The European Securities and Markets Authority (Esma) has published its final technical advice (TA) and launched a consultation on its draft regulatory technical and implementing standards (RTS/ITS) to kickstart the implementation of the Markets in Financial Instruments Directive (Mifid II) and Regulation (Mifir).

Both Esma’s TA and draft RTS translate the Mifid II/Mifir requirements into rules for market participants and national supervisors. The new framework is aimed at ensuring that secondary markets are fair, transparent and safe and that investors’ interests are safeguarded when they are being sold investment products, said Esma.

The final technical advice will be passed to the European Commission, which will prepare legislation, while technical standards are open for a second round of consultation, said Steven Maijoor, Esma's chair.

Mifid II/Mifir will bring changes to the functioning of secondary markets, including transparency requirements for a broad range of asset classes; the obligation to trade derivatives on trading venues; requirements for algorithmic and high-frequency-trading; and new supervisory tools for commodity derivatives.

The key proposals stemming from Esma’s TA/draft RTS include a major alteration to the framework for trading financial products, a trading obligation for shares and a double volume cap mechanism for shares and equity-like instruments; as well as an obligation to trade derivatives on Mifid venues (regulated markets, multilateral (MTFs) or organised trading facilities (OTFs)) only, in line with G20 requirements to provide increased trade transparency, for non-equity instruments, in particular bonds, derivatives, structured finance products and emission allowances.

In addition, the provisions in Mifid II will introduce position limits and reporting requirements for commodity derivatives; new rules governing high frequency trading, which impose organisational requirements on investment companies and trading venues; new provisions regulating access to central counterparties (CCPs), trading venues and benchmarks, designed to increase competition in the Union; and requirements for a consolidated tape of trading data, including rules for tape providers, reporting, publication and sales of data.

Investor protection
The main proposals relating to the improved protection of investors, especially retail, include clarifications about the circumstances in which portfolio managers can receive research from third parties, and clarifications around which inducements meet the quality enhancement requirement for the provision of advice.

The provisions around investor protection also include new requirements for investment companies manufacturing and/or distributing financial instruments and structured deposits to have product governance arrangements to assess the robustness of their manufacture and/or distribution; as well as requirements for firms to provide clients with details of all costs and charges related to their investment, including cost aggregations, the timing of disclosure (ex-ante and ex-post); information to non-retail clients; and the scope of firms subject to this obligation.

Under the new rules, product manufacturers will be required to provide information on the cumulative effect of costs on returns, while firms providing investments advice on an independent basis will have to meet new organisational requirements.

The Mifid rules also specify the new powers for Esma and national regulators with regards to prohibiting or restricting the marketing and distribution of financial instruments.

The TA will be sent to the European Commission (EC) with the draft RTS/ITS remaining open for public comment until March 2 next year. Esma also said that an open hearing on its draft RTS/ITS will be held in Paris on February 19.

The European securities regulator will use the input from the consultations to fine tune its draft RTS which will be sent for endorsement to the EC by mid-2015, its draft ITS by January 2016.

Mifid II/Mifir and its implementing measures will be applicable from January 3, 2017.

Click in the link to read the 2014/1569 Technical Advice and the 2014/1570 Consultation Paper.

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