27 June 2013

ESMA/Maijoor: Keynote speech at FESE Convention 2013 - Making markets safe

The further development and deepening of the single market for financial instruments is the means to promote an efficient market that will help in financing the real economy and European growth. However, it is necessary to ensure the proper development of the market. In this regard, three new and important pieces of regulation come together to form a new regulatory environment that keeps all of us very busy:

1. New MiFID/MiFIR on the trading side;
2. EMIR and the CSDR on the post-trading side; and
3. The Short-selling Regulation and new MAD/MAR on market integrity.

Transparency

The envisaged transparency regime requires ESMA to determine liquidity estimates and thresholds, in order to define the actual scope of the regime in terms of instruments and the key parameters of the transparency provided to the market. The impact of the measure and the need to adequately calibrate the system should not be underestimated, as it is necessary to set meaningful thresholds around a vast array of financial products, with trading patterns very different to equities, and we need to do that without damaging liquidity. We could say that in the area of markets this is possibly the most substantial and demanding single task left for the Level 3 of the whole MIFID/MIFIR framework. Producing a robust regime will require sufficient time and ESMA will need to engage with market participants for information and views.

Surveillance

An effective surveillance system needs to be based on four pillars: 1) information for regulators; 2) resources dedicated by trading venues; 3) investment firms that detect misconduct and cooperate with regulators; and 4) a fully-fledged enforcement system. Significant progress has been made, and is being proposed, in all four areas: from the expansion of transaction reporting to cover OTC derivatives and include client ID, to the possibility for regulators to access order book data, to reinforcement of the Market Abuse Directive to include manipulation of benchmarks and related instruments and attempts at manipulation.

We believe that, with robust consolidated post trade information, almost all misconduct can be detected either at firm, venue or market level. A true minority, like cross-market layering, will still be hard, but not impossible to detect. Overall, I think that the EU does not need an overhaul of the system, but the continuation of the efforts by all the gatekeepers to act together, including firms, venues and supervisors…

Regulators’ tool box

The EU has taken a big leap towards a single market by enshrining the bulk of the new rules in European regulations, directly applicable and identical in all Member States. The Commission and the co-legislators have to be credited for that. However, in a project of the combined dimension and depth of EMIR and MIFIR, many matters will need adjustment, fine-tuning, the adaption of rules to market circumstances and, even temporarily, suspending their effect when exceptional circumstances arise. This is what regulators do all the time at national level or in third countries, however we do not have those supervisory instruments at EU level.

Certain matters can be adjusted at national level, some others can be harmonised through guidelines, but others, being set in Regulations, cannot be tackled via supervisory measures. The main instrument to modify the application of the Regulations, the technical standards, remains a rulemaking process, subject to full legislative oversight and requiring several months to come into force.

MiFIR, EMIR and the Short Selling Regulation, will certainly test the effectiveness of the new rulemaking process, the one based on technical standards…

Investor protection and securities markets funding

While a lot has been achieved with the regulatory reform, it is fair to say that there has been a strong focus on stability-prudential concerns. Completed pieces of legislation like CRA, CRD IV, EMIR, and AIFMD illustrate this point. Of course, investors indirectly benefit from stable financial markets, but more is needed to convince them to accept risk when investing in securities. Pieces of legislation that will directly improve the protection of investors are still in the pipeline: MiFID/MiFIR, MAR, and PRIPs. I sincerely hope that these will be completed as soon as possible, and with the strongest possible investor protection measures. Now is the time to restore the balance between stability-prudential concerns and investor protection concerns at EU level. This is needed for successfully growing securities markets and a better funding balance of the real economy.

Full speech

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