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20 January 2015

IFLR:MiFID II(第二次金融商品市場指令)の下部規定案、広範な市場参加者が影響を受ける単一ルール・ブックに


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The Draft Level 2 Provisions could be said to represent the first draft of a single rulebook. Their implementation will be a significant step towards the full harmonisation of member states' divergent regulatory regimes.


MiFID II will affect firms differently depending on the business model and client base. But it is unlikely that any investment firm active in the EU markets will fail to register the paradigmatic shift to a more actively interventionist and scrutinised regulatory environment. Indeed, investment firms are likely to feel the increased regulatory burden in several ways.

First, under MiFID II, shares that are admitted to trading on a regulated market (RM) – or traded on a multilateral trading facility (MTF), systematic internaliser (SI) or a non-EU trading venue assessed as equivalent to the same – must be traded on an RM, MTF, SI or equivalent non-EU trading venue. This requirement ensures shares are traded on venues that are subject to the MiFID II transparency requirements. However it will effectively preclude over-the-counter trades in listed shares, unless the relevant transaction is:

  • 'Non-systematic, ad hoc, irregular and infrequent'
  • Between eligible and/or professional counterparties and does not 'contribute to the price discovery process'

ESMA is not mandated to define 'non-systematic, ad hoc, irregular and infrequent', and consequently, the interpretations of this is likely to differ across the EU. However the Draft Level 2 Provisions provide an exhaustive list of the types of transactions that do not 'contribute to the price formation process'.

Second, the scope of the prevailing transaction reporting obligations are to be extended, which will increase the burden on the compliance function, and its associated costs. Under the Draft Level 2 Provisions, firms subject to the prevailing transaction reporting obligations applicable to financial instruments admitted to trading on a regulated trading venue (and derivatives or indices thereof) will be required to report on additional items. For example, the exercise of options, decrease or increase of the notional amount, transfers between funds and intra-group transactions would all be reportable transactions. Additionally, the proposed new reporting information fields cover short selling and commodity derivatives transactions.

Third, the Draft Level 2 Provisions extend the scope of the data required to be recorded in respect of client orders and dealing decisions. This includes the identification of the trader responsible for an investment decision (or, where relevant, the algorithm) and a short selling flag. The extended record-keeping requirements under the Draft Level 2 Provisions also require recorded telephone calls and electronic communications to be kept for at least five years (instead of the six months required today), and the recording of face-to-face conversations if they encompass the receipt of client orders. In addition, firms are required to periodically monitor such records for compliance with regulatory requirements. Together these requirements amount to a significantly more onerous record-keeping standard, and may give rise to greater risk of regulatory liability for historical breaches.

Investor protection and non-EU firms

MiFID II intensifies the existing focus on investor protection and imposes a high-level obligation on investment firms to identify, prevent or manage conflicts of interest. For example, firms that provide independent investment advice or portfolio management services must not accept any fees or monetary or non-monetary benefits from third parties, save minor non-monetary benefits disclosed to clients. The Draft Level 2 Provisions provide an exhaustive list of acceptable minor non-monetary benefits, removing the possibility that either national regulators or firms may interpret the principle established by Mifid II in different ways.

MiFID II evidences the shift of regulatory authority to ESMA from the national regulators. In some ways this shift is welcome as it simplifies the interactions of firms seeking to operate in multiple EU jurisdictions. However in some instances it also precludes the exercise of discretion by national regulators which might otherwise facilitate business. For example, non-EU investment firms from jurisdictions that ESMA has deemed to have an equivalent regulatory oversight structure seeking to provide investment services to EU professional clients will be able to do so on a cross-border basis, without having to establish a branch. A welcome development is that non-EU firms wishing to provide such investment services will benefit from a so-called passport following registration with ESMA. This permits them to provide investment services freely to professional clients in the EU.

MiFID II shows the growing reach of regulators, extending the areas and types of firms subject to regulatory oversight. This is clear to firms employing algorithmic trading methods, and to those trading in commodity derivatives. MiFID II requires any firm that engages in algorithmic trading to have in place effective systems and risk controls suitable to the business it operates. The goal is to ensure that trading systems are resilient, have sufficient capacity, are subject to appropriate trading thresholds and limits, and prevent the sending of erroneous orders or the systems otherwise functioning in a way that may create or contribute to a disorderly market, including effective business continuity arrangements.

The Draft Level 2 Provisions further develop the MiFID II requirements. In particular, ESMA proposes assigning to the firm's compliance officer responsibility for compliance with regulatory obligations attaching to the use of trading systems and algorithms. This will require the compliance function to have a general understanding of the operation of the trading systems and algorithms, and direct contact with the persons responsible for and with access to the system or algorithm's kill switch. (It is not clear whether this means the compliance officer must have the authority to shut the trading system down.)

Both the trader in charge of the algorithm and control function must monitor in real time all trading activity that takes place through the firm's systems for signs of disorderly trading including, where relevant, from a cross-market, cross-asset class, or cross-product perspective. The monitoring systems must have real-time alerts that assist staff in identifying which algorithm is not behaving as expected, and firms will be required to develop prompt remedial processes where such alerts are triggered (such as initiating circuit breakers).

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