June 20, 2024

Final MiFIR-D review text published in the EU Official Journal

The new rules (consisting of a regulation and directive) revamping the regulatory framework for the European securities markets have been published in the Official Journal of the EU.

Consolidated market data: A big focus of the reforms is to facilitate the emergence of consolidated tapes as a response to the current situation where trading data is scattered across multiple platforms, such as stock exchanges and investment banks, making it difficult for investors to access the accurate and up-to-date information they need to make decisions.

  • The new rules will establish EU-level ‘consolidated tapes’, or centralized data feeds for different kinds of assets, bringing together market data provided by platforms on which financial instruments are traded in the EU
  • The consolidated tapes will aim to publish key information such as price, volume and time of transaction as close as possible to real time

Payment for order flow: The new rules also impose a general ban on ‘payment for order flow’ (PFOF), a practice through which brokers receive payments for forwarding client orders to certain trading platforms.

  • Member states where the practice of PFOF already existed may allow investment firms under its jurisdiction to be exempt from the ban, provided that PFOF is only provided to clients in that member state
  • However, this practice must be phased out by June 30, 2026

Looking ahead: The new Markets in Financial Instruments Regulation (MiFIR) will enter into force on March 28, 2024 and application will be phased in from that date. 

  • The new Markets in Financial Instruments Directive (MiFID) also enters into force on March 28, but EU member states have additional 18 months until September 29, 2025 to develop the national laws necessary to comply with the new regime
  • Consultations on technical rules to implement the new framework are expected to start in May

HMT consults on private intermittent securities and capital exchange system

HM Treasury issued proposals for a new platform to allow companies to trade their securities in a controlled environment and on an intermittent basis. 

In summary: The new Private Intermittent Securities and Capital Exchange System (PISCES) incorporates elements from public markets, such as those that offer multilateral trading, and elements from private markets that provide greater discretion on what company disclosures should be made public. 

  • The idea is to provide investors with better transparency and access than currently available in private markets
  • By improving the interface between private and public markets, the idea is that PISCES will also support the pipeline for IPOs in the UK

In more detail: PISCES provides a regulatory framework for the intermittent trading of private company shares on a multilateral system, with an accompanying bespoke disclosure regime that reflects the periodic nature of trading. 

  • Under this framework, PISCES would accommodate ‘trading windows’ at defined intervals, such as monthly or quarterly, providing investors with opportunities to trade their shares
  • The tailored regulatory regime would provide investors protections that unregulated off-venue bilateral trading would otherwise not afford, such as a clearer price formation process, a clear legal framework and regulatory oversight, and robust investor protection

Key clarifications: PISCES will operate as a secondary market, facilitating the trading of existing shares. It will not facilitate capital raising through the issuance of new shares, or the trading of other securities (e.g. bonds or exchange traded funds).

  • Only shares in companies that are not admitted to trading on a public market in the UK or abroad can be traded on PISCES. This includes UK-based private and public limited companies and overseas companies
  • There will be restrictions on the categories of investors that can trade on PISCES. For example, most retail investors will be prohibited from trading at least during the trial phase of this platform given the greater risks associated with buying shares that are not listed or admitted to trading on a public market
  • PISCES will operate intermittent trading windows (e.g. monthly, quarterly, biannually, etc). Disclosure requirements specific to PISCES will only apply shortly before and after each trading window, and there will be no requirement for information to be disclosed to the public. Instead, information must only be made available to investors that may trade during the window
  • There will be a market abuse regime for PISCES, which will be tailored to the intermittent nature of trading and the specific risks posed by the model

Looking ahead: The consultation sets out the proposed design of the regulatory regime for PISCES and invites feedback by the deadline of April 17, 2024.

Hong Kong authorities consult on enhancing OTC derivatives reporting regime

The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) launched a joint consultation on further enhancements to the over-the-counter (OTC) derivatives reporting regime in Hong Kong.

Context: To align with global standards, the HKMA and the SFC conducted a consultation in April 2019, and one of the proposed requirements was identifying transactions submitted to the Hong Kong Trade Repository (HKTR) for the reporting obligation by a Unique Transaction Identifier.

More detail: This current joint further consultation focuses on the implementation of the Unique Transaction Identifier, together with the mandatory use of Unique Product Identifier and Critical Data Elements for submission of transactions to the HKTR. 

  • These proposals are intended to ensure that Hong Kong’s reporting regime keeps up with international developments
  • The HKMA and the SFC also concluded that the list of designated jurisdictions for the masking relief of the reporting obligation remains unchanged

Looking ahead: Feedback on the proposals is welcome until May 17, 2024.

SEC adopts amendments to enhance disclosure of order execution information

The Securities and Exchange Commission (SEC) adopted amendments to Rule 605 of Regulation NMS that, among other things:

  • Expands the scope of entities subject to Rule 605
  • Modify the categorization and content of order information required to be reported
  • Require reporting entities to produce a summary report of execution quality

The details: Broker-dealers with more than 100,000 accounts and single dealer platforms will now be required to produce monthly execution quality reports under Rule 605. 

  • Certain orders submitted outside of regular trading hours, certain short sale offers and certain orders utilizing stop prices will now be considered a “covered order” 
  • The amendments also require new statistical measures of execution quality and for covered entities to make a summary report publicly available 

Compliance timeline: The amendments will become effective 60 days after the date of publication of the adopting release in the Federal Register. The amendments have a compliance date of 18 months after the effective date.

Kenyan CMA seeks feedback on Margin Trading

Kenya’s Capital Markets Authority (CMA) developed Margin Trading Regulations for consultation in a push to enhance market liquidity by increasing the supply and demand for securities.

Important context: Margin financing enables investors to buy large quantities of securities seen as undervalued or their price has been impacted by negative news or investor sentiments but have potential for recovery. 

Margin trading was recommended as one of the measures to improve liquidity in the equity market in the 2015 World Bank Report on ‘Potential Measures for the Improvement of Liquidity in the Kenyan Equity Markets’.

How does margin trading work? Margin trading is a form of securities trading that involves buying securities by borrowing funds (margin loan) from a broker at an interest rate (margin rate). 

  • In margin trading, the securities trader only pays a fraction of the actual cost of the trade up-front and pledges the securities bought on margin as collateral for the remaining fraction of the cost
  • Margin trading will be undertaken by trading participants approved by CMA

In parallel: The Financial Resource Requirements for Market Intermediaries have been amended to include new license categories such as Intermediary Service Platform Providers, Broker-Dealers, Trustees, Custodians and Money Managers.

The Capital Markets (Commodity Markets) Regulations 2020 have been amended to introduce fees to support regulatory oversight over licensed entities in the commodities sector.

Deadline for comments: The CMA invites stakeholders to submit comments on the draft Guidelines and Regulations by 11 April 2024.

UK authorities consult on guidance on derivatives reporting under UK EMIR

The Financial Conduct Authority (FCA) and Bank of England (BoE) launched a consultation on a draft Q&A document providing guidance to support the implementation of the updated reporting requirements under the retained EU Regulation on OTC derivative transactions, central counterparties and trade repositories (UK EMIR). 

In more detail: The consultation is the first of a series that will cover the topics included in the Q&A document, and this first consultation will cover transitional arrangements, reconciliations, errors and omissions, derivative identifiers, and action and events. 

This set of Q&As relates to the arrangements for transitioning to the updated derivative reporting framework under UK EMIR during the period from September 30, 2024 to March 31, 2025.

Looking ahead: Comments were due by March 28, 2024 and the authorities intend to consult on the remaining topics in Spring 2024. 

  • The new requirements come into effect on September 30, 2024, from which point all newly entered or modified derivative trades will need to comply with the new requirements
  • For derivative trades entered into before September 30, 2024, there will be a 6-month transition period for entities responsible for reporting to update those outstanding derivative reports to the new requirements. This ends on March 31, 2025.

FINRA adopts amendments to disseminate individual transactions in U.S. Treasury securities

FINRA has adopted amendments to disseminate individual transactions in active U.S. Treasury securities at the end of the day and historically. 

In more detail: The new transaction-level data will be available free of charge for non-professional and non-commercial purposes on a next-day basis. 

  • FINRA Members and other professionals will be able to purchase a subscription to both end-of-day and historical datasets through TRACE
  • FINRA’s end-of-day data will include information on individual transactions in the most recently auctioned (on-the-run) Treasury securities
  • Data provided includes, among other things: price and size of the trade, counterparty type and whether the trade was executed on an ATS
  • No information that would identify parties to the trade will be included. Certain transaction size caps will apply
  • FINRA’s historic data will provide the same data as the end-of-day file on a six-month delay basis without transaction size caps

Implementation: The amendments relating to the end-of-day data product take effect on March 25, 2024 and the amendments relating to the historic data product take effect on April 1, 2024.

ESMA issues feedback report on shortening settlement cycle in the EU

The European Securities and Markets Authority (ESMA) published the feedback it has received on shortening the settlement cycle.

In more detail: ESMA summarizes the feedback from various market participants, including:

  • Respondents suggested that ESMA focus its assessment on T+1 and that T+0 would not be achievable in the short or medium term. ESMA intends to focus its work on shortening the settlement cycle to T+1
  • Many operational impacts beyond adaptations of post-trade processes are identified as resulting from a reduction of the securities settlement cycle in the EU
  • Respondents provided suggestions around how and when a shorter settlement cycle could be achieved, with a strong demand for a clear signal from the regulatory front at the start of the work and clear coordination between regulators and the industry
  • Stakeholders made clear the need for a proactive approach to adapt their own processes to the transition to T+1 in other jurisdictions. Some responses warned about potential infringements due to the misalignment of the EU and North America settlement cycles

More information needed: In order for ESMA to produce its assessment on the appropriateness of shortening the settlement cycle, and of the costs and benefits of doing so, several questions remain to be further assessed and better understood. 

  • These include the impacts on securities lending and borrowing, market making, and the repo market; FX trading; cross-border activities; corporate actions standards; and benefits resulting from margin reductions for cleared transactions
  • ESMA aims to clarify the possible implications of T+1 for retail investors and smaller market players

Next steps: ESMA aims to publish its report in the second half of 2024 and the European Commission is then expected to propose legislative changes to facilitate the shortening of the settlement cycle later in 2025.

Important context: Ten years have gone by since the securities settlement cycle in the EU was harmonized at T+2 and since then financial markets and technology have continued to evolve.

  • Outside the EU, some jurisdictions have decided to shorten their settlement cycles to T+1 (or even T+0) to reduce counterparty risk and the risks linked to excessive volatility between trade and settlement
  • The EU is assessing whether the length of the settlement cycle (T+2) is still adequate, or whether it should also evolve to foster EU market development

SEBI to launch “beta” version of T+0 settlement system

The Securities and Exchange Board of India (SEBI) issued a new circular confirming the launch of same-day settlement (T+0) in the equity cash market from March 28 on an optional basis. 

In more detail: The new circular says the initial “beta” version of the new settlement cycle will allow trades placed for a “limited set of 25 scrips” via a “limited number of brokers” during the continuous trading session between 9:15 am and 1:30 pm to be settled on the same day. 

  • Other key features of the new framework include index calculation and settlement price computation where T+0 prices will not be considered in index calculation and settlement price computation
  • There will be no separate close price for securities based on trading in T+0 segment
  • There will be no netting in pay-in and pay-out obligations between T+1 and T+0 settlement cycle

Looking ahead: Following the March 28, 2024 go-live, SEBI will engage in consultations with users of the beta version of the T+0 settlement cycle.

Korea propose changes to insider transactions

Korea’s Financial Services Commission issued a preliminary notice of rule changes being proposed concerning the ex-ante disclosure requirement for insider transactions under the Financial Investment Services and Capital Markets Act (FSCMA). 

In more detail: With regard to the ex-ante disclosure requirement for insider transactions, the revision proposal specifies the entities that will be exempted from the disclosure duty, the volume and type of transactions that will be exempted from the disclosure duty, and the procedure and method for disclosure.

The intention: The FSC expects that the changes will boost transparency and predictability in insider transactions, which will help to prevent unfair trading activities and enhance protection for investors. 

  • In addition, the FSC expects that timely disclosure of information about insider transactions will help to minimize market shocks

Looking ahead: The proposal will be up for public comment until April 11. After a legislative review process and an approval from the cabinet meeting, the changes will go into effect from July 24, 2024.

Rwanda CMA publishes rules for leveraged foreign exchange trading

The Capital Market Authority (CMA) of Rwanda has announced the publication of the regulations governing leveraged foreign exchange (FX) trading.

What is leveraged FX trading? Leveraged FX trading, also commonly known as “online forex trading”, is an internet-based trading business carried out over the counter (OTC). 

  • It enables traders to trade on the price movement of currency pairs (rising or falling prices of foreign exchange) by depositing a small percentage of the full value of the trade in order to open a position, which can either magnifies returns or losses  
  • It is part of the ‘contracts for differences (CFDs)’ family of products where the underlying asset is currency

Regulatory context: The establishment of these regulations is a result of recent demand from the market to put in place a regulatory framework for leveraged FX trading in Rwanda. 

Many Rwandans, especially the youth, have been participating in this type of business using local and foreign players without knowing whether such players are licensed or not.

What this means: The CMA requests that all players interested in operating Leveraged Foreign Exchange Trading in Rwanda to apply for an appropriate license. 

The CMA also reminds the general public that are interested in investing in such business to always ascertain that the players they will be engaging are licensed to operate in Rwanda. 


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