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11 March 2015

ESMA published responses received to consultation on MiFID II/MiFIR

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Responses from ISLA, AFG, SIFMA, EBF, EACT, EVCA and FESE.

The International Securities Lending Association

ISLA members agree that securities finance transactions and other transactions subject to conditions other than the current market valuation should be exempt from the reporting requirements under MiFIR Article 21. There are a number of factors which are considered when calculating an appropriate fee for a securities lending transaction. However, the security price is not a consideration other than in the calculation of the fee which is applied to the value of the lent securities. Including securities lending transaction in the reporting requirements of MiFIR Article 21 could therefore be misleading. The securities that are delivered as collateral for securities lending transactions are defined prior to the loan agreement and factors that are considered include the quality and liquidity of the asset. The security price is not a consideration for collateral transactions other than in calculating the required value of collateral.

The Regulation on Reporting and Transparency of Securities Financing Transactions (SFTR) will require the reporting of securities lending transactions and we welcome the recognition that inclusion of these transactions in the reporting requirements of MIFIR Article 21 will lead to duplication and potential additional costs. Whilst ISLA notes that the exclusion is not dependant on the SFTR implementation, they would welcome confirmation that this exclusion applies even if the reporting regulation referenced is implemented after MiFIR/MIFID II.

Full ISLA response



Regarding ETFs, AFG members estimate that it is very complex to define the most relevant market in terms of liquidity as ETFs are mostly dealt OTC, with negotiated price based on RM bid-offer prices. Nonetheless, in the aim of setting a reference, AFG members may see no objection to set the most liquid market as the one showing the biggest turnover. This usually would also be the trading venues with the tightest spreads and deepest order book. AFG sees no objection for an annual review. Our members question the fact that ESMA proposal would exclude under waiver trades in a specific instrument. AFG thinks it would make more sense to also take into account deferred trades which were dealt under waivers as they are representing the biggest part of the volume.

AFG members express against considering any independent RFQ systems as candidates for “most relevant markets in terms of liquidity”. Indeed, these systems do not offer full time quotation and are dependent on the kind and number of members. They are not accessible by all the market participants.

Full AFG response


SIFMA - Asset Management Group

SIFMA questions whether commodity index swaps should be considered “commodity derivatives” subject to the proposed position limits regime. SIFMA sees prospective overlap between MiFID 2 Annex I Section C4 and C10 and considers that derivative contracts that relate to a financial index should be excluded from the position limits regime. SIFMA considers position limits for financial instruments falling outside the MiFIR definition to be unnecessary. These financial instruments do not have a deliverable underlying commodity and therefore position limits on these financial instruments are unnecessary for the purposes of Article 57(1)(b) MiFID 2.

SIFMA fears that in any event position limits for some financial instruments that may relate generally to commodities would be unworkable. Such financial instruments may have no deliverable supply on which to set position limits per the proposed methodology in draft RTS 29. Specific position limits for financial instruments relating to an index relating to multiple commodities would also need to account for deliverable supply, market volatility, number and size of market participants and characteristics of the underlying commodity market in every commodity of that index. SIFMA does not believe a national competent authority could reasonably set position limits for these instruments, or otherwise subject these financial instruments to position limits for the purposes of a single shared position limit.

Full SIFMA - Asset Management Group response


European Banking Federation

The EBF is very concerned with article 27, 1, 3 section in MIFID which is further specified in ESMAs Technical Advice since the wording indicates that investments firms’ costs - when routing orders to different venues - should be included in the cost element in the best execution requirement. If so, as EBF does agree to transparency on various cost, they do believe that including venue cost when determining best execution could imply an element of conflict of interest, since the investment firm will have an incentive to route to venues with the lowest costs and these are not necessarily the venues where clients get the best execution in respect of i.e. price, time and market impact. The investment firm should always focus on the best interest of clients. EBF therefore request ESMA to elaborate on this requirement with respect of the considerations listed above.

Full European Banking Federation response


European Association of Corporate Treasurers

The European Association of Corporate Treasurers made the following remarks:

Trading obligation: Although the trading obligation only applies to NFC+s and is therefore not relevant to all our members, EACT would suggest ESMA to confirm our understanding that the effective start date of the trading obligation will not be prior to the start of the central clearing obligation for NFC+s under EMIR. EACT would also favour an approach whereby no backloading requirements apply to the trading obligations as in the case of EMIR reporting, backloading has been very burdensome and of questionable informational value to the supervisors. EACT of course welcomes the EMIR exemption from frontloading requirements for clearing of transactions involving NFCs.

Direct electronic access to trading platforms: EACT regrets ESMA’s position according to which it is not mandated to clarify the definition of “direct electronic access”. They maintain their position that the definition should be clarified with regard to non-financial companies’ use of and access to trading venues. Non-financial companies regularly use the services (with direct or indirect access) of various platforms, such as FXall or 360T, that could be qualified as Organised Trading Venue Facilities (OTFs) and Multilateral Trading Facilities (MTFs). This brings clear benefits, such as increased efficiency and liquidity. Non-financial companies transact on these platforms when hedging their commercial and financial exposures. European authorities have recognised the economic importance of non-financial companies’ use of derivatives for hedging and therefore these transactions have been subject to important exemptions in the new legislative framework for OTC derivatives.

Full European Association of Corporate Treasurers response


EVCA - European Private Equity and Venture Capital Association

In EVCA’s view, the confirmation by the home regulatory authority should not be required where it is clear from a public register that the relevant firm has the required authorisation. In that case it should be sufficient if the public register excerpt is provided. Whether the regulation to which the third country firm is subject is “efficient” is a subjective question and hence may raise issues in practice as some regulators may be reluctant to issue such a confirmation. The regulatory authority (or a law firm) could always confirm what requirements the third country firm is subject to and describe the enforcement mechanism in place.

Full EVCA response



FESE agrees with the proposal to add a definition of RFQ only for equity-like products such as ETFs. ESMA must restrict the RFQ to equity-like instruments as FESE is concerned that for equity instruments, these systems could create a loophole in terms of pre-trade transparency and ‘multilateral nature’ of exchanges. In particular, this could be done by enabling semi-lit private pools of liquidity, where only certain participants could interact against one another, to be formally recognised as lit and multilateral venues.

FESE is concerned about the approach pursued by ESMA for ETDs. While in OTC derivatives every step towards transparency is welcomed, FESE views the attempts in specifying liquidity and resulting thresholds for ETDs more critically. ETDs already are characterized by high pre-and post-trade transparency, by providing price, size and depth towards the market.

FESE would recommend either: (i) aligning the requirements for pre-trade transparent order driven markets with the requirements for other types of market models or, (ii) aligning the requirements for other types of market models with the requirements of pre-trade transparent order driven markets.

Full FESE response

Consultation page


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