EC overrules ESMA on finalised MiFID II bond rules

The Commission’s finalised bond transparency rules means ESMA will carry out annual assessments on liquidity.

The European Commission’s finalised rules on fixed income transparency under MiFID II, have disregarded the European Securities and Market Authority’s (ESMA) call to ‘phase-in’ liquidity standards.

The Commission’s finalised fixed income rules will require ESMA to carry out annual assessments on the liquidity of fixed income and the operations of liquidity providers.

ESMA informed the Commission in May this year the rules should be “automatically phased-in”, but instead the Commission urged a more cautious approach.

Steven Maijoor, chair at ESMA, gave a speech to the European Parliament on ESMA’s remaining concerns with MiFID II rules.

He explained ESMA agrees the rules should be phased-in, but suggested all four stages of the phase-in should be included in the standard itself from the outset and the move to the next stage is already planned and included.

Maijoor added: “We believe our approach gives maximum clarity and legal certainty to all involved. It would also cater for the European Parliament’s scrutiny process.”

The final regulatory text - published this week - explained: “the Commission is of the view that an automatic phase-in is not warranted.”

“Before considering a transition to a subsequent threshold, ESMA carries out a comprehensive assessment analysing the evolution of [fixed income] trading,” the text added.

The liquidity thresholds – determining whether an instrument is subject to pre-trade transparency regulations – were also finalised by the Commission this week.

The Commission stated corporate bonds traded 15 times a day are to be deemed liquid, although the threshold will drop after the second year of MiFID II implementation.