Alternative Trading System
Committee of European Securities Regulators
European Economic Area
Financial Services Action Plan
Investment Services Directive
Markets in Financial Instruments Directive
Multilateral Trading Facility
Trade Reporting And Compliance Engine
Akerholm, J. and others Inter-institutional Monitoring Group, Second Interim Report Monitoring the Lamfalussy Process, January 2007, available at http://ec.europa.eu/internal market/finances/committees/index en.htm#interinstitutional
Committee of European Securities Regulators (CESR), 2006 Report on Supervisory Convergence in the Field of Securities Markets, June 2006.
D’Hondt, C., Giraud, J-R., MiFID: the (in)famous European Directive?, Edhec Risk and Asset Management Research Centre March 2007.
European Union, “Directive 2004/39/EC of the European Parliament and of the Council on Markets in Financial Instruments,” Official Journal of the European Union, May 30, 2004.
European Union, “Commission Directive 2006/73/EC” and “Commission Regulation (EC) 1287/2006, Official” Journal of the European Union, September 2, 2006.
JPMorgan, Chase 2006, A New Wholesale Banking Landscape (MiFID Report I) and Earnings at Risk Analysis: the Threat to the Integrated Business Model (MiFID Report II), September.
London Economics, 2002, Quantification of the Macro-Economic Impact of the Integration of EU Financial Markets, Study for the European Commission.
While the supranational legislative phase of the FSAP was largely completed by the 2005 target date, its full impact will only become clear in the years ahead. Appendix I provides a description of the main initiatives contained in the Financial Services Action Plan.
Various forms of ATSs exist, from order-driven systems as well as quote-driven or market-maker, systems, to bulletin boards and crossing systems. In Europe, MTFs have developed primarily in bond markets (e.g., Bondware, MTS and EuroMTS), and to a lesser extent in equity markets (e.g., Instinet, Tradelink). While most are focusing on wholesale market participants, some are accessible to retail investors.
Article 4(1)(7), Directive 2004/39. To be considered systematic internalization, such activity must be carried out according to non-discretionary rules and procedures, have a material commercial role for the firm, and must be available to clients on a regular or continuous basis.
See Appendix II for a list of passportable financial services and activities, and financial instruments covered by MiFID.
For activities conducted in another Member State from a branch located in a host country, home country regulation applies. Home/host supervisory arrangements for branches, and in particular the organization of transaction reporting remain among the most contentious interpretative issues.
Note that clearing and settlement costs are explicitly mentioned among execution costs that need to be considered. Mirroring this provision, the Directive stipulates that Member States cannot prevent investment firms, MTFs and regulated markets from using clearing and settlement systems located in other Member Sates.
“Professional clients” are investment firms, credit institutions, other large institutional investors and large undertakings. Among professional clients, the most sophisticated ones are considered (or can ask to be classified as) “eligible counterparties” and do not benefit from the protection afforded by the conduct of business rules.
Although hedge funds in Europe have to comply with a set of EU regulations (Market abuse, Prospectus, Money laundering), hedge fund activities remain regulated primarily at the level of each Member State.
Rather than being left to the discretion of national authorities, the definition of what constitutes a large trade and the permitted length of disclosure deferral are harmonized, and based on the average daily turnover in each share.
Liquid shares in the sense of the directive are shares trading daily with a significant volume or turnover, and with a free float of Euro 500 million or more. Standard market sizes are derived from the average value of trades observed on the relevant market for each share.
Member States have the option to extent and adapt this transparency regime to financial instruments other than equities.
TRACE (Trade Reporting And Compliance Engine) which was introduced in 2002 organizes real-time dissemination of transaction and price data on about 29,000 corporate bond issues (99 percent of the corporate bond universe).
The LSE may be particularly exposed to increased competition as it lists a large number of the most liquid European shares, those that are most likely to attract renewed interest from SIs and MTFs.
OMX is a major supplier of financial market technology solutions to other stock exchanges.
Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Merrill Lynch, Morgan Stanley, UBS, and ABN-Amro, the initial promoters of Project Boat are estimated to account for about 50 percent of equity trading in Europe. They have recently been joined by Barclays Capital, BNP Paribas, Dresdner Kleinwort, JPMorgan, Chase, and Royal Bank of Scotland.
Project Turquoise has been launched by some of the largest investment banks (Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley, and UBS), potentially themselves among the main SIs.
Wiener Boerse holds a minority stake in the Hungarian Stock Exchange, and has concluded cooperation agreements with eight other stock exchanges in Southeast Europe. Such cooperation agreements cover, for example, data dissemination, and the development and marketing of stock indices.
Structured financial products, such as Collateralized Debt/Loan Obligations (CDOs/CLOs) are excluded from MiFID provisions altogether, provided they are “customized” to the needs of a particular client.
These concerns are not limited to the implementation of MiFID, but also to other components of the Financial Services Action Plan. Similarly, they are not specific to CESR, but apply in similar terms to other Level 3 committees.
This is illustrated for example by the implementation of best execution principle: the nature of the requirements (e.g., both an obligation of means and results) and the diversity of situations where the principle applies would make a rule-based approach impracticable.
Legal acts are regulations, directives or decisions which have a legal effect (direct or via transposition into national law by the Member States). These Legal acts are adopted by the legislative branch (The Council and the European Parliament), or the Commission, when it is entitled to adopt implementing measures.
Initially limited to the securities markets, the Lamfalussy process was extended in November 2003 to the banking, insurance, and pension sectors as well as to the mutual funds industry.
Level 2 Committees are the European Securities Committee (ESC), the European Banking Committee (EBC), and the European Insurance Committee (EIC).
The Committee of European Securities Regulators (CSER), the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), and the Committee of European Banking Supervisors (CEBS).