What changed between the draft committee report and the plenary report

DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

on the proposal for a directive of the European Parliament and of the Council amending Directive 2014/65/EU on markets in financial instruments

Changed:(COM2021(0726)(COM(2021)0726 – C90438/2021 – 2021/0384(COD))

(Ordinary legislative procedure: first reading)

The European Parliament,

– having regard to the Commission proposal to Parliament and the Council (COM(2021)0726),

Changed:– having regard to Article 294(2) and Article 11453(1) of the Treaty on the Functioning of the European Union, pursuant to which the Commission submitted the proposal to Parliament (C90438/2021),

– having regard to Article 294(3) of the Treaty on the Functioning of the European Union,

Change 1

Added:– after consulting the European Central Bank,

Added:– after consulting the European Economic and Social Committee,

– having regard to Rule 59 of its Rules of Procedure,

Changed:– having regard to the report of the Committee on Economic and Monetary Affairs (A90000/2022),(A9-0039/2023),

1. Adopts its position at first reading hereinafter set out;

2. Calls on the Commission to refer the matter to Parliament again if it replaces, substantially amends or intends to substantially amend its proposal;

3. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Change 2

Removed:Recital 6 a (new): (6a) Article 4(1), point (20), of Directive 2014/65/EU provides the definition of a systematic internaliser and subjects it to a number of qualitative criteria that determine whether an investment firm, on an organised, frequent, systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system. The quantitative criteria, related to the transaction reporting role of systematic internalisers, have led to a significant increase in the number of systematic internalisers in the Union and in the regulatory burden both on ESMA, which is required to assess the quantitative criteria for investment firms that qualify as systematic internalisers, and on investment firms themselves. In particular, the regulatory burden disproportionately affects smaller investment firms, which would benefit from a lighter and more flexible regime. Article 4(1), point (20), should therefore limit the systematic internaliser regime to investment firms that meet the qualitative criteria or investment firms that choose to opt-in to the systematic internaliser regime. Complementing those changes, Regulation (EU) XX/XXXX22 amending Regulation (EU) No 600/2014 introduces the concept of a ‘designated reporting entity’, decoupling the systematic internaliser status from the function of making transactions public through an approved publication arrangement.

Added:AMENDMENTS BY THE EUROPEAN PARLIAMENT*

Removed:Recital 7: (7) Articles 27(3) and 27(6) of Directive 2014/65/EU contain the requirement for execution platforms to publish a list of details relating to best execution. Factual evidence and feedback from stakeholders has shown that those reports are rarely read and do not enable investors or any users of those reports to make meaningful comparisons based on the information provided in those reports. As a consequence, Directive (EU) 2021/338 of the European Parliament and of the Council21 suspended the reporting requirement under Article 27(3) for two years in order for that requirement to be reviewed. Regulation (EU) XX/XXXX22 has amended Regulation (EU) No 600/2014 to remove the obstacles that have prevented the emergence of a consolidated tape. Among the data that the consolidated tape is expected to provide are pre-trade and post-trade information regarding all transactions in shares, and post-trade information regarding all transactions in other financial instruments. That information can be used for proving best execution. The reporting requirement laid down in Article 27(3) of Directive 2014/65/EU will therefore no longer be relevant and should therefore be deleted. The reporting requirement laid down in Article 27(6) of that Directive should also be deleted, as those reports have proven to be of limited value to users, and at the same time have created additional costs for the investment firms required to prepare them.

Added:to the Commission proposal

Removed:Recital 7 a (new): (7a) More generally, Article 27 of Directive 2014/65/EU contains provisions related to the obligation to execute orders on terms most favourable to the client (‘best execution’). However, different interpretations of that Article by national competent authorities have led to widely diverging application of best execution requirements and of market practice supervision. That divergence is particularly evident in the different regulation across the Union of practices related to receiving payments for forwarding client orders for execution (‘payment for order flows’). Regulation (EU) XX/XXXX22 amending Regulation (EU) No 600/2014 clarifies the rules related to the best execution of retail orders, minimises supervisory divergence and bans the payment for order flows across the Union. The best execution requirement laid down in Article 27(2) of Directive 2014/65/EU should therefore be deleted, as it will be included in Regulation (EU) XX/XXXX22. However, feedback from regulators and stakeholders has shown that best execution requirements for professional clients could also benefit from further clarification. ESMA should develop draft regulatory technical standards on the criteria that should be taken into account for the purpose of defining and assessing the order execution policy under Article 27(5) and (7) of Directive 2014/65/EU.

Added:---------------------------------------------------------

Removed:Directive 2014/65/EU

Added:DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

Removed:Article 1 – paragraph 1 – point 2, Article 2 – paragraph 1 – point d – point ii: ‘(ii) are members of or participants in a regulated market or an MTF, with the exception of non-financial entities that execute transactions on a trading venue that are objectively measurable as reducing risks directly related to the commercial activities or treasury financing activities of those non-financial entities or their groups;’;

Added:amending Directive 2014/65/EU on markets in financial instruments

Removed:The amendment reinstates the exemption for non-financial entities, which needs to be maintained in order not to place an undue burden on non-financial entities and whose removal in the first place was unintended.

Added:(Text with EEA relevance)

Removed:Directive 2014/65/EU

Added:THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Removed:Article 1 – paragraph 1 – point 3 – introductory part, Article 4 – paragraph 1: 3. in Article 4, paragraph 1 is amended as follows:

Added:Having regard to the Treaty on the Functioning of the European Union, and in particular Article 53(1) thereof,

Removed:Directive 2014/65/EU

Added:Having regard to the proposal from the European Commission,

Removed:Article 1 – paragraph 1 – point 3 – point a (new), Article 4 – paragraph 1 – point 19: (a) point (19) is replaced by the following: / ‘(19) multilateral system’ means a multilateral system as defined in Article 2(1), point (11), of Regulation (EU) No 600/2014;’;

Added:After transmission of the draft legislative act to the national parliaments,

Removed:Directive 2014/65/EU

Added:Having regard to the opinion of the European Economic and Social Committee,

Removed:Article 1 – paragraph 1 – point 3 – point b (new), Article 4 – paragraph 1 – point 20: (b) point (20) is replaced by the following: / ‘(20) ‘systematic internaliser’ means an investment firm which, on an organised, frequent, systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system. The definition of a systematic internaliser shall apply only where the qualitative criteria indicating that an investment firm performs its activities on an organised, frequent, systematic and substantial basis are met, or where an investment firm chooses to opt-in under the systematic internaliser regime;’; / (deleted)

Added:Having regard to the opinion of the European Central Bank,

Removed:Current SIs regime is complex and unclear, and it has increased the regulatory burden for ESMA and investment firms, and led to an inflated number of SIs in the Union. These factors disproportionally affects smaller investment firms. The amendment introduces qualitative criteria for SIs and introduces the possibility to opt-in into the SI status. The introduction in MiFIR of designated reporting entities complete overhaul of the regime by decoupling reporting obligations and SI definition. The new regime should provide more flexibility and better clarity for market participants.

Added:Acting in accordance with the ordinary legislative procedure,

Removed:Directive 2014/65/EU

Added:Whereas:

Removed:Article 1 – paragraph 1 – point 3 a (new), Article 16 – paragraph 10 a (new): 3a. in Article 16, the following paragraph is inserted: / ‘10a. An investment firm that is a market data contributor within the meaning of Article 2(1), point (34a), of Regulation (EU) No 600/2014 shall have arrangements in place to ensure it meets the data quality standards set out in Article 22b of that Regulation.’;

Added:(1) In its 2020 CMU Action Plan, the Commission announced its intention to table a legislative proposal to create a centralised data base which was meant to provide a comprehensive view on prices and volume of equity and equity-like financial instruments traded throughout the Union across a multitude of trading venues (‘consolidated tape’). On 2 December 2020, in its conclusion on the Commission’s CMU Action Plan, the Council encouraged the Commission to stimulate more investment activity inside the Union by enhancing data availability and transparency by further assessing how to tackle the obstacles to establishing a consolidated tape in the Union.

Removed:The amendments seeks to mirror the provisions of Art 31(1) to ensure that not only trading venues but also investment firms are subject to data standards when they contribute market data.

Added:(2) In its roadmap on ‘The European economic and financial system: fostering openness, strength and resilience’ of 19 January 2021, the Commission confirmed its intention to improve, simplify and further harmonise capital markets’ transparency, as part of the review of Directive 2014/65/EU of the European Parliament and of the Council and of Regulation (EU) No 600/2014 the European Parliament and of the Council. As part of efforts to strengthen the international role of the Euro, the Commission also announced that such reform would include the design and implementation of a consolidated tape, in particular for corporate bond issuances to increase the liquidity of secondary trading in euro-denominated debt instruments.

Removed:Directive 2014/65/EU

Added:(3) Regulation (EU) No 600/2014 was amended by Regulation (EU) XX/XXXX of the European Parliament and of the Council removing the main obstacles that have prevented the emergence of a consolidated tape. That Regulation therefore introduced mandatory contributions of market data to the consolidated tape provider and enhanced the data quality including harmonizing the synchronisation of the business clock. In addition, that Regulation reduced the recourse to possibilities to waive pre-trade transparency for venues and systematic internalisers. Furthermore, it introduced enhancements to the trading obligations and the prohibition of the practice of receiving payment for forwarding client orders for execution. Since Directive 2014/65 also contains provisions related to consolidated tape and transparency, the amendments to Regulation (EU) No 600/2014 should be reflected in Directive 2014/65/EU.

Removed:Article 1 – paragraph 1 – point 3 b (new), Article 18: 3b. Article 18 is amended as follows: / (a) the following paragraph is inserted: / ‘2a. Member States shall require market operators and investment firms operating an MTF or an OTF to establish and maintain effective arrangements to verify that issuers of transferable securities that are traded under its systems have obtained the ISO 17442 Legal Entity Identifier.’; / (b) paragraph 8 is replaced by the following: / ‘8. Where a transferable security that has been admitted to trading on a regulated market is also traded on an MTF or an OTF without the consent of the issuer, the issuer shall not be subject to the obligation in paragraph 2a of this Article and any obligation relating to initial, ongoing or ad hoc financial disclosure with regard to that MTF or an OTF.’;

Added:(4) Article 1(7) of Directive 2014/65/EU requires operators of systems in which multiple third-party buying and selling trading interests in financial instruments are able to interact (‘multilateral systems’) to operate in accordance with the requirements concerning regulated markets (‘RMs’), multilateral trading facilities (‘MTFs’), or organised trading facilities (‘OTFs’). However, market practice, as evidenced by the European Securities and Markets Authority (‘ESMA’) in its final report on the functioning of the organised trading facility has shown that the principle of multilateral trading activity requiring a license has not been upheld in the Union, which has led to an uneven playing field between licensed and unlicensed multilateral systems. In addition, that situation has created legal uncertainty for certain market participants as to the regulatory expectations for such multilateral systems. To provide market participants with clarity, safeguard a level-playing field, improve the internal market functioning and ensure a uniform application of the requirement that hybrid systems can only perform multilateral trading activities where they are licensed as a regulated market, a multilateral trading facility (‘MTF’) or an organised trading facility (‘OTF’), the content of Article 1(7) of Directive 2014/65/EU should be moved from Directive 2014/65/EU to Regulation (EU) No 600/2014.

Removed:Introduces a reference to LEI to mirror, for trading venues, the treatment that MiFIR already envisaged for clients of investment firms. Such principle has already been implemented under the CSDR, so EU issuers are already required to obtain the LEI for settlement. However, the fact that the same LEI requirement cannot be imposed to non-EU issuer puts EU issuers at a disadvantage. The amendments therefore is essential to ensure an even playing field between EU and non-EU issuers and to operationalise the ESRB recommendations on the use of the LEI.

Added:(5) Article 2(1), point (d), point (ii), of Directive 2014/65/EU, exempts persons dealing on own account from the requirement to be licensed as an investment firm or credit institution, unless those persons have direct electronic access to a trading venue. Articles 17(5) and 48(7) of Directive 2014/65/EU require that providers of direct electronic access are licensed investment firms or credit institutions. Investment firms or credit institutions that do provide direct electronic access are responsible for ensuring that their clients comply with the requirements laid down in Articles 17(5) and 48(7) of Directive 2014/65/EU. That gatekeeper function is effective and makes it unnecessary for clients of the direct electronic access provider, including persons dealing on own account, to become subject to Directive 2014/65/EU. In addition, removing that requirement would contribute to a level playing field between third country persons accessing EU venues via direct electronic access, for which Directive 2014/65/EU does not require a license, and persons established in the Union.

Removed:Directive 2014/65/EU

Added:(6) Due to the removal of multilateral systems from the scope of Article 1(7) of Directive 2014/65/EU and into Regulation (EU) 600/2014, it is equally logic to move the corresponding definition of ‘multilateral system’ into that Regulation.

Removed:Article 1 – paragraph 1 – point 4 – point -a (new), Article 27 – paragraph 1 – subparagraph 2: (-a) in paragraph 1, the second subparagraph is deleted; / (deleted)

Added:(6a) Article 4(1), point (20), of Directive 2014/65/EU provides that an investment firm shall be considered to be a systematic internaliser only when it is deemed to perform its activities on an organised, frequent, systematic and substantial basis or when it chooses to opt-in under the systematic internaliser regime. The quantitative criteria, related to the transaction reporting role of systematic internalisers, have led to a significant increase in the number of systematic internalisers in the Union and in the regulatory burden both on ESMA, which is required to assess the quantitative criteria for investment firms that qualify as systematic internalisers, and on investment firms themselves. In particular, the regulatory burden disproportionately affects smaller investment firms, which would benefit from a lighter and more flexible regime. Article 4(1), point (20), should therefore limit the systematic internaliser regime to investment firms that meet the qualitative criteria or investment firms that choose to opt-in to the systematic internaliser regime. Complementing those changes, Regulation (EU) ... /...+ amending Regulation (EU) No 600/2014 introduces the concept of a ‘designated reporting entity’, decoupling the systematic internaliser status from the function of making transactions public through an approved publication arrangement.

Removed:In light of the proposed introduction of Article 39a in MiFIR on ‘Rules for the execution of retail order flows’, Article 27 should be modified accordingly, removing redundant provisions to enhance legal clarity.

Added:(7) Article 27(3) and (6) of Directive 2014/65/EU contain the requirement for execution platforms to publish a list of details relating to best execution. Factual evidence and feedback from stakeholders has shown that those reports are rarely read and do not enable investors or any users of those reports to make meaningful comparisons based on the information provided in those reports. As a consequence, Directive (EU) 2021/338 of the European Parliament and of the Council suspended the reporting requirement under Article 27(3) for two years in order for that requirement to be reviewed. Regulation (EU) XX/XXXX has amended Regulation (EU) No 600/2014 to remove the obstacles that have prevented the emergence of a consolidated tape. ▌The data that the consolidated tape is expected to provide are pre-trade and post-trade information regarding all transactions in shares and ETFs, and post-trade information regarding all transactions in bonds and derivatives. That information can be used for proving best execution. The reporting requirement laid down in Article 27(3) of Directive 2014/65/EU will therefore no longer be relevant and should therefore be deleted.

Removed:Directive 2014/65/EU