The Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) are the principal legislation regulating investment services and activities on the EU trading venues. On Thursday, the Economic and Monetary Affairs Committee negotiators agreed on changes concerning among others data quality standards and investor protection, changes regarding market data consolidation and transparency as well as provisions on “payment for order flow”.
EU-wide consolidated tape
Accurate and comparable market data are crucial to an informed decision-making process. For this reason, negotiators agreed on an EU-wide consolidated tape (CT), an electronic system that will combine best bid and offer (EBBO) with corresponding sales volumes from different exchanges, without identification of trading venues, and will disseminate these in real-time, providing a single reference price for shares and exchange-traded funds across markets. The CT will continuously disseminate post-trade data with the identification of the trading venue of the transaction
By June 2026, ESMA shall assess whether the consolidated tape has delivered on its aim to decrease information asymmetries between market participants and to make the Union a more attractive location to invest. Based on that assessment, the Commission is empowered to present a legislative proposal for venue attribution of the EBBO volumes and for additional data to be added to the consolidated tape.
Regulated trading venues (except smaller markets and SME growth markets but with an opt-in) will have to provide pre-trade and post-trade information to a consolidated tape provider (CTP) as close to real-time as it is technically possible. CTPs should provide free access to this information to retail investors, academics, and civil society organisations using the data for research purposes as well as public authorities. Competent authorities should monitor the data quality provided to the CTP by market data contributors and take the necessary measures, including sanctions, where their quality is insufficient.
Ban on payments for order flows
To protect investors from sub-optimal trading decisions, negotiators agreed that the practice of receiving payments for forwarding client orders for execution (‘payment for order flows’) will be banned across Europe immediately, with the exception of certain countries where PFOF is more common. These countries will have to implement the ban before 30 June 2026.
Investor protection, commodities and orderly trading
In light of the impact of the energy crisis on financial instruments, MEPs pushed to further improve the regulatory framework for commodity derivatives and derivatives on emission allowances markets. Negotiators decided that the Commission’s review of position limits and position management controls would focus on facilitating energy transition, food security, markets’ resistance to external shocks and achieving competitive and liquid markets. The ancillary activity exemption would also be reviewed, as well as a goal to harmonise commodity and emission allowance derivatives transactions in terms of data collection, formats, and dissemination to the public.
The text also mandates member states to require regulated markets to be able to halt or constrain trading in emergencies or if there is a significant price movement in a financial instrument and, in exceptional cases, to be able to cancel, vary or correct any transaction.
Quote
Danuta HÜBNER (EPP, PL), the lead MEP said:
“Following today’s agreement, I can say that the implementation of MiFIR will be a major step towards a Capital Market Union. We gave Europe a chance to launch the first version of the Consolidated Tape, a tool that that can incentivise listing, let the capital market grow and bring badly needed investments. After today, the EU will finally have a Consolidated Tape with real-time pre-trade data, as well as a clear ban on the practice of Payment For Order Flow”.
Next steps
The provisional political agreement reached by the EP and the Council must be approved by COREPER II and the Economic and Monetary Affairs Committee, followed by a plenary and the Council vote.
Further information
EU Council on the agreement to strengthen market data transparency
The Council has reached a provisional agreement with the European Parliament on changes to the EU’s trading rules that will increase the global competitiveness of the EU’s capital markets and give investors access to the market data necessary to invest in financial instruments more easily.
The revision of the Markets in Financial Instruments Regulation (MiFIR) and the Second Markets in Financial Instruments Directive (MiFID II) aims to empower investors, in particular by making consolidated market data easily available at EU level.
I am glad we have found a political agreement on this review that will bring more transparency and make market data more available. A more transparent and accessible financial market will improve the level-playing field between investors and strengthen the EU’s competitiveness at international level, to the benefit of businesses and citizens.
Elisabeth Svantesson, Swedish Minister for Finance
Consolidated market data
Currently, trading data is scattered across multiple platforms, such as stock exchanges and investment banks, making it difficult for investors to access the accurate and up-to-date information they need to take decisions.
The revision agreed on today will establish EU-level ‘consolidated tapes’ or centralised data feeds for different kinds of assets, bringing together market data provided by platforms on which financial instruments are traded in the EU. This will make it easier for both professional and retail investors to access key information such as the price of instruments and the volume and time of transactions.
Market data from all trading platforms will be included in consolidated tapes, which will aim to publish the information as close as possible to real time. As a result, investors will have access to up-to-date transaction information for the whole of the EU.
Payment for order flow
The agreement reached today imposes a general ban on ‘payment for order flow’ (PFOF), a practice through which brokers receive payments for forwarding client orders to certain trading platforms. Today’s compromise introduces also a possibility to member states where the practice of PFOF already existed to allow investment firms under its jurisdiction to be exempt from the ban provided that PFOF is only provided to clients in that member state. However, this practice must be phased out by 30 June 2026.
Commodity derivatives
The co-legislators also reached an agreement on amendments proposed by the European Parliament on commodity derivatives.
Next steps
Once the text of the provisional political agreement has been consolidated, it will need to be formally adopted by both the Council and the Parliament, before it can be published in the EU’s Official Journal and enter into force.
Background
On 25 November 2021 the Commission presented a package of measures aimed at boosting Europe’s capital markets by improving the ability of companies in the EU to raise capital. A key element of the package was a review of the Markets in Financial Instruments Regulation (MiFIR) and the Second Markets in Financial Instruments Directive (MiFID II), which together regulate investment services and financial markets activities in the EU. The aim of the review was to increase transparency on capital markets, improve competitiveness and ensure a level playing field.
The Council agreed on its general approach on 20 December 2022.