The Federation of European Stock Exchanges (FESE) has called on the European Commission to ensure organised and multilateral trading facilities (OTFs and MTFs) are subject to the same surveillance requirements as regulated markets.
FESE’s submission comes as the European Commission reviews the Market Abuse Directive (MAD). In its official response to the MAD review, FESE cautioned against any provision for MTFs or OTFs to have ‘proportionate’ structural provisions for market surveillance, on the grounds that the size of the venue does not limit or impact the potential for market abuse to occur.
“We need to ensue that MTFs and OTFs do not become subject to less stringent obligations for surveillance, therefore there should be no ambiguity left to Level 2 or 3,” said the FESE submission. Securities are classified within the directive into Levels 1, 2 and 3 based on their value and level of liquidity, with Level 1 assets considered the most liquid and Level 3 the least liquid. “We need to ensure that multilateral trading happening on an [exchange], MTF or OTF is subject to the same provisions to avoid any unlevel playing field and ensure a robust environment.”
The Market Abuse Directive was introduced in 2003 to increase investor confidence and market integrity by prohibiting individuals who possess inside information from trading on it. It was also intended to deter participants from spreading false information and deliberately entering trades to produce abnormal prices.
Revealed last October as part of the proposed MiFID II proposals, the OTF is a new category of trading facility envisaged by the Commission as a way of capturing venues that are currently not subject to MiFID requirements on pre- and post-trade transparency.
FESE expressed broad support for the rest of the EC’s MAD proposals, including the extension of the scope of the directive to any instrument traded on an MTF or OTF, the extension of the definition of market manipulation to include attempted manipulation, and provisions on regulating algorithmic and high-frequency trading to prevent abuse.
However, it also warned that the provisions of MAD should be aligned with other legislation with which it might overlap, including the European Market Infrastructure Regulation and MiFID II. The MAD proposal is currently being considered by the European Parliament and Council. Once adopted, market participants will have 24 months to prepare before it is enforced.