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Brian Bollen speaks with global bank Societe Generale and post-trade provider Torstone Technology about the latest updates on MiFIR, and why the road to its next review could still be a long one

The scale of Markets in Financial Instruments Regulation (MiFIR) means that it has become something of an industry in itself, driven and fueled by a panoply of EU institutions, constantly generating dedicated committees and working groups.

MiFIR and the Markets in Financial Instruments Directive (MiFID) are the guidelines and rules that govern European financial markets. They were created to strengthen investor protection, increase transparency and make these markets more efficient and resilient.

“There is currently a review underway,” notes Jean-Pierre Gomez, head of regulatory and public affairs at Societe Generale Securities Services in Luxembourg, about MiFIR.

“It’s completely natural,” he continues. “Every time new regulations are introduced, not everything goes exactly to plan, and the outbreak of COVID-19, the sudden spike in inflation around the world and the UK’s departure from the Union European have all exacerbated things.”

He sees no urgency in completing the review and predicts that it will not be completed in 2023.

Consolidated band

Asked to take a look at the subject, David Pearson, product manager at Torstone Technology, identifies two clear debates in the industry. First, there is no real concrete movement on what to do about the Consolidated Band (CTP), which is seen as necessary to enhance investor security and enhance market order and transparency. prices there. The introduction in Europe of CTP, a high-speed electronic system that reports the latest price and volume data on sales of listed shares, is currently being debated by the European Council and Parliament.

At the beginning of April this year, the European Funds and Asset Management Association (EFAMA), together with a number of its members, wrote an open letter to the European Commission to encourage the introduction of a Standard CTP in European market.

EFAMA and the asset managers involved in the industry letter point out that the logistics necessitated by the COVID-19 pandemic “have accentuated the need for tape, both to provide critical data for the liquidity risk management, and also as a critical infrastructure to enable trading continuity”. in the event of a central unit failure.

Additionally, EFAMA and others have stated that CTP data can also influence the behavior of retail investors.

As the letter pointed out in more detail: “Post-COVID, we have seen greater participation from retail investors and increased interest in equity markets. This budding interest needs to be nurtured, and investor confidence and the ability to receive best execution needs to be enhanced through the existence of a CTP.

Later in June, ESMA said in an update: “CTP calculations will resume at the next regular publication date, February 1, 2023, based on an observation period from July 1, 2022 to December 31, 2022.” And so, we wait.

Reflecting on this assertion, Torstone’s Pearson says the industry appears to be “stuck”.

He continues: “Equities and business departments say: ‘It’s great, we love the idea of ​​a CTP. Can you do fixed income first? And guess what, we’re talking about the fixed income side and they say, ‘we like the idea of ​​a CTP; let us know when you are done with the stock part”. No one is taking responsibility, and this without even talking about who will build and pay for the necessary infrastructure.

“Ten years ago, we were talking about a CTP under MiFID. Nothing happens, and it’s frustrating. If you are executing trades in a market, you want precision; you want the price formation to be as clear as possible, you want to know what trades are going on, so you can formulate the right type of investment, make the right buy-side investment decisions and trading decisions as as a broker.

As markets and market participants look to the EU for guidance, action, clarity and a rigid timetable, it is almost impossible to ignore the suggestion that everything depends on the will of the rotating presidency will never translate the necessary guidance.

The second ongoing debate identified by Torstone’s Pearson is the delayed reporting of fixed income transactions.

He comments, “If you’re doing business, you have to report, and that report is out there for the market to see. There was a deferral system in London over 40 years ago, but if you are making a very large or “jumbo” trade, you can defer the deferment to help unwind the position and reduce your risk.

“If I remember correctly, the London diet lasted five days,” adds Pearson. “In the US they are now proposing to make all trading reports on the whole the size of a minute. Virtually instantaneous, regardless of the size of the fixed income trade. This will of course have implications on the size of individual trades, which will decrease, because no one wants to take a jumbo position all at once.

In the EU, meanwhile, end-of-day, or end-of-week for jumbo transactions, reports remain permitted, and there was a suggestion made during a session at the October meeting of the Sibos in Amsterdam that there could be a postponement of up to two
month for jumbo transactions.

The future of MiFIR

The haggling, it seems, will continue for the foreseeable future. In the meantime, the reality of market life threatens to remain stubbornly out of step with the idyll sought by European regulators.

The central securities depository regulation (CSDR), notes David Pearson, was designed to tackle settlement failure rates that were deemed unacceptable. Under CSDR, failure rates have increased. Regulation may actually have made matters worse.

Against this backdrop, Torstone’s Pearson is committed to continuing its mission to help customers automate, “especially if T+1 makes the progress envisioned in the US,” he concludes.

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