On 25 November 2021 the European Commission adopted a package of measures to ensure better data access and revamped investment rules. The adopted package of measures also contains a proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 600/2014 (“MiFIR”) as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders (the “Proposal”).
The acronym MiFIR (Markets in Financial Instruments Regulation) is well-known these days and closely linked to MiFID, as amended (Markets in Financial Instruments Directive). In the field of the trading landscape MiFID/MiFIR together with the delegated acts are seen as the cornerstone of the EU financial regulatory framework and the framework foresees for a series of mandated review reports in order to analyse if the objectives of different provisions are met and how to review the framework. After several amendments to the framework in order to improve, harmonise and simplify it including most recently the MiFID quick-fix the Proposal for the amendment of MiFIR as part of a series of measures that implement the Capital Markets Union (“CMU”) was expected.
The Proposal contains three priority areas for the review identified by the Commission:
- improving transparency and availability of market data;
- improving the level-playing field between execution venues; and
- ensuring that EU market infrastructures can remain competitive at international level.
However, in this short analysis we will only focus on one of the key intention of the Proposal, which is to tackle liquidity and trade execution risk. The Proposal results from a lack of correct and timely information on prices and available trading volumes for traded securities, as well as the risk that insufficient transparency affects the share trading landscape and the competitiveness of the EU as a financial hub, i.e. an imperfect market transparency / imperfect view of the market data / no consolidated market data including pre-trade transparency.
In this regard, it is an issue that competing private actors are collecting and consolidating data (with sometimes questionable quality) from various execution venues. The Proposal amends the consolidated tape provisions in MiFIR in order to facilitate the emergence of one consolidated tape provider (“CTP”) for each asset class. MiFIR already contains the concept of a CTP but the Proposal contains a new article 27da which contains the selection process for the authorisation of a single CTP for each asset class.
Under this new article, ESMA shall be responsible for the organisation of “a separate selection for each of the following asset classes: shares, exchange traded funds, bonds and derivatives (or relevant subclasses of derivatives)”. It should be noted that a single CTP for relevant subclasses of derivatives is included. In the selection process ESMA shall assess the application on, inter alia, (i) the technical ability of the applicants to provide a resilient consolidated tape throughout the Union, (ii) the governance structure of the applicants, (iii) the speed at which the applicants can disseminate core market data, (iv) the capacity of the applicants to disseminate good quality data and (v) the level of the fees that the applicant intends to charge to the different types of users of the core market data before appointing such a single CTP for a five-year period.
As the CTPs need reliable date in real time the Proposal contains in its new article 22a an obligation for market data contributors to provide the CTPs with all the market data as set out in the new article 22b(2) of MiFIR. It is also proposed to set up an expert stakeholder group to, inter alia, “provide advice on the quality and the substance of market data” and trading venues and their members or participants, systematic internalisers, APAs and CTPs shall synchronise their business clocks to record the date and time of any reportable event. ESMA is also charged with the development of RTS to specify the level of accuracy to which clocks are to be synchronised (new article 22c MiFIR).
Naturally, other points are also dealt with in the 40 pages of the Proposal, but these are not dealt with here in order not to go beyond the scope of a short presentation of the CMU.