What changed between the draft committee report and the plenary report

Added:(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) .../...+ amending Regulation (EU) No 600/2014 bans the payment for order flows across the Union. 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.

Removed:Article 1 – paragraph 1 – point 4 – point a, Article 27 – paragraphs 2, 3 and 6: (a) paragraphs 2, 3 and 6 are deleted;

Added:(8) The correct functioning of market data consolidation via a consolidated tape depends on the quality of the data the consolidated tape provider receives. Regulation (EU) No 600/2014 sets out requirements for the quality of data that contributors to the consolidated tape should adhere to. In order to ensure that investment firms and market operators operating an MTF or an OTF, and regulated markets, effectively meet those requirements, Member States should require that those investment firms and market operators have the necessary arrangements in place to do so.

Removed:Evidence from stakeholders show that RTS 27 and 28 reports are rarely read, do not enable users of those reports to make meaningful comparisons, and create additional costs for reporting entities. Besides, the introduction of the CT can provide valuable info to prove best execution. The reporting requirements under paragraphs 3 and 6 should be deleted as no longer relevant, but the best execution framework should be strengthened via changes to Par. 10 below. Par. 2 is removed as the provision will be moved to MiFIR. and clarified by modifications to Art 27(10) MiFID and new Art 39a in MiFIR.

Added:(9) The receipt of high quality data is of the utmost importance for the functioning of the consolidated tape and the internal market. That includes the need for all market data contributors and the consolidated tape provider to timestamp their data in a synchronized manner and thus to synchronise their business clocks. Regulation (EU) XX/XXX has therefore amended Regulation (EU) 600/2014 to extend that requirement, which under Directive 2014/65/EU only applied to trading venues and their members, to systematic internalisers, APAs and CTPs. Since that requirement is now laid down in Regulation (EU) 600/2014, it can be removed from Directive 2014/65/EU.

Removed:Directive 2014/65/EU

Added:(10) Within the framework regulating the Union’s markets in financial instruments, many substantive requirements laid down in Regulation (EU) No 600/2014 are supervised and sanctioned at national level and in accordance with Articles 69 and 70 of Directive 2014/65/EU. Regulation (EU) XX/XXXX has amended Regulation (EU) No 600/2014 to include new rules on the volume cap mechanism, on mandatory contributions of core market data to the consolidate tape, on data quality standards to which those contributions are subject and on the ban on receiving payments for forwarding client orders for execution. As the supervision of the relevant entities lies with national authorities, those new substantive requirements should be added to the list in Directive 2014/65/EU of provisions for which the Member States should provide sanctions at national level.

Removed:Article 1 – paragraph 1 – point 4 – point a b (new), Article 27 – paragraph 7: (ab) paragraph 7 is replaced by the following: / ‘7. Member States shall require investment firms who execute client orders to monitor the effectiveness of their order execution arrangements and execution policy in order to identify and, where appropriate, correct any deficiencies. In particular, they shall assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether they need to make changes to their execution arrangements. Member States shall require investment firms to notify clients with whom they have an ongoing client relationship of any material changes to their order execution arrangements or execution policy.’;

Added:(10a) The current ancillary activity exemption was amended by Directive (EU) 2021/338. That Directive also sets out that instead of a regulatory technical standard, the criteria for establishing when an activity is to be considered to be ancillary to the main business at group level would be established through a Commission delegated act. Commission Delegated Regulation (EU) 2021/1833 entered into force on 3 August 2021 and reduced the administrative burden for persons that trade in commodity derivatives or emission allowances or derivatives thereof on a professional basis to ascertain if they are eligible for the ancillary activity exemption. This exemption entails that they are not required to obtain authorisation as an investment firm when their trading activity is ancillary to their main business. All Union commodity firms can currently benefit from that exemption. Considering the size and nature of the business of some of these entities, and following the energy crisis of 2022, the Commission should review the ancillary activity exemption and how that rule has affected liquidity in and the orderly functioning of commodity markets. A review of this exemption was also mentioned in ESMA's answer to the Commission's call for advice to address the excessive volatility in energy derivatives markets. The Commission might also consider whether to mandate ESMA to revise or replace the current exemption test to ensure that the biggest entities are duly licenced and supervised as investment firms for their trading and investment service provision activities.

Removed:(02014L0065)

Added:(10b) Directive 2014/65/EU contains rules that require trading venues to implement mechanisms designed to limit excessive volatility in the markets, notably trading halts and price collars. However, the extreme circumstances that energy and commodity derivatives markets have experienced throughout the energy crisis of 2022 have led to a very low number of activations of those mechanisms and have shown that there is a lack of transparency around the activation of those mechanisms by the relevant trading venues in the Union, as highlighted in ESMA's answer to the Commission's call for advice to address the excessive volatility in energy derivatives markets. Market participants would benefit from further information and more transparency on the circumstances that lead to trading being halted and on the main principles for establishing the technical parameters connected to the activation of those mechanisms. In addition, ESMA should consider to what extent the level of discretion left to trading venues regarding to the activation of those mechanisms should be reduced. These considerations should be carefully weighted against the necessity to account for the differences in liquidity of different asset classes and sub-classes, the nature of the market model and the types of users of different trading venues across the Union. In addition, national competent authorities should carefully monitor the use of those mechanisms by trading venues and make use of their supervisory powers as appropriate.

Removed:Removes reference to paragraphs 3 and 6 as they would be redundant should those two paragraph be deleted as proposed above.

Added:(10c) Directive (EU) 2021/338 also modified the regime on position limits and position management controls. Following the energy crisis of 2022 and the resulting higher and more frequent margin calls and extreme volatility, a comprehensive revision of the appropriateness of the position limits and position management controls regime to assess whether they are still conducive to the prevention of market abuse and the support for orderly pricing and settlement conditions is warranted. To ensure that all relevant elements are considered when carrying out the review, ESMA should consider not just the effectiveness of the regimes but also the appropriateness of the definition of a critical or significant position and of the limitation of the scope. In carrying out its analysis, ESMA should consider that commodity derivatives markets play an important role in ensuring that market participants can properly risk manage the necessary investments for the energy transition, and that setting the right parameters is very important to ensure that the Union has competitive liquid commodity derivatives markets that ensure the strategic autonomy of the Union, while preventing market abuse and supporting orderly pricing and settlement conditions.

Removed:Directive 2014/65/EU

Added:HAVE ADOPTED THIS DIRECTIVE:

Removed:Article 1 – paragraph 1 – point 4 – point b, Article 27 – paragraph 10 – point a: deleted

Added:Directive 2014/65/EU is amended as follows:

Removed:Current best execution regime proved to be ineffective. New Article 39a in MiFIR clarifies retail orders' best execution rules related, meaning that Article 27(2) should be deleted. Regulators and stakeholders also show that requirements for professional clients could benefit from further clarification. ESMA should develop RTS on the criteria for defining and assessing order execution policy of investment firms, differentiating between professional and retail clients and ensuring that the current divergence in supervisory interpretations is minimised, or at least reduced.

Added:1. in Article 1, paragraph 7, is deleted;

Removed:Directive 2014/65/EU

Added:2. ▌Article 2 is amended as follows:

Removed:Article 1 – paragraph 1 – point 4 – point b, Article 27 – paragraph 10: (b) paragraph 10 is replaced by the following: / ‘10. ESMA shall develop draft regulatory technical standards on the criteria to be taken into account when defining and assessing the order execution policy under paragraphs 5 and 7, taking into account whether the orders are executed on behalf of retail or professional clients. / Those criteria shall include at least the following: / (a) factors determining the choice of execution venues included in the order execution policy; / (b) the periodicity of assessing and updating the order execution policy; / (c) ways of defining classes of financial instruments under paragraph 5. / ESMA shall submit those draft regulatory technical standards to the Commission by ... [9 months after the date of entry into force of this Directive]. / Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph of this Article in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.’;

Added:(a) in paragraph 1, point (d), point (ii) is replaced by the following:

Removed:Current best execution regime proved to be ineffective. New Article 39a in MiFIR clarifies retail orders' best execution rules related, meaning that Article 27(2) should be deleted. Regulators and stakeholders also show that requirements for professional clients could benefit from further clarification. ESMA should develop RTS on the criteria for defining and assessing order execution policy of investment firms, differentiating between professional and retail clients and ensuring that the current divergence in supervisory interpretations is minimised, or at least reduced.

Added:‘(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 for the purpose of liquidity management or 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;’;

Removed:Directive 2014/65/EU

Added:(b) in paragraph 4, the first two subparagraphs are replaced by the following:

Removed:Article 1 – paragraph 1 – point 6 - point g, Article 47 – paragraph 1 – point f a (new): ‘(fa) to have at least two materially active liquidity providers each having the opportunity to interact with the independent order flow with regard to price formation.’;

Added:‘4. By [18 months after the entry into force of this amending Directive], the Commission shall adopt a delegated act in accordance with Article 89 in order to supplement this Directive by specifying, for the purpose of point (j) of paragraph 1 of this Article, the criteria for establishing when an activity is to be considered to be ancillary to the main business at group level.

Removed:The requirement to have at least two materially active liquidity providers each having the opportunity to interact with the independent order flow with regard to price formation is contained in Article 18(7) of MiFID - applying to OTFs and MTFs. The amendments seeks to extend this requirement to Regulated Markets.

Added:Those criteria shall take into account the following elements:

Removed:Directive 2014/65/EU

Added:(a) whether the net outstanding notional exposure in commodity derivatives or emission allowances or derivatives thereof for cash settlement traded in the Union, excluding commodity derivatives or emission allowances or derivatives thereof traded on a trading venue, is below an annual threshold of EUR 3 billion; or

Removed:Article 1 – paragraph 1 – point 6 a (new), Article 49 – paragraph 2 – point b a (new): 6a. in Article 49(2) the following point is added: / ‘(ba) in the case of shares with a non-EEA ISIN, or shares referred to in Article 23(1), point (a), for which the venue that is the most relevant market in terms of liquidity is in a third country, have the same tick size that applies on that venue.’;

Added:(b) whether the capital employed by the group to which the person belongs is predominantly allocated to the main business of the group; or

Removed:The amendment seeks to allow, for third country shares, the use of the prevailing tick size on the main exchange in that third country, in order to align the Union’s standards with international practices and to ensure the competitiveness of EU firms.

Added:(c) whether or not the size of the activities referred to in point (j) of paragraph 1 exceeds the total size of the other trading activities at group level; or

Removed:Directive 2014/65/EU

Added:(ca) whether and to what extent the investment services are provided for hedging purposes.’;

Removed:Article 1 – paragraph 1 – point 7 a (new), Article 51 – paragrah 3 – subparagraph 1: 7a. in Article 51(3), the first subparagraph is replaced by the following: / ‘3. In addition to the obligations set out in paragraphs 1 and 2, Member States shall require the regulated market to establish and maintain effective arrangements to verify that issuers of transferable securities that are admitted to trading on the regulated market have obtained the ISO 17442 Legal Entity Identifier and comply with their obligations under Union law in respect of initial, ongoing or ad hoc disclosure obligations.’;

Added:3. in Article 4 ▌, paragraph 1 is amended as follows:

Removed:(02014L0065)

Added:(a) point (19) is replaced by the following:

Removed:See justification for changes to Article 18.

Added:‘(19) multilateral system’ means a multilateral system as defined in Article 2(1), point (11), of Regulation (EU) No 600/2014;’;