ABBL

On 21 November 2011, the ABBL held a special information session on the review of the Markets in Financial Instruments Directive (MiFID), following the recent adoption by the European Commission of two proposals: a Directive (MiFID II) and a Regulation (MiFIR).

The original MiFID came into effect on 1 November 2007. Introduced in exceptionally difficult times, the directive never really got the chance to prove its worth before the Commission already decided to launch a public consultation to review the directive in 2010. In reference to the unfortunate timing of the introduction of MiFID I, Serge de Cillia, Member of the Management Board of the ABBL, said that it turned out to be a Halloween event.

In his introduction to the ABBL information session, Serge de Cillia also pointed out that the MiFID/MiFIR duo represents an inflation of articles and recitals that will likely require even more work to implement the legislation than MiFID I did.

Robert Goebbels, Member of the European Parliament, then provided a comprehensive overview of all the changes that will be introduced by MiFID II and MiFIR. Since a lot of trading is currently still outside the scope of MiFID, a major change will be the creation of a new category of platform to level the playing field: the organised trading facility (OTF). As Mr Goebbels pointed out, the idea is to ensure that all organised trading is conducted on regulated venues. Amongst numerous other aspects, Robert Goebbels also highlighted the creation of a specialised market regime for small and medium sized companies (SMEs), which will make it easier for SMEs to access capital. SMEs play an important role in creating economic growth and jobs in Europe.

Enrique Velazquez of the European Banking Federation (EBF) outlined the views on MiFID of the European banking sector. Mr Velazquez reminded the audience that MiFID 1 is not a finished project for the banking sector and that even the supervisory community still had a lot to learn of how MiFID was implemented. Moreover, MiFID should not be viewed in isolation, but in a broader regulatory context that also includes the European Market Infrastructure Regulation (EMIR) and the Short selling directive, amongst others. Amongst the key concerns highlighted by Mr Velazquez is the concept of independent advice. Pointing out that independent advice and high quality advice are not necessarily correlated concepts, Enrique Velazquez insisted that the issue of labelling is key in this context.

Like Mr Velazquez, John Serocold of the International Capital Markets Association (ICMA) stressed that MiFID is only one component in a broader regulatory intervention. MiFID can broadly be divided into a market facing part, a customer facing part and an internal Compliance part. According to Mr Serocold, it is still too early to think about market structures. The available material is simply not yet detailed enough for businesses to prepare implementation. Financial companies therefore need to concentrate on customer relations instead. One thing is for certain, however: there will be a lot more “retail” customers with MiFID 2, since many of today’s intermediate customers will be reclassified. As to MiFIR, Mr Serocold welcomes the requirements to clear through a Central counterparty. The competition between these infrastructures has brought down costs over the years in the same way that Ryan Air and EasyJet have brought a certain degree of price levelling to the airline industry.

In his presentation, Simon Gallagher of NYSE Euronext focused on the fragmentation between lit and dark markets in the context of MiFID. Mr Gallagher currently sees an unbalanced relationship between lit and dark markets. According to Gallagher, one problem with MiFID is that there is no clear definition of “over-the-counter” (OTC). Rather than enlarging the scope of platforms (as is the case with the proposed OTF under MiFID 2), he believes that it would be easier to define OTC. If this is not the case, new innovations will simply end up as OTCs. Finally, Mr Gallagher pleaded that the requirements between the new organised trading facility (OTF) should be the same as for the existing regulated markets (RM) and multilateral trading facilities (MTF).

In concluding the information session, Benoît Sauvage, ABBL Adviser in financial market regulation, provided an overview of the priorities for the association. One such priority is the definition of the scope of execution only services. That UCITS may be classified as complex is a worrying development for Luxembourg. Moreover, the fact that systematic internationalisation (SI) will cover virtually all products at all levels means that one cannot avoid being an SI, which will considerably increase costs.

In order to deal with these and other priorities, the ABBL has established a clear work plan. The ABBL information session on MiFID thus also marked the kick-off for a new ABBL Working Group on MiFID. As Benoît Sauvage pointed out this MiFID event marked the start of a long journey towards full MiFID implementation.

The presentations held at the ABBL information session may be downloaded below.

Related files: 

ABBL meets members on MiFID review - Presentations

Speech by Robert Goebbels