7.6.2012   

EN

Official Journal of the European Union

C 161/3

1.1.

On 20 October 2011, the Commission adopted the four abovementioned proposals to replace Directives 2004/39/EC (6) and 2003/6/EC (7), which aim at assuring the efficiency, integrity, resilience and transparency of financial markets. In particular, the proposed MiFID recasts Directive 2004/39/EC with regard to the access to the activity of investment firms, regulated markets and data services providers, their governance and supervisory framework, the carrying out of investment activities and the third-country firms providing investment services via a branch. The proposed MiFIR further enhances Directive 2004/39/EC and introduces new rules for the publication of trade data, transaction reporting, the mandatory trading of derivatives on organised venues, non-discriminatory access to clearing facilities, product intervention and derivative positions management and the provision of services by third-country firms without a branch. The proposed MAR repeals and replaces Directive 2003/6/EC. The proposed MAD, based on Article 83(2) of the Treaty, requires Member States to introduce minimum levels of criminal sanctions for the most serious forms of market abuse.

1.2.

The ECB supports the proposed measures to improve the regulation of markets in financial instruments as an important step towards strengthening the protection of investors and creating a sounder and safer financial system in the European Union.

2.1.

The proposed framework will lead to increased legal certainty by limiting Member State options and discretion, and will reduce the risks of market distortion and regulatory arbitrage. In particular, increasing harmonisation by two directly applicable regulations and a directive on criminal sanctions is welcome, as it ensures a level playing field and comparable minimum rules for administrative measures, sanctions and fines, as well as for criminal sanctions.

2.2.

The ECB strongly supports the development of a single European rulebook for all financial institutions (8), as it promotes the smooth functioning of the single market within the Union and facilitates greater financial integration in Europe (9). Moreover, as pointed out in previous opinions (10), the ECB recommends ensuring that only framework principles reflecting basic political choices and substantive matters remain subject to the ordinary legislative procedure and that technical rules should be adopted as delegated or implementing acts in accordance with Articles 290 and 291 of the Treaty, as appropriate through the prior development of draft regulatory or draft implementing standards by the European Supervisory Authorities (ESAs) (11). In this respect, given the importance of delegated and implementing acts as a substantial component of the single European rulebook, the ECB expects to be consulted as appropriate in due time on these proposed Union acts (12).

2.3.

Additionally, the ECB recommends ensuring cross-sectoral consistency of Union financial services legislation.

3.1.

The ECB welcomes that the proposed framework strengthens and aligns the powers of the authorities supervising investment firms and markets in financial instruments as well as the exercise of their investigatory powers (13), putting special emphasis on cross-border cooperation (14). It is of crucial importance for the orderly functioning of the markets in financial instruments that the competent authorities across the Union build a network of well-equipped and empowered supervisors, able to address undesirable trends, actions or threats in the markets. In this respect, the ECB supports the strong role of the European Securities and Market Authority (ESMA) in the proposed framework and notably with regard to the facilitation and coordination function and the development of technical standards. Furthermore, the duty of the national competent authorities to cooperate and to provide ESMA with all necessary information will foster the consistent application of the proposed regulations and a level playing field in the Union. In this respect, as pointed out in previous opinions (15), the ECB suggests further improvements in the cooperation and exchange of information within the European System of Financial Supervision and between supervisory authorities and ESCB central banks, including the ECB, when this information is relevant for the performance of their respective tasks (16).

3.2.

It is also necessary, as foreseen in the proposed framework, for the competent authorities to cooperate with other authorities in the same Member States (17). Moreover, to ensure that a macro-prudential perspective is appropriately taken into account, the ECB recommends setting up and enhancing adequate cooperation procedures with macro-prudential authorities where threats to the stability of financial system have to be assessed (18). This might imply cooperation between competent authorities and the national macro-prudential authorities (19), or, in other instances, cooperation by ESMA with the European Systemic Risk Board (ESRB) (20). In this regard, it might be appropriate to provide for such cooperation when reviewing Regulation (EU) No 1095/2010 (21).

3.3.

The proposal to strengthen the administrative sanctions regime by providing competent authorities with a set minimum level of administrative measures, sanctions and fines is an appropriate way to ensure common standards across the Union, while leaving it to the discretion of the national legislators to provide competent authorities with additional sanctioning powers and notably to provide for higher levels of administrative pecuniary sanctions (22). Moreover, to ensure transparency and consistency of the administrative sanctions adopted within the Union, Member States should notify the Commission and ESMA of the applicable national rules and any subsequent amendments to them (23).

5.1.

The ECB supports the proposed extension of the scope of pre- and post-trade transparency requirements beyond equity instruments, to include bond, structured products and derivatives admitted to trading or traded on a regulated market, a multilateral trading facility (MTF) or an OTF, as well as derivatives considered eligible for central clearing, as it would enhance the price formation and support the evaluation process of such instruments.

5.2.

The proposed MiFID (24) and the proposed MiFIR (25) introduce provisions aiming to enhance the data consolidation for transparency information. According to these provisions, ‘consolidated tape providers’ (CTPs) will collect information from trading venues and, for the trades executed outside trading venues, from investment firms via approved publication arrangements. In the Commission’s view, the proposed provisions set the conditions for the emergence of CTPs (26). Despite the possible development of these commercial solutions, the ECB considers that proper transparency can only be appropriately ensured with the establishment of one single CTP. In this respect, the ECB notes that the Commission will report on the functioning of the consolidated tape in practice, and if considered appropriate, put forward a legislative proposal for the establishment of a single entity consolidating post-trade information (27). However, the ECB considers that experience since the transposition of Directive 2004/39/EC has shown a market failure in data consolidation that would justify legislative proposals already at this stage to address these issues.

7.1.

The above transparency and reporting framework does not provide for an exemption with regard to transactions to which an ESCB central bank is a counterparty (29).

7.2.

The ECB notes in this respect that, whilst the disclosure of transactions performed by central banks as part of their respective statutory objectives and tasks would not achieve greater transparency for the market, the effectiveness of these operations, namely in the field of monetary policy or foreign exchange operations, and thereby the performance by central banks of these tasks, which relies on timeliness and confidentiality, could be severely compromised by disclosure of information on such transactions, whether on a real-time basis or with a time lag. Moreover, transparency of specific types of trades and the size of those trades at certain times could allow market participants to identify almost immediately ESCB central banks’ transactions as such, even without the release of their name. Therefore, the ECB would strongly recommend exempting ESCB central banks transactions from the transparency requirements (30).

7.3.

As regards reporting obligations, requiring the counterparties to transactions, to which a member of the ESCB is a party, to report all related details to competent authorities may also interfere with the confidentiality regimes of the ECB and national central banks and defeat the purpose of the immunities granted to the ECB granted under the Treaty, in particular the inviolability of the ECB’s archives and official communications (31), especially since the reporting process to the competent authorities may occur also through other entities such as trading venues, approved reporting mechanisms or trading repositories. For those reasons, transactions where an ESCB central bank is a counterparty should be exempt also from reporting obligations (32).

9.1.

The Eurosystem has already noted (35) the urgency of taking action to implement in the Union the G20 commitment reached in September 2009 that ‘all standardised OTC derivative contracts should be traded on exchanges or electronic trading platform, where appropriate, and cleared through central counterparties by end-2012 at the latest’, aiming at improving transparency in the OTC derivatives markets, mitigating systemic risk and protecting against market abuse.

9.2.

In this context, the ECB supports the provisions (36) underpinning the requirement that eligible OTC derivatives should be traded on regulated markets, MTFs and OTFs and entrusting ESMA with the identification of the precise scope of such trading obligation taking into account the liquidity (37). The ECB notes however that such an approach may need to be complemented to address the Financial Stability Board recommendation that ‘authorities should develop incentives and, where appropriate, regulation, to increase the use of standardised products and standardised processes’ (38). Against this background, the ECB is of the view that regular monitoring of the trading of non-standardised contracts outside a regulated market, an MTF or OTF should be carried out at Union level.

10.1.

Algorithmic trading (AT), including high-frequency trading (HFT), may cause risks for the liquidity and efficiency of financial markets, especially in times of stress. Therefore, the ECB welcomes the proposed amendments to Directive 2004/39/EC introducing appropriate organisational safeguards for trading venues, e.g. in terms of trading capacity, establishment of circuit-breakers, offering market access to high-frequency traders and investment firms providing direct electronic access to trading venues. The proposed provisions will also facilitate the oversight and monitoring of HFT and AT by competent authorities.

10.2.

However, the ECB is of the view that the regulatory framework should clarify that all entities engaged in AT on a professional basis should be considered within the definition of investment firms and thus fall under the scope of the MiFID and be subject to supervision and monitoring of their activities by competent authorities (39). Ensuring a comprehensive coverage of all entities professionally involved in HFT and AT would limit potential circumvention of the proposed rules.

10.3.

The ECB welcomes the proposed MiFIR provisions related to transaction reporting details, which will include a designation to identify the computer algorithms within the investment firm responsible for the investment decision and the execution of the transaction (40). To facilitate cross-market surveillance and to prevent and detect market abuse, the ECB is of the view that such unique identifiers should be developed for the identification of trades generated by any AT within and across trading platforms.

10.4.

Lastly, the proposed requirements for a regulated market (41) to have in place effective systems, procedures and arrangements should ensure that AT systems cannot create or contribute to disorderly trading conditions on the market. In this regard, the ECB welcomes: (i) the establishment of conditions under which trading should be halted if there is a significant price movement in a financial instrument on that market; and (ii) the establishment of a maximum ratio of unexecuted orders to transactions and minimum tick sizes (42). Whilst the ECB considers that the Commission should be empowered to set a maximum ratio of unexecuted orders to transactions, the ECB is of the view that the setting of a minimum ratio of unexecuted orders to transactions is not necessary (43).

11.1.

The proposed MiFID provides that Member States must ensure that regulated markets, operators of MTFs and OTFs which admit to trading commodity derivatives apply appropriate limits, or arrangements with equivalent effect, to support liquidity, prevent market abuse and support orderly pricing and settlement conditions for physically delivered commodities (44). According to the proposed MiFID, such limits may be harmonised by Commission delegated acts (45) and competent authorities would also be empowered to set ex ante position limits for commodity derivatives (46) over a specified period of time, while the ESMA will be granted with a coordination role of such measures as well as specific direct powers in this area (47). The ECB welcomes these provisions.

11.2.

However, with regard to limits on commodity derivatives, the ECB stresses the importance of properly addressing the risk of regulatory arbitrage and distortion of competition not only across Member States but also vis-à-vis other major financial centres. Reaching a common approach in this area is therefore of paramount importance. This may be achieved by providing a role for ESMA both in the elaboration of common principles at Union level and in the coordination of the measures taken by national competent authorities.

11.3.

In addition, while the ECB supports the adoption of limits to position taking (48), there are some aspects which require further clarification. This applies in particular to the definition of an appropriate threshold, the period over which these limits should be applied and the use by market participants of the derivative contracts (49). Moreover, the ECB is of the view that the arguments that limits to position taking would contribute to enhancing market liquidity would require further explanation.

11.4.

The proposed MiFID provides (50) for the disclosure of positions held by various types of traders. In addition, it will require regulated markets, MTFs or OTFs where commodity or emission derivatives are traded to publish a weekly report on such positions. Data on long and short positions, as well as on open interest, would be adequate to assess the behaviour of market participants, especially with respect to monitoring the concentration of market participants’ positions.

12.1.

The ECB welcomes the empowerment of ESMA to temporarily prohibit or restrict the marketing, distribution or sale of certain financial instruments or a type of financial activity or practice (51). In this respect, considering that ESMA’s action may address also a threat to the orderly functioning of financial markets or the stability of whole or part of the financial system (52), the ECB recommends ensuring proper coordination with the ESRB on these aspects (53).

12.2.

A consistent regulatory approach is needed for the distribution to retail investors of different financial products which satisfy similar investor needs and raise comparable investor protection challenges (54). Against this background, the ECB notes that the proposed MiFID extends requirements, and particularly conduct of business and conflicts of interest rules, to credit institutions selling or advising structured deposits. In this respect, the ECB underlines the necessity of: (i) clarifying the definition of ‘structured deposits’; (ii) specifying the consumer protection regime applicable to the financial products; and (iii) ensuring a consistent approach across the different Union legislative initiatives, such as the review of Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes (55) and the ongoing work on packaged retail investment products on those aspects. Moreover, to ensure a consistent approach across financial service sectors, the ECB highlights the importance of designing and implementing to the extent possible in close cooperation among the ESAs the regulatory and supervisory frameworks related to investor protection, in the area, for instance, of cross-selling practices (56).

12.3.

The ECB also welcomes the Commission’s proposals on investment advice. While this is a step in the right direction, the ECB encourages the Commission to consider further measures to strengthen the protection of retail investors, such as enhancing financial literacy (57).

12.4.

The proposed MiFID (58) entitles Member States to adopt specific criteria to assess the expertise and knowledge of municipalities and local public authorities requesting to be treated as professional clients. This approach takes into account that the ability of these entities to evaluate the consequences of financial commitments varies significantly throughout Europe. Public finances in the Member States may be seriously affected by erroneous decisions by public entities, with a potentially negative impact on financial stability at European level. Moreover, it might be also appropriate to request Member States to establish criteria clarifying which categories of entities could be eligible for treatment as professional clients. ESMA could also be invited to provide guidance in this field.

13.1.

The ECB broadly welcomes the proposed harmonised framework for the services provided by third country firms within the Union, and allowing firms establishing branches in a Member State to provide services in other Member States without establishing further branches. A harmonised access regime for third country firms will reduce fragmentation, enhance the level playing field among the Member States and increase legal certainty for all market participants, as the conditions for market access would become more predictable. The ECB notes that ensuring an equal level of investors’ protection and equal regulatory standards for the activities of third country firms compared to EU/EEA firms is of crucial relevance and necessary to avoid any market distortion.

13.2.

The differentiated approach proposed distinguishes between the mandatory establishment of a branch if investment services or activities are to be provided to retail clients, and the possible provision of such services without the establishment of a branch in other cases. This reflects the need to enhance the level of protection for retail clients, which is addressed in the proposed MiFID notably by: (i) a Commission decision on the equivalence of the prudential framework of the third country; (ii) subjecting the branch to some of the obligations in the MiFID; and (iii) providing for the supervision of the competent authority in the Member State where the branch has been granted authorisation (59). However, the ECB notes that, to ensure that retail investors would effectively receive the same degree of protection, the cooperation arrangements with the third country should ensure that the requirement for sufficient initial capital would effectively protect investors, given that only the third country firm, and not the branch, is the bearer of rights and obligations and this is ultimately responsible vis-à-vis the investors. Moreover, it might notably be detrimental for investors if disputes have to be settled in accordance with the law and subject to the jurisdiction of the third country.

14.1.

The scope (60) of the market abuse regime is broadened by including new markets, notably new trading venues such as MTFs and OTFs, and by covering OTC financial instruments, including derivatives. Furthermore, any behaviour or transactions relating to a financial instrument falling under the scope of the proposed MAR is itself covered, even if such behaviour or transaction takes place outside the regulated market, MTF or OTF. The ECB supports the Commission’s proposal to expand the scope of the market abuse framework insofar as it would foster the effectiveness of the market abuse regime by adapting it to financial innovation and the latest technological developments.

14.2.

The prohibitions and requirements in the proposed MAR will also apply to actions carried out outside the Union (61), to hinder circumvention by moving activities outside the Union. For the effective control and sanctioning of such actions, the ECB considers cooperation agreements with third countries essential. In this respect, the ECB welcomes that the proposed MAR addresses this and also provides for ESMA to coordinate and facilitate this process through templates (62). Against this background, the ECB recommends extending the exclusion regime to monetary and public debt management activities in some cases also beyond the Union.

14.3.

The ECB welcomes that the proposed MAR illustrates specific cases of market manipulation (63), referring to new trading techniques such as algorithmic trading including high-frequency trading. As mentioned above, although algorithmic trading practices may have legitimate purposes, they may also present a considerable risk, as they may disturb the normal functioning of the market and increase volatility, which would not serve the public interest. The ECB therefore welcomes strict monitoring of such trading techniques to protect the orderly functioning of the market and the public interest.

14.4.

The proposed MAR (64) implicitly identifies trading at the close of the market as market manipulation or an attempt to engage in market manipulation. However, many markets see higher trading volumes at the end and the beginning of the business day, when positions are settled, overnight information is processed or specific news items can be released to markets. In this respect, the ECB would recommend a more detailed analysis or improvement of this definition of market manipulation.

16.1.

The proposed MAR requires an issuer of financial instruments to inform the public as soon as possible of inside information which directly concerns the issuer (69). At the same time, the proposed MAR maintains the provision of Directive 2003/6/EC allowing an issuer to delay public disclosure where: (i) the omission would not be likely to mislead the public; and (ii) the confidentiality of the information may be ensured. Where this possibility of delayed disclosure is used, the issuer needs to inform the competent authority immediately after the disclosure to allow for the ex post control of the specific conditions for the delay (70). Moreover, the proposed MAR provides, as a new element of the disclosure regime, that a competent authority may ex ante permit the delay of the public disclosure by the issuer where: (i) the information is of systemic importance; (ii) it is in the public interest to delay its publication; and (iii) the confidentiality of information may; be ensured (71).

16.2.

As stated in a previous Opinion (72), the ECB supports further enhancement of the legal framework for delayed disclosure under the proposed MAR. The general interest in such public disclosure may need to be balanced against the need to preserve confidentiality at least for a limited period, either in the interest of the issuer or the public. Delay of public disclosure may occur in two situations, either: (i) in the interest and under the own responsibility of the issuer (73); or (ii) in the public interest and following permission by the competent authority (74). The ECB welcomes this public interest exemption which is combined with the condition that the information needs to be of systemic importance, thereby allowing to take into account financial stability considerations, as they may notably arise in case of emergency liquidity assistance received by the issuer.

16.3.

In the case of financial institutions, the assessment of whether the information is of systemic importance, and whether a delay of disclosure is in the public interest, should be made in close cooperation with the national central bank and the national supervisory authority, and — if different from the central bank or supervisor — with the macro-prudential authority. Appropriate and efficient procedures to ensure timely involvement of these authorities should be put in place at national level, underpinned by a set of principles at Union level. Where justified by systemic importance and public interest, the competent authority should be empowered to order the delay of publication. Notably information on central bank lending or other liquidity facilities provided to a particular credit institution, including emergency liquidity assistance, may need to be kept confidential to contribute to the stability of the financial system as a whole and maintain public confidence in a crisis (75).

17.1.

The ECB welcomes the proposed MAD provisions defining minimum rules for criminal sanctions for the most serious market abuse offences. These rules are essential to ensure the effectiveness and success of the legislative framework and thereby the effective implementation of Union policy on fighting market abuse. Moreover, equal, strong and deterrent sanctions regimes against financial crimes and their consistent and effective enforcement are crucial components of the rule of law, as conducive to safeguarding financial stability.

17.2.

The ECB welcomes that the proposed MAD (76) addresses the liability of legal persons, as such liability at corporate level is able to set the right incentives towards stricter internal monitoring and controls, thereby fostering good corporate governance and market discipline. However, the successful implementation of these provisions and the achievement of the intended policy result will require careful consideration of national legal specificities, since the concept of criminal liability of legal persons does not exist in all Member States.