ICMA Responds To MiFID Consultation
Friday, February 04, 2011

The International Capital Market Association (ICMA), the leading trade association for international fixed income markets, has responded to the European Commission’s consultation on the Markets in Financial Instruments (MiFID) Review.

In its submission ICMA:

• Encourages the Commission to consider the full implications of its proposals;
• Proposes to expand the definition of ‘admission to trading’
• Recommends that the Commission excludes money market instruments from MiFID;
• Asks the Commission to accommodate bilateral trading and hybrid systems within the ‘organised trading facility’ category;
• Calls for the scope of the non-equity pre-trade transparency framework to be limited to large investment grade bond issues;
• Supports CESR’s recommendation not to introduce mandatory pre trade transparency outside the equity market;
• Advocates that the post trade transparency framework be based on high/low/median prices published at the end of day, with appropriate delays to accommodate the unique nature of the bond market and phased implementation of the new requirements;
• Agrees that title transfer collateral for retail clients should be properly managed, but not prohibited;
• Offers to assist in the development of any further proposals in respect of the underwriting and placing process in the primary market.

In force since November 2007, the MiFID provides a framework for investment firms offering services in relation to financial instruments, as well as rules to protect investors. It allows trading venues and investment firms to operate freely across the EU, and is said to have increased competition and integration in EU financial markets, and led to significant improvements in investor protection.

As part of its work in creating a more transparent and stable financial system in the European Union (EU), the European Commission launched a consultation on a review of the Markets in Financial Instruments Directive (MiFID) last December.

Key elements of the consultation, which closed on February 2, include developments in market structures and practices. As there are now many more trading venues, participants and products, such as high frequency trading, the European framework is said to need to keep pace with changes to methods of trading and technological developments. The consultation asks how MiFID should be updated to provide a robust regulatory framework covering all investment services and activities in an appropriate manner to avoid risks linked to activities not covered.

The transparency of market data (including pre- and post-trade data) is also considered to be crucial so that all market participants have equal access to information on trading opportunities. This would also facilitate price formation and promote liquidity. Currently, as MiFID transparency rules only cover shares, the consultation looks at how to limit derogations from the current framework (i.e. the issue of dark pools) and asks whether other financial products, such as bonds and over-the-counter derivatives should also be subject to similar rules.

In addition, the consultation asked what measures can be taken to address concerns relating to the functioning of commodity derivative markets and their impact on commodity price volatility; how investor protection can be strengthened, so that investment firms treat all investors appropriately in light of their specific profiles; and where changes to the supervision of the various activities and participants may be needed and, in particular, the precise role for the European Securities and Markets Authority.

Commenting on the MiFID submission, John Serocold, Senior Adviser at ICMA said: “We have to go on working with policy makers to improve these proposals. ICMA’s overriding concern is to sustain the efficiency of our markets."