Better regulated and transparent financial markets

KEY POINTS

1. Ensuring financial products are traded on regulated venues. The aim is to close loopholes in the structure of financial markets. A new regulated trading platform is established to capture the maximum amount of unregulated trades: the organised trading facility (OTF)¹, which exists alongside other trading platforms such as regulated markets.
2. Increased transparency. The rules strengthen the transparency requirements that apply before and after financial instruments are traded, for instance when market participants have to publish information regarding the prices of financial instruments. These requirements are calibrated differently depending on the type of financial instrument.
3. Limiting speculation on commodities. Speculation on commodities – a financial practice that can lead to the prices of basic products (such as agricultural products) soaring – is restricted by introducing a harmonised EU system setting limits on the positions held in commodity derivatives. National authorities may limit the size of a position that market participants can hold in commodity derivatives.
4. Adapting rules to new technologies. Under the new rules, controls must be established for trading activities that are performed electronically at a very high speed, such as high-frequency trading². Potential risks from the increased use of technology are mitigated by a combination of rules aiming to ensure these trading techniques do not create disorderly markets.
5. Reinforcing investor protection. Investment firms should act in accordance with the best interests of their clients when providing them with investment services. These firms should safeguard their clients’ assets or ensure the products they manufacture, offer or recommend are designed to meet the needs of final clients. Investors will also be provided with increased information on products and services offered or recommended to them. Moreover, firms must ensure that staff pay and incentives received by, or paid to, the firms to recommend a particular financial product are not organised in a way that goes against clients’ interests.
6. Initial capital. Amending Directive (EU) 2019/2034 on the prudential supervision of investment firms (see summary) harmonises the required level of initial capital of investment firms operating OTFs and multilateral trading facilities³ (MTFs).
7. Authorisation and supervision. The European Securities and Markets Authority (ESMA) is responsible for authorising and supervising undertakings that intend to provide data reporting services, following amendments introduced by Directive (EU) 2019/2177.
8. Crowdfunding service providers. Legal persons authorised as crowdfunding service providers under Regulation (EU) 2020/1503 are excluded from the scope of Directive 2014/65/EU.
9. SME growth markets. Amending Regulation (EU) 2019/2115 introduces new rules to actively promote the use of SME growth markets, a new type of trading venue created under Directive 2014/65/EU and a subcategory of MTFs. These are designed to improve SMEs’ access to capital and enable them to grow, and to encourage the development of specialist markets catering to the needs of SME issuers with growth potential.
10. COVID‑19 pandemic. To help recovery from the pandemic, amending Directive (EU) 2021/338 simplified certain MiFID II rules that appeared not useful or too burdensome. The periodic reporting due to be published by trading and execution venues and systematic internalisers⁴ was suspended until February 2023. The amending act also introduced some changes to the position limit regime for commodity derivatives to support the emergence and growth of euro-denominated commodity derivative markets.
11. Digital operational resilience. Amending Directive (EU) 2022/2556 aligns the provisions of the directive, and several other related directives, with the requirements on information communication technology risk for financial entities set out in the Digital Operational Resilience for the Financial Sector Regulation (Regulation (EU) 2022/2554 – see summary).
12. European single access point. Amending Directive (EU) 2023/2864 inserts an article in Directive 2014/65/EU requiring EU Member States, from 10 January 2030, to ensure that, when making public any regulated information, investment firms, market operators or issuers submit that information at the same time to the collection body and notify ESMA thereof for the purposes of making it accessible on the European single access point, set up under Regulation (EU) 2023/2859.
13. EU-wide consolidated tape⁵. Amending Directive (EU) 2024/790 updates Directive 2014/65/EU mainly to take account of the introduction of an EU-wide consolidated tape for EU financial markets under the Markets in Financial Instruments Regulation (Regulation (EU) No 600/2014). This will improve price transparency across trading venues and competition between them and help to increase market liquidity. ESMA has the task of developing criteria for selecting the consolidated tape providers and subsequently authorising and supervising those providers.
14. Listing Act. Amending Directive (EU) 2024/2811, which is part of the Listing Act, revises MiFID II to make EU public capital markets more attractive and, in particular, to improve access to capital for smaller companies. It offers investment firms more flexibility in the way they wish to organise payment for execution services and third-party research, by allowing them to choose the most suitable payment method for those services subject to safeguards such as client information, a policy on payment for execution services and research and an annual assessment of the research quality. Directive (EU) 2024/2811 also introduces rules to ensure that issuer-sponsored research⁶ is labelled as such only if it complies with an EU code of conduct; otherwise, issuer-funded material must be labelled as a marketing communication. It also allows a clearly separated segment of a multilateral trading facility to be registered as an SME growth market. It also adjusts conditions for admitting shares to trading on regulated markets, including requirements on market capitalisation size and shares held by the public (i.e. free float). It repeals Directive 2001/34/EC as from 5 December 2026.

Delegated and implementing acts

The European Commission has adopted a series of delegated and implementing acts, including the following:

• Delegated Directive (EU) 2017/593, as amended by Delegated Directives (EU) 2021/1269 and 2026/374, which deals with aspects of investor protection:
  • safeguarding clients’ funds and financial instruments,
  • product governance⁷,
  • monetary and non-monetary compensation,
  • the integration of sustainability factors into the product governance obligations, and
  • payment on third-party execution and research services where investment firms select to pay separately for those services and use a research payment account, and annual assessment of the quality, usability and value of research, irrespective of how investment firms pay for execution and research services;
• Delegated Regulation (EU) 2017/565 on organisational requirements and operating conditions for investment firms, as amended by Delegated Regulations (EU) 2021/1253 as regards the integration of sustainability factors, risks and preferences and 2021/1254 on organisational requirements and operating conditions for investment firms;
• Implementing Regulation (EU) 2016/824 on technical standards for describing the functioning of MTFs and OTFs and their notification to ESMA.