Akin Gump Authors Pen Article for IFLR on Esma’s Draft Regulatory Technical Standards Advice
International Financial Law Review has published “Common market, common rulebook?,” an article written by Akin Gump litigation partner Christopher Leonard, counsel Ezra Zahabi and associate Chris Poon regarding the European Securities and Markets Authority’s (Esma) Draft Regulatory Technical Standards Advice (Draft Level 2 Provisions) in respect of the revised Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation (Mifid II).
Among the topics discussed, the authors wrote on the effects Draft Level 2 Provisions will have on market participants such as investment banks, brokers, exchanges and investment advisors and managers:
- Three operational impacts on investment firms – “First… it will effectively preclude over-the-counter trades in listed shares, unless the relevant transaction is: ‘non-systematic, ad hoc, irregular and infrequent’; or between eligible and/or professional counterparties and does not ‘contribute to the price discovery process’…Second… firms subject to the prevailing transaction reporting obligations applicable to financial instruments admitted to trading on a regulated trading venue (and derivatives or indices thereof) will be required to report on additional items… Third, the Draft Level 2 Provisions extend the scope of the data required to be recorded in respect of client orders and dealing decisions.”
- Investor protection and non-EU firms – “The effect of the existing Draft Level 2 Provisions is that a firm deemed to be operating in a jurisdiction with regulatory framework substantively equivalent to Mifid II, and that wishes to only provide services in a single EU jurisdiction, would be unable to do so if its regulator does not provide the requisite declaration to Esma.”
- Algorithmic trading – “The Draft Level 2 Provisions provide a great amount of further detail in terms of the systemic and operational requirements applicable to firms. These will increase the cost of business for algorithmic traders and, more importantly, materially increase the regulatory risk exposure of such firms.”
The authors close by noting that Mifid II “ushers in a new era of regulation that will be led by Esma rather than national regulators,” which, they believe will result in far greater harmonization of rules across the EU. They add that while this is likely to be welcome by investment firms thanks to improved ease of use in business, concerns remain, as “[t]he impact on national regulators will be almost as profound as on the firms that they regulate.”
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