ESMA is reviewing MiFIR rules for non-equity trade transparency

Rick Steves

ESMA is reviewing pre- and post-trade transparency requirements for non-equity instruments (bonds, structured finance products and emissions and allowances), aimed at ensuring trade information is available to stakeholders by improving, simplifying, and harmonizing transparency requirements, and combining the right balance between real-time transparency and the ability to defer publication.

The European Securities and Markets Authority (ESMA) has launched a public consultation on non-equity trade transparency, reasonable commercial basis (RCB), and reference data under the Markets in Financial Instruments Regulation (MiFIR) review.

The EU’s financial markets regulator and supervisor wants to enhance the information available to stakeholders by improving, simplifying, and further harmonizing transparency in capital markets.

Bonds, structured finance products, and emissions and allowances

ESMA is seeking input on three topics:

  • Pre- and post-trade transparency requirements for non-equity instruments (bonds, structured finance products and emissions and allowances), which aims at ensuring trade information is available to stakeholders by improving, simplifying, and harmonizing transparency requirements, and combining the right balance between real-time transparency and the ability to defer publication.
  • Obligation to make pre-and post-trade data available on an RCB intended to guarantee that market data is available to data users in an accessible, fair, and non-discriminatory manner. Furthermore, the consultation elaborates on the cost-based nature of fees and the applicable reasonable margin; and
  • Obligation to provide instrument reference data that is fit for both transaction reporting and transparency purposes. It also proposes amendments to align this data with other relevant reporting frameworks and international standards.

The European regulator will consider all comments received by 28 August. After reviewing the feedback, ESMA will publish a final report and submit the draft technical standards to the European Commission by the end of Q4 2024.

MiFID II/MiFIR reviews include RTS 27 and RTS 28

The MiFID II/MiFIR review already led to the elimination of the requirement under Article 27(6) of MiFID II for firms to disclose the top five execution venues used for client orders and the quality of execution achieved.

Additionally, ESMA is deprioritizing supervisory actions on the publication of RTS 28 reports to enhance market data transparency and efficiency. ESMA’s review concluded that the RTS 28 reports have been largely ineffective in providing investors with meaningful information for making informed comparisons, as evidenced by stakeholder feedback.

Despite the removal of the reporting obligation, there is a transitional period until Member States incorporate the directive’s amendments into national law, expected to take 18 months from the directive’s enactment. During this time, ESMA anticipates that National Competent Authorities (NCAs) will not prioritize supervisory actions related to the publication of RTS 28 reports. However, ESMA underscores the continuing significance of adherence to best execution standards, emphasizing that investment firms must still comply with these requirements under both the current and revised MiFID II frameworks. Furthermore, the MiFID II review includes a mandate for ESMA to develop new regulatory technical standards concerning investment firms’ order execution policies, highlighting the ongoing commitment to ensuring best execution for investors.

TRAction’s Quinn Perrot on reviews of RTS 27 and RTS 28

FinanceFeeds spoke with Quinn Perrott, co-CEO of regulatory reporting solutions provider TRAction, to learn what impact the changes to RTS 27 and RTS 28 reporting obligations could have on the trading industry and how firms might adapt to the evolving regulatory landscape.

“The move by ESMA to end the requirement for firms to complete the RTS 27 and 28 reports is a positive development for the industry.  This now aligns ESMA’s position with that of the UK’s FCA.  We don’t anticipate seeing this kind of data or reporting requirement resumed in the foreseeable future.  Discontinuing these reports means investment firms can now reallocate the resources and costs expended on the production of the reports to current regulatory focus areas such as EMIR Refit,” said Perrott.

“It’s important to note that ESMA has included a reminder about the best execution requirement in their latest release, namely that this is still in force and they expect it to be complied with.  Accordingly, TRAction expects that this will see more engagement from the NCAs over the next few years to ensure firms have processes and procedures in place to demonstrate they are meeting this requirement.  Since the requirement is less output focused, i.e. there isn’t a tangible output required to be compliant such as a daily or quarterly report submitted, TRAction finds best execution is often overlooked or sidelined by firms’ compliance departments.  However it is important that a system and monitoring is in place.”

Quinn Perrott continued, “Back to RTS 27 and 28 reports, after a review ESMA and the FCA acknowledged that there was a distinct lack of utility in the reports for investors, most likely driven by there being little, if any, meaningful comparisons or conclusions that could be drawn from the reports.  This aligned with TRAction’s experience from its work collating and preparing these reports for some of our clients.

“Preparing RTS 27 and RTS 28 reports was particularly difficult for CFD firms.  ESMA had previously released guidance on RTS 27 which likened CFD providers’ platforms and services to that of Trading Venues. As a result, CFD providers were expected to collect, collate and report on information which they didn’t have access to and from a perspective which they didn’t operate in.

“The absence of clarity and subsequent incongruity in the formatting and structure of RTS 27 and RTS 28 reports also didn’t help. For example, the regulations specified that the reports are to be submitted in a ‘machine readable’ format. As computers can read various file formats such as CSV, .xls or PDF, firms were reporting in a variety formats. This makes it problematic for investors to interpret and develop reliable comparisons on many components of the reports.”

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