Mon. Jul 22nd, 2024
Brussels, 29 June 2023

Parliament negotiators struck a provisional deal on rules to enhance market data transparency, optimise orderly trading and prohibit receiving payments for forwarding client orders.

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.

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