The European Parliament has today voted to adopt the revised Markets in Financial Instruments Regulation (Mifir) and the Second Markets in Financial Instruments Directive (Mifid II) after five years in practice.
Following last year’s trialogues, amendments were drafted in October and final compromise texts on the revision of Mifid II sent to the chair of the European Parliament Committee on economic and monetary affairs. With today’s approval, it is now time for the European Securities and Markets Authority (ESMA) to define the technical standards.
Amendments to Mifir were adopted with 518 votes to 46 and 34 abstentions, while Mifid amendments were adopted with 521 votes to 19 and 57 abstentions.
The preparation of technical standards and procedures are now expected to follow throughout the year.
One of the key proposals adopted in today’s plenary session was the establishment of the EU-wide consolidated tapes (CT) – starting with bonds, as well as a general ban on payment for order flow (PFOF).
For a member state where PFOF is currently allowed, they will continue to be able to offer this until 30 June 2026, after which it will be phased out. The complete ban mirrors that of the UK wherein a PFOF ban has been long standing.
Currently, Mifir foresees three consolidated tapes for Europe, a bond CT – set to be operational by mid-2025, an equities tape set to be operational in early 2026, and a derivatives CT planned for later the same year.
In addition, ESMA is set to assess the effectiveness of a CT for shares by 30 June 2026, which includes consideration of the potential to add additional features to the equity pre-trade tape.
Read more: Long overdue consolidated tape is a ‘big missing piece’ in European market infrastructure
Speaking to The TRADE last month, Natan Tiefenbrun, president, North American and European equities, Cboe Global Markets, discussed what 2024 held in store for CT plans in the EU, declaring that 2024 would be the year that the rubber hit the road for the EU’s Mifir review, as the political framework agreed in 2023 is transformed into implementable rules by ESMA.
“While the EU has agreed to a real-time pre- and post-trade consolidated tape (CT) for equities – the devil will be in the detail. ESMA has important decisions to make including what constitutes ‘real-time’, the workings of the selection and authorisation process (which will determine the governance and pricing to consumers), and the revenue sharing model for data contributors.”
ESMA has confirmed that it plans to award to a single entity the right to operate as a CTP for five years, with one authorised for each asset class.
The selection procedure will call for tenders on a public platform and each selection process will be finalised six months after launch, confirmed ESMA, with explanations regarding the decision making process communicated publicly.
Speaking to this most recent development, Eglantine Desautel, chief executive of EuroCTP – one such bidder – asserted: “This marks a great start of the year. At EuroCTP, we stand by the shared principle of increasing market data transparency and accessibility. We are ready to do our part to foster the Capital Markets Union by providing an Equities and ETFs consolidated tape in the EU, for the benefit of all investors.”
Read more: The TRADE predictions series 2024: Mifid/Mifir
Despite today’s vote, some in the market, such as the Association for Financial Markets in Europe (AFME), believe that more action is needed from regulators, with equities and fixed income CTs a priority.
Adam Farkas, chief executive of AFME made clear that today’s vote by the European Parliament, though welcome, lacks ambition, asserting: “As the 2019-2024 EU legislative cycle concludes, new and pressing challenges have emerged including strained public finances, demographic shifts and an estimated annual transition investment of EUR 700 billion. This context underscores the importance of developing open, deep, and integrated capital markets to support EU corporates and citizens.
“[…] Looking ahead, EU institutions and Member States must come up with transformative actions to attract more investors, increase liquidity, improve the functioning of secondary markets, ensuring the seamless and integrated functioning of a single European capital market. Dynamic, deep and liquid, capital markets are instrumental in achieving Europe’s ambitions in delivering green and digital transitions.”
The European Fund and Asset Management Association (EFAMA) echoed this view, agreeing that while new rules around establishing an EU consolidated tape would serve to boost capital markets, it could still go further. EFAMA particularly highlighted the importance of the pricing of the tape as a key determinant of its success.
Tanguy van de Werve, director general at EFAMA, explained: “With the legislative review now behind us, we look forward to a healthy contest to choose the best providers for the bond and equities tapes. Consolidated European data in the two asset classes has long been lacking and will fill a major need for both domestic and foreign investors.”
Read more: If you build it, will they come?
AFME also further added that enhancing the equity tape with additional levels of order book depth was paramount in making EU markets more attractive to investors, facilitating EU cross-border investments and contributing to the creation of a truly integrated pan-European market.
“We specifically recommend that at an appropriate time the equity pre-trade tape is expanded to include five levels of depth of the order book. This is technically possible and would be the most valuable option for the future subscribers to the tape, providing them with a wide range of non-latency sensitive use cases. Importantly, this would also ensure the commercial viability of the consolidated tape provider,” said the association.