to determine:

‘10. ESMA shall develop draft regulatory technical standards on the criteria to be taken into account when defining and assessing the order execution policy under paragraphs 5 and 7, taking into account whether the orders are executed on behalf of retail or professional clients.

Those criteria shall include at least the following:

(a) the specific content, the format and the periodicity of data relating to the quality of execution to be published in accordance with paragraph 3, taking into account the type of execution venue and the type of financial instrument concerned;

(a) factors determining the choice of execution venues included in the order execution policy;

(b) the content and the format of information to be published by investment firms in accordance with paragraph 6.

(b) the periodicity of assessing and updating the order execution policy;

ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015.

ESMA shall submit those draft regulatory technical standards to the Commission by ... [9 months after the date of entry into force of this Directive].

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph of this Article in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.’;

Or. en

Justification

Amendment 15

Proposal for a directive

Article 1 – paragraph 1 – point 6 - point g

Directive 2014/65/EU

Article 47 – paragraph 1 – point f a (new)

Text proposed by the Commission

Amendment

‘(g) to have arrangements in place to ensure they meet the data quality standards as set out in Article 22b of Regulation (EU) No 600/2014.’;

‘(fa) to have at least two materially active liquidity providers each having the opportunity to interact with the independent order flow with regard to price formation.’;

Or. en

Justification

The requirement to have at least two materially active liquidity providers each having the opportunity to interact with the independent order flow with regard to price formation is contained in Article 18(7) of MiFID - applying to OTFs and MTFs. The amendments seeks to extend this requirement to Regulated Markets.

Amendment 16

Proposal for a directive

Article 1 – paragraph 1 – point 6 a (new)

Directive 2014/65/EU

Article 49 – paragraph 2 – point b a (new)

Text proposed by the Commission

Amendment

6a. in Article 49(2) the following point is added:

‘(ba) in the case of shares with a non-EEA ISIN, or shares referred to in Article 23(1), point (a), for which the venue that is the most relevant market in terms of liquidity is in a third country, have the same tick size that applies on that venue.’;

Or. en

Justification

The amendment seeks to allow, for third country shares, the use of the prevailing tick size on the main exchange in that third country, in order to align the Union’s standards with international practices and to ensure the competitiveness of EU firms.

Amendment 17

Proposal for a directive

Article 1 – paragraph 1 – point 7 a (new)

Directive 2014/65/EU

Article 51 – paragrah 3 – subparagraph 1

Present text

Amendment

7a. in Article 51(3), the first subparagraph is replaced by the following:

3. In addition to the obligations set out in paragraphs 1 and 2, Member States shall require the regulated market to establish and maintain effective arrangements to verify that issuers of transferable securities that are admitted to trading on the regulated market comply with their obligations under Union law in respect of initial, ongoing or ad hoc disclosure obligations.

‘3. In addition to the obligations set out in paragraphs 1 and 2, Member States shall require the regulated market to establish and maintain effective arrangements to verify that issuers of transferable securities that are admitted to trading on the regulated market have obtained the ISO 17442 Legal Entity Identifier and comply with their obligations under Union law in respect of initial, ongoing or ad hoc disclosure obligations.’;

Or. en

(02014L0065)

Justification

See justification for changes to Article 18.

EXPLANATORY STATEMENT

The rapporteur welcomes the Commission’s proposal for the review of the Markets in Financial Instruments Regulation and Directive (MiFIR/D). The review is timely: Europe needs effective, understandable and deliverable changes to the current framework to reduce the fragmentation and increase the size, competitiveness and attractiveness, of EU capital markets.

Nonetheless, the rapporteur has identified certain areas for improvement. The amendments included in the report are informed by the desire to establish a regulatory framework conducive to an environment where all market participants benefit from trading. The amendments are guided by four main principles:

a. reducing fragmentation and cross-border barriers;

b. levelling the playing field, supporting a healthy degree of competition between different execution venues and methods;

c. allowing EU firms to be competitive internationally and more attractive for EU and third-countries investors;

d. encouraging retail participation and strengthening investor protection.

It is clear that the changes require careful calibrations, in the spirit of an overall balanced approach and to the long-term benefit of EU market participants. The rapporteur has extensively engaged with market participants and national competent authorities, and has elaborated what is intended to be an ambitious yet balanced text, whose main changes classified into three areas: consolidated tape (CT), market structure and transparency, forwarding and execution of client orders.

Consolidated Tape

In its proposal, the Commission seeks to establish the conditions for the emergence of a CT in Europe across all asset classes. The rapporteur shares this objective: a CT displaying real-time prices for financial instruments across the Union is a fundamental tool to reduce fragmentation and improve the attractiveness of EU capital markets, and will provide great benefits to end investors.

The different CTs should be introduced in a phased approach - starting with bonds, then equities/ETFs and derivatives - and with no longer than six months between the initiation of the process for appointing the CTP in each asset class. To ensure an effective oversight of the tape by EU public authorities, ESMA should be granted sufficient time to run the selection and authorisation processes and address outstanding data issues. With respect to the latter, ESMA should consider industry’s prevailing standards and practices, to maximise the value of the CT for its users.

The efficiency of the CT will be proportionate to the value it provides to its users - in this sense, it is essential that the equity tape contains real-time, pre-trade information, necessary to inform investors’ trading decisions. While the biggest players in the market will continue to seek access to the data stream that they currently use, a pre-trade CT in equity will be a great addition for players such as small and medium-size asset managers, or foreign investors seeking to access the EU markets. The CT should also be a tool for retail investors, and for them it should be intelligible easy to access and free or, at most, only requiring the payment of a symbolic amount.

The rapporteur recognises that the introduction of a CT for equities may impact regulated markets, which derive a significant share of their revenues from market data. Hence, the amendments introduce an exemption from mandatory contributions for markets that either (i) represent less than 1% of the total EU average daily trading volume, or (ii) do not contribute significantly to the fragmentation of EU markets as they mostly trade shares for which they are also the venue of primary admission.

Nonetheless, the rapporteur believes that the inclusion of all EU regulated markets in the CT would be beneficial for end investors, increase the attractiveness of the Union markets lead to an increase in trading volumes and visibility for smaller regulated markets - in line with the objectives of the Capital Markets Union action plan. The amendments therefore includes an opt-in option to the mandatory contribution scheme for those exemptible regulated markets. In those cases, a higher share of the CT revenues should be re-allocated to them.

Market structure and transparency

a. Waivers, DVC and SIs quoting and execution rules

Today market participants must adhere to highly complex transparency rules, including the application of waivers, deferrals and the cap mechanism. The amendments seek to simplify these rules to the benefit of the EU market structure and to increase the competitiveness and attractiveness of EU markets as a whole.

There is also a recognition of the necessity to increase pre-trade transparency and thereby reinforce the price formation process, while ensuring that market quality, overall liquidity on EU trading venues and the domestic and international competitiveness and attractiveness of EU markets and firms are fostered.

As such, the rapporteur proposes a rebalancing of the rules governing capital markets by limiting the use of the waivers to pre-trade transparency obligations under Article 4 of MiFIR. The threshold for the use of those waivers should be determined by ESMA, and not be higher than twice the standard market size. This proposal introduces greater flexibility than the Commission’s proposed fixed threshold, allowing ESMA to factor in different elements when determining the threshold.

At the same time, the cap mechanism limiting dark trading under these waivers should be suspended. These caps were set arbitrarily and proved to be of limited utility, and their removal would reduce complexity and align the Union with international practices.

SIs quoting and executions rules are also reviewed, applying the same threshold as that under Article 4 of MiFIR.

The increase of the threshold for the use of waivers, the limits to SIs quoting and execution, and the suspension of the cap mechanism should achieve the dual objective of strengthening trading in lit venues while simplifying the rules, maintaining the competitiveness of EU firms and the number of trading choices available to end-investors. ESMA should be monitoring the impact of these changes on the functioning of markets, and intervene if the price formation process is undermined.

b. Non-equities deferrals

To simplify the current regime and ensure end-investors transparency, the rapporteur believes that the deferral regime for non-equities should be harmonised at Union level. The price and the volume of a non-equity transaction should be published as close to real time as possible, and the price should only be delayed until maximally the end of the trading day. Evidence from other jurisdictions indicate that shorter deferrals are beneficial for end-investors and - for certain categories of transactions - do not affect negatively the liquidity available in the markets. At the same time, in recognition of the need for liquidity providers not to be exposed to undue risks, the amendments allow for the masking of the price and volume of very large transactions for a maximum of four weeks. The exact calibration of the various buckets for the deferrals should be left to ESMA, but the proposed approach should ensure greater transparency while accounting for the different necessities of market participants.

c. SIs definition and reporting requirements

The existing reporting regime for investment firms created uncertainty about who should report the trade and lead to duplicative reporting. Besides, the link between the reporting obligation and the status of a SI led to an inflated number of SIs in the Union, distorting the picture of market participants. The amendments thus seek to decouple the SI status and the reporting requirements, introducing the possibility for market participants to register as a ‘designated reporting entity’ (DRE).

ESMA should establish a register of all SIs and DREs, specifying their identity and the instruments or classes of instruments for which they are either an SI or a DRE. This would remove uncertainty and would reduce the regulatory burden for investment firms, particularly smaller ones. The rapporteur believes that under this approach, firms qualifying or opting in as SIs will only be those firms acting as liquidity providers, providing further clarity to the overall equity market structure.

d. DTO suspension

The rapporteur shares the Commission’s aim to enhance the Union’s clearing capacity by introducing a targeted suspension of the derivatives trading obligations (DTO). The COM proposal addresses the impact of the dealer-to-customer market by allowing for the temporary suspension when receiving client quotes from counterparties with no active membership on an EU trading venue. However, this solution does not address the dealer-to-dealer market for CDS in Europe. The amendment introduces the possibility for DTO suspensions in favour of dealer-to-dealer platforms that have established links to CCPs established in the Union, directly supporting the EU agenda to support the competitiveness of EU CCPs and clearing in the EU.

Forwarding and execution of client orders

The rapporteur believes that the problems identified by the Commission with the practices related to the so-called payments for order flows (PFOF) are symptomatic of a broader issue related to the best-execution regime. In particular, the way in which the best-execution requirements under Art. 27 of MiFID are worded has led to widely divergent supervisory interpretations, of which PFOF is the starkest example. This has led to increasing opportunities for regulatory arbitrage across borders, contrary to the objectives of a CMU.

In light of this, while the rapporteur maintains the initial proposal regarding PFOF, the amendments seek to implement changes to the best execution requirements with a view to ensure a harmonised approach to best execution, more transparency and a level playing field across Europe, to the benefits of end-investors. Art. 27 therefore mandates to develop clearer RTS for professional investors, while best-execution requirements for retail investors are brought under MiFIR, Art. 39a.

Finally, the transparency requirements should be effective and add value for market participants. Measures that in the name of transparency increase the regulatory burden faced by venues and investments firms without providing value to the investors should be removed - as it is the case for the so-called RTS 27 and 28 reports under Art. 27(3) and (6) of MiFID.