1 

EUROPEAN COMMISSION 

Directorate General Internal Market and Services 

FINANCIAL SERVICES POLICY AND FINANCIAL MARKETS 

Securities markets 

8 December 2010 

PUBLIC CONSULTATION 

REVIEW OF THE MARKETS IN FINANCIAL INSTRUMENTS 

DIRECTIVE (MIFID) 

Important comment: this document is a working document of the Commission 

services for discussion and consultation purposes. It does not purport to represent 

or pre-judge the formal proposal of the Commission. 
TABLE OF CONTENTS 

1. INTRODUCTION .......................................................................................................................5 

2. DEVELOPMENTS IN MARKET STRUCTURES....................................................................8 

2.1. Defining admission to trading ...........................................................................................8 

2.2. Organised trading facilities................................................................................................9 

2.2.1. General requirements for all organised trading facilities ....................................9 

2.2.2. Crossing systems ...............................................................................................11 

2.2.3. Trading of standardised OTC derivatives on exchanges or electronic trading 

platforms where appropriate ..............................................................................12 

2.3. Automated trading and related issues..............................................................................14 

2.4. Systematic internalisers ...................................................................................................17 

2.5. Further alignment and reinforcement of organisational and market surveillance 

requirements for MTFs and regulated markets as well as organised trading facilities ...18 

2.6. SME markets ...................................................................................................................19 

3. PRE- AND POST-TRADE TRANSPARENCY.......................................................................21 

3.1. Equity markets .................................................................................................................22 

3.1.1. Pre-trade transparency .......................................................................................22 

3.1.2. Post trade transparency......................................................................................24 

3.2. Equity-like instruments....................................................................................................25 

3.3. Trade transparency regime for shares traded only on MTFs or organised trading 

facilities ...........................................................................................................................26 

3.4. Non equity markets..........................................................................................................27 

3.4.1. Pre-trade transparency .......................................................................................28 

3.4.2. Post-trade transparency......................................................................................28 

3.5. Over the counter trading ..................................................................................................29 

4. DATA CONSOLIDATION.......................................................................................................30 

4.1. Improving the quality of raw data and ensuring it is provided in a consistent format ....31 

4.2. Reducing the cost of post trade data for investors...........................................................32 

4.3. A European Consolidated tape ........................................................................................34 

5. MEASURES SPECIFIC TO COMMODITY DERIVATIVE MARKETS ..............................37 

5.1. Specific requirements for commodity derivative exchanges...........................................38 

5.2. MiFID exemptions for commodity firms.........................................................................40 

5.3. Definition of other derivative financial instrument .........................................................41 

5.4. Emission allowances........................................................................................................42 
6. TRANSACTION REPORTING................................................................................................43 

6.1. Scope ...........................................................................................................................44 

6.2. Content of reporting.........................................................................................................46 

6.3. Reporting channels ..........................................................................................................48 

7. INVESTOR PROTECTION AND PROVISION OF INVESTMENT SERVICES .................50 

7.1. Scope of the Directive .....................................................................................................51 

7.1.1. Optional exemptions for some investment service providers............................51 

7.1.2. Application of MiFID to structured deposits.....................................................52 

7.1.3. Direct sales by investment firms and credit institutions....................................53 

7.2. Conduct of business obligations ......................................................................................53 

7.2.1. "Execution only" services..................................................................................54 

7.2.2. Investment advice ..............................................................................................56 

7.2.3. Informing clients on complex products .............................................................58 

7.2.4. Inducements.......................................................................................................59 

7.2.5. Provision of services to non-retail clients and classification of clients.............61 

7.2.6. Liability of firms providing services .................................................................63 

7.2.7. Execution quality and best execution ................................................................63 

7.2.8. Dealing on own account and execution of client orders....................................64 

7.3. Authorisation and organisational requirements...............................................................66 

7.3.1. Fit and proper criteria ........................................................................................66 

7.3.2. Compliance, risk management and internal audit functions..............................67 

7.3.3. Organisational requirements for the launch of products, operations and 

services ..............................................................................................................68 

7.3.4. Specific organisational requirements for the provision of the service of 

portfolio management........................................................................................69 

7.3.5. Conflicts of interest and sales process...............................................................70 

7.3.6. Segregation of client assets................................................................................70 

7.3.7. Underwriting and placing ..................................................................................72 

8. FURTHER CONVERGENCE OF THE REGULATORY FRAMEWORK AND OF 

SUPERVISORY PRACTICES .................................................................................................73 

8.1. Options and discretions....................................................................................................73 

8.1.1. Tied agents.........................................................................................................73 

8.1.2. Telephone and electronic recording...................................................................74 

8.1.3. Additional requirements on investment firms in exceptional cases ..................75 

8.2. Supervisory powers and sanctions...................................................................................76 
8.2.1. Powers of Competent Authorities......................................................................77 

8.2.2. Sanctions (definition, amounts, publication).....................................................77 

8.3. Access of third country firms to EU markets ..................................................................78 

9. REINFORCEMENT OF SUPERVISORY POWERS IN KEY AREAS..................................80 

9.1. Ban on specific activities, products or practices..............................................................80 

9.2. Stronger oversight of positions in derivatives, including commodity derivatives ..........82 
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1. INTRODUCTION 

The Markets in Financial Instruments Directive (MiFID), applied since November 2007, 

is a core pillar in EU financial market integration. It consists of a framework Directive 

(Directive 2004/39/EC)1

, an Implementing Directive (Directive 2006/73/EC)2 and an 

Implementing Regulation (Regulation No 1287/2006)3

. This consultation focuses on the 

revision of the framework Directive 2004/39/EC while outlining when needed the 

possible changes in the implementing legislation which would follow at a later stage. All 

measures to be proposed for implementing legislation will be drawn up in accordance 

with relevant parts of the Treaty on the Functioning of the European Union and the case 

law of the European Court of Justice4. When implementing acts are considered, it is 

without prejudice to the power of the Commission to decide on the legal form of the 

implementing act, including technical standards. 

MiFID's main objectives are to improve the competitiveness of EU financial markets by 

creating a genuine single market for investment services and activities, and to ensure a 

harmonised, high degree of protection for investors in financial instruments, such as 

shares, bonds, derivatives and various structured products. Greater competition across 

Europe in the provision of services to investors and between trading venues is intended 

to contribute to deeper, more integrated and liquid financial markets, to drive down the 

cost of capital for issuers, to deliver better and cheaper services for investors, and thus to 

contribute to economic growth and job creation. 

Almost three years after it became applicable, MiFID has already brought about 

significant changes in spite of the worst financial crisis in decades. The Directive has 

driven further competition and innovation and better protection and services for 

investors. Competition has emerged between trading venues and at the same time the 

Directive has introduced harmonised requirements in terms of fair and orderly trading 

and uniform transparency requirements for shares. Also, investment firms now have the 

freedom to provide investment services across the EEA if they comply with rigorous 

investor protection requirements. The Directive has generally resulted in higher and more 

comprehensive investor protection requirements. 

There is evidence that greater competition under MiFID between trading venues has 

resulted in lower trading costs per transaction, reduced bid-ask spreads and faster trading 

times. There is more choice for investors and greater opportunities for pan-European 

trading i.e. an investor can now access a single venue to trade in the most liquid shares 

across the EEA rather than being required to connect to many different venues. As well 

 

1 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (OJ L 145, 

30.4.2004) 

2 Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the 

Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of 

that Directive (OJ L 241/1 2.09.2006) 

3 Commission Regulation (EC) No 1287/2006 of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and 

of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of 

financial instruments to trading and defined terms for the purposes of that Directive (OJ L 241/1 2.09.2006)

4 Articles 290 and 291 of the TFEU (OJ C 83/1, 30.3.2010) and Judgment of 13 June 1958, Meroni / ECSC High Authority (9/56, ECR 

1957-1958 p. 133)
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as breaking national monopolies, there has been increased competition between clearing 

houses with new clearing services being set up to clear for the newer trading venues. 

New services have also emerged in the public reporting of trades, another area where 

MiFID broke existing monopolies. 

Positive feedback has been received from market participants although many emphasise 

that the effects of the Directive are still a work in progress and that the full benefits to 

markets and investors from the Directive will only be fully realised over a longer time 

period. 

Still, market developments and experience amid the financial crisis demonstrate that the 

key organising principles of MiFID – a regulatory framework centred on shares and 

regulated markets – need updating. This need has also been recognised at the G20 level 

and thus important third country jurisdictions are also involved in a reform process in 

this area. The need to adapt regulation to serve a more complex market reality 

characterised by increasing diversity in financial instruments and methods of trading is 

reflected in all major recent EU reforms in the financial services area, including the 

review of the Market Abuse Directive,5 and the proposals on OTC derivatives, central 

counterparties and trade repositories,6

 and on short-selling and certain aspects of credit 

default swaps7

 adopted by the Commission on 15 September 2010. 

Further, developments in specific areas such as commodity markets call for targeted 

reforms, both in the regulation of commodity derivative markets covered by MiFID and 

other relevant legislation and in the regulation of physical markets. 

More specifically, a number of overlapping factors underline the need for a review. 

– First, the revision of MiFID is an essential part of the structural reforms aimed at 

establishing a safer, sounder, more transparent and more responsible financial 

system working for the economy and society as a whole in the aftermath of the 

financial crisis.8

– Second, as part of the consensus under the G209

 to tackle less regulated and more 

opaque parts of the financial system, significant extensions are required in MiFID 

as regards the organisation, transparency and oversight of various markets 

segments, especially in those instruments traded mostly over the counter (OTC).10

The amendments to MiFID on these topics would be complementary to the new 

framework on the infrastructures for derivatives markets included in the 

 

5 For which a consultation was carried out in summer 2010. For further information see 

http://ec.europa.eu/internal_market/consultations/2010/mad_en.htm 

6 COM(2010) 484 

7 COM(2010) 482 final 

8 See Communication by the Commission dated 2nd June 2010 on Regulating financial services for sustainable growth (COM (2010) 

301) 

9 See for example Leaders' statements of Pittsburgh Summit 24-25 September 2009 and Seoul Summit 11-12 November 2010, 

http://www.pittsburghsummit.gov/mediacenter/129639.htm 

http://media.seoulsummit.kr/contents/dlobo/E1._Seoul_Summit_Leaders_Declaration.pdf 

10 As a result, on 20 October 2009, the Commission issued a Communication on ensuring efficient, safe and sound derivatives 

markets: future policy actions (COM(2009)563 final). 
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legislative proposal on OTC derivatives, central counterparties and trade 

repositories. 

– Third, in order to support the original purpose of efficient and integrated financial 

markets and to take account of rapid changes in market structure and 

technological development, a number of unforeseen developments that could 

affect the smooth and efficient functioning of EU equity markets need to be 

addressed. 

– Fourth, amid the financial crisis, improvements to MiFID are also necessary in 

order to further strengthen high standards of investor protection throughout the 

EU. 

– Finally, in line with proposals from the de Larosière group and ECOFIN,11 the 

EU has committed to minimise, where appropriate, discretions available to 

Member States across EU financial services directives. This will be a common 

thread across all areas to be covered by the review of MiFID and will contribute 

to establishing a single rulebook for EU financial markets, help level the playing 

field between Member States, improve supervision and enforcement, reduce costs 

for market participants, and improve conditions of access and competition across 

the EU.12 

CESR has conducted various consultations and has been providing technical advice13 to 

the Commission in the context of the MiFID review and responses to the Commission 

request for additional information, where further areas for analysis were also included.14 

This consultation document is divided into the following sections: 

1. Addressing developments in market structures; 

2. Improvements to pre- and post-trade transparency in EU equity markets, and new 

measures on pre- and post-trade transparency in non-equity markets; 

3. Improvements regarding market data consolidation; 

4. Measures specific to commodity derivative markets; 

5. Clarifications and necessary extensions to transaction reporting; 

6. Investor protection and provision of investment services; 

7. Further convergence of the regulatory framework and supervisory practices; 

8. Reinforcement of key supervisory powers. 

 

11 See Report of High-level Group on Financial Supervision in the EU chaired by Jacques de Larosière, 25 February 2009, and Agreed 

Council conclusions on Strengthening EU Financial Supervision, 10 June 2009. 

12 Specific national discretions which have not been used by any Member State will not be part of this consultation document. 

13 See CESR Technical Advice to the European Commission in the context of the MiFID Review and Responses to the European 

Commission Request for Additional Information, 29 July and 13 October 2010, www.cesr.eu 

14 Further, regulatory changes in response to similar concerns have been proposed or are being considered in various other countries 

as well. The Commission is in close contact with authorities in many of these countries. The Commission services are also following 

closely the work of the European Parliament, which is in the process of adopting an own-initiative report touching upon several

relevant topics.
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This consultation is open until 2 February 2011. Responses should be addressed to 

markt-consultations-mifid@ec.europa.eu. The Commission services will publish all 

responses received on its website unless confidentiality is specifically requested. For 

administrative purposes please clearly state, in the email text, the following information: 

– Name of organisation/person; 

– If you are registered with the Commission as an "interest representative"15

your identification number; 

– Relevant contact details; and 

– Confirmation that you acknowledge that your response will be published. 

The purpose of this public document is to consult market participants, regulators and 

other stakeholders. Responses to this consultation will provide important guidance for 

the Commission services in preparing a formal Commission proposal, which is currently 

scheduled for adoption in spring 2011. The proposal will be accompanied by an impact 

assessment. 

2. DEVELOPMENTS IN MARKET STRUCTURES

Conceptually, MiFID is predicated largely on markets in shares, in which regulated 

exchanges have traditionally been playing a central role. The emergence of alternative 

trading functionalities, rapid technological developments, and the growing spotlight on 

OTC trading all challenge this paradigm. It is therefore necessary to update the Directive 

to provide a more suitable, clear, and robust regulatory coverage of all different types of 

trading facilities, technological applications, and methods of execution which exist today 

or may emerge in the foreseeable future. Together with the considerations below on 

improving pre- and post-trade transparency in both equity and non-equity markets, 

providing for the comprehensive consolidation of market data in the more fragmented 

and competitive trading environment generated by MiFID, as well as enhancements to 

investor protection and supervision, these changes aim to support market liquidity and 

efficiency, and improve investor confidence. 

2.1. Defining admission to trading 

The concept of a financial instrument being "admitted to trading" on a trading venue is a 

central concept that is used in MiFID and in other directives relating to financial 

services. In order to add clarity to this concept and cope with recent developments in the 

financial markets (notably more instruments being admitted to trading on multilateral 

trading facilities (MTFs)) a specific definition could be included in Article 4 of the 

MiFID framework directive. Admission to trading would be defined as the decision by 

the operator of a regulated market, MTF, or organised trading facility (see section 2.2 

below) to allow a financial instrument to be traded on its systems. This would include a 

decision that allows any conditional trading to take place on its systems. 

 

15 https://webgate.ec.europa.eu/transparency/regrin/welcome.do 
9

(1) What is your opinion on the suggested definition of admission to 

trading? Please explain the reasons for your views. 

2.2. Organised trading facilities 

MiFID is not prescriptive about where trades must be executed and provides flexibility 

and a choice for investors about where and how they wish to execute trades. Trading 

venues or platforms under MiFID are regulated markets, MTFs or systematic 

internalisers.16 In order to address evolving market practices and technological 

developments, and mitigate harmful regulatory arbitrage, a broad definition in MiFID 

could be introduced to suitably regulate all organised trading occurring outside the 

current range of MiFID venues.17 This could be accompanied by a change in the 

framework directive to ensure that the operation of an organised trading facility would 

become an investment service,18 for which authorisation is required. 

The definition of an organised trading facility would capture any facility or system 

operated by an investment firm or a market operator that on an organised basis brings 

together buying and selling interests or orders relating to financial instruments. This 

would cover facilities or systems whether bilateral or multilateral and whether 

discretionary or non-discretionary. The definition would exclude facilities or systems 

that are already regulated as a regulated market, MTF or systematic internaliser. 

Examples of organised trading facilities would include broker crossing systems and interdealer broker systems bringing together third-party interests and orders by way of voice 

and/or hybrid voice/electronic execution.19 

The definition would be broad and capable of applying to new organised trading facilities 

that may emerge in the future. By definition, it would exclude pure OTC trading (i.e. 

bilateral trades carried out on an ad hoc basis between counterparties and not under any 

organised facility or system) as characterised in MiFID.20 It would also exclude systems 

or facilities used simply to execute an order on an external trading venue or to route an 

order to an external trading venue. 

2.2.1. General requirements for all organised trading facilities 

Such an organised trading facility could be subject to certain core requirements with the 

possibility that for various sub-regimes there could be further relevant requirements 

 

16 As defined in Article 4(1)(7), (14) and (15) of Directive 2004/39/EC 

17 In Article 4(1) of Directive 2004/39/EC 

18 In Annex I, Section A of Directive 2004/39/EC 

19 Some of the systems captured here can be classified as so-called "dark pools" of liquidity (Cf. the IOSCO Consultation Report 

"Issues Raised by Dark Liquidity", October 2010, p. 4). Dark pools are trading systems where there is no pre trade transparency of 

orders in the system (i.e. there is no display of prices or volumes of orders in the system). Dark pools can be split into two types: 

systems such as crossing networks that cross orders and are not subject to pre-trade transparency requirements and trading venues 

such as regulated markets and MTFs that use waivers from pre-trade transparency not to display orders (see section 3.1.1. below). 

20 Recital 53 of Directive 2004/39/EC wherein OTC trading is characterised as "ad-hoc and irregular and (...) carried out with 

wholesale counterparties and (...) part of a business relationship which is itself characterised by dealings above standard market 

size..."
10

applied if appropriate such as those discussed in sections 2.2.2 and 2.2.3 below. 

However, all of them would be subject to the following requirements:21 

a) A complete notification and description of the facility or system of the 

investment firm or market operator to the competent authority including, at least, 

details of the trades that may be executed using the system, the range of financial 

instruments it covers, the trading methodology, and the arrangements for posttrade processing; 

b) The competent authority would notify the European Securities and Markets 

Authority (ESMA)22, which would maintain a complete list of all such facilities 

and publish the details of the system on its website together with a unique code 

identifying the system for use in transaction reports to competent authorities and 

post-trade transparency reports to the public, where required in the relevant parts 

of MiFID (see sections 3 and 5 below); 

c) The adoption and publication of clear rules regarding access to the facility or 

system; 

d) The adoption of clear and effective arrangements for the identification and 

management of conflicts of interest that may arise from operation of the facility 

or system; 

e) The adoption of arrangements for the sound management of the technical 

operations of the facility or system, including the establishment of effective 

contingency arrangements to cope with risks of systems disruptions; 

f) The monitoring of all trading taking place on the facility or system with a view 

to identify conduct involving market abuse; 

g) The compliance with instructions from the competent authority to suspend or 

remove a financial instrument from trading under Article 41(2) of MiFID; 

h) For facilities offering trading in commodity derivative contracts, compliance 

with the reporting obligation in Section 5.1 below. 

Finally, after reaching an asset-specific threshold an organised trading facility would 

convert to a MTF. 

(2) What is your opinion on the introduction of, and suggested 

requirements for, a broad category of organised trading facility to apply to all 

organised trading functionalities outside the current range of trading venues 

recognised by MiFID? Please explain the reasons for your views. 

(3) What is your opinion on the proposed definition of an organised 

trading facility? What should be included and excluded? 

 

21 In addition to those in Article 13, to be included in Chapters I and II of Title II of Directive 2004/39/EC 

22 Regulation (EU) No .../2010 of the European Parliament and of the Council establishing a European Supervisory Authority 

(European Securities and Markets Authority) amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC 
11

(4) What is your opinion about creating a separate investment service 

for operating an organised trading facility? Do you consider that such an 

operator could passport the facility? 

(5) What is your opinion about converting all alternative organised 

trading facilities to MTFs after reaching a specific threshold? How should this 

threshold be calculated, e.g. assessing the volume of trading per facility/venue 

compared with the global volume of trading per asset class/financial 

instrument? Should the activity outside regulated markets and MTFs be 

capped globally? Please explain the reasons for your views. 

2.2.2. Crossing systems 

Matching of client orders is an activity traditionally carried on by brokers. While such 

activities are still carried on manually by brokers, in the last few years, investment firms 

have increasingly developed automated systems to help internally match client orders 

where possible. Typically such systems (known as broker crossing systems) use 

algorithms to slice larger parent orders into smaller 'child' orders before they are sent for 

matching. Some systems will try to match only client orders while others also provide 

matching between client orders and house orders (with the permission of clients). If 

client orders are not matched internally they are then routed on to a trading venue for 

execution. 

The execution of clients' orders is subject to client-oriented conduct of business rules,23

but the activity of operating a system to match clients' orders is not regulated as a market 

unless it meets the criteria for being defined as a multilateral trading facility (MTFs).24

Such systems can be viewed as a hybrid between a facility to assist execution of clients' 

orders and a multilateral system that brings together orders. 

The Commission services consider it appropriate to define and create a new sub-regime 

for crossing systems within the family of organised trading facilities.25 Such a regime 

would cover not only equities but also other types of financial instruments. 

The Commission services consider it appropriate to clarify that if orders are entered into 

a crossing system not only by the operator but also by any third party, this would 

transform the system into a MTF and the relevant requirements including any pre-trade 

transparency would apply to the system. Similarly, if a broker executes client orders 

against its own proprietary capital within a crossing system then this would prima facie 

trigger the application of the systematic internaliser regime. 

The new regime for crossing networks would be proportionate, take into account the 

hybrid nature of the business and that firms operating such systems are already subject to 

 

23 Articles 19, 20, 21 and 22 of Directive 2004/39/EC 

24 They are required for example to comply with conduct of business and best execution provisions as well as to publish transactions in 

shares admitted to trading on a regulated market, to have arrangements in place to prevent conflicts of interest from damaging 

clients' interests, and to notify competent authorities when they suspect a transaction might constitute insider dealing or market 

manipulation. 

25 In Article 4 of Directive 2004/39/EC
12

client facing obligations, transaction reporting requirements and post-trade transparency 

requirements. 

In addition to the requirements under Section 2.2.1 above, the Commission services 

consider that the sub-regime for such a system would specify that:26

a) The operator would add the identifier for its crossing system to post-trade 

information, when this is required under post-trade transparency provisions in 

MiFID, about transactions executed on the system. Operators would be required 

to make public aggregated information at the end of each day about the number, 

value and volume of all transactions executed using the system; 

b) The operator would identify in transaction reports whether the transaction was 

executed on the system. 

(6) What is your opinion on the introduction of, and suggested 

requirements for, a new sub-regime for crossing networks? Please explain the 

reasons for your views. 

(7) What is your opinion on the suggested clarification that if a crossing 

system is executing its own proprietary share orders against client orders in 

the system then it would prima facie be treated as being a systematic 

internaliser and that if more than one firm is able to enter orders into a system 

it would be prima facie be treated as a MTF? Please explain the reasons for 

your views. 

2.2.3. Trading of standardised OTC derivatives on exchanges or electronic trading 

platforms where appropriate27

Significant efforts are underway to improve the stability, transparency and oversight of 

OTC derivatives markets. As part of this, it has been agreed globally to ensure that, 

where appropriate, trading in standardised OTC derivatives moves to exchanges or 

electronic trading platforms.28 At a minimum this would imply that trading on exchanges 

and electronic platforms becomes the norm when the market in a given derivative is 

suitably developed, and when the shift to such platforms furthers the G20 commitment29

as well as provides benefits additional to those brought by greater standardisation, more 

central clearing and reporting to trade repositories in terms of transparency, competition, 

market oversight and price formation.30 

 

26 To be included in Chapters I and II of Title II of Directive 2004/39/EC 

27 As stated in the Commission Communication on ensuring efficient, safe and sound derivatives markets: future policy actions 

(COM(2009)563 final), trading of OTC derivatives should be tackled in the MiFID review. 

28 The September 2009 G20 summit concluded that "all standardized OTC derivative contracts should be traded on exchanges or 

electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest." 

29 To increase transparency, mitigate systemic risk, and protect against market abuse. 

30 While it is important to consider which different kinds of trading venues correspond to the G20 characterisation of exchanges and 

electronic trading platforms, this focus on the outcome renders the issue slightly less relevant. Therefore, it is to be anticipated that 

while different jurisdictions will continue to have diverging execution arrangements and requirements, they will make regulatory 

choices in favour of certain venues in accordance with internationally agreed principles, thereby minimising the risk of regulatory 

arbitrage.
13

Against this background, and taking full account of the views of the European 

Parliament31 and CESR32, the Commission services consider that the MiFID framework 

directive could be amended33 to require all trading in derivatives which are eligible for 

clearing and sufficiently liquid to move either to: 

a) Regulated markets; 

b) MTFs; or 

c) A specific sub-regime of organised trading facilities, to be precisely defined in 

MiFID.34

In order for a venue to qualify under this specific sub-regime, it could not only fulfil the 

conditions of section 2.2.1 above, but also fulfil the following criteria:35 

a) Provide non-discriminatory multilateral access to its facility; 

b) Support the application of pre- and post-trade transparency as per section 3.4 

below; 

c) Report transaction data to trade repositories; 

d) Have dedicated systems or facilities in place for the execution of trades. 

ESMA, after issuing a decision pursuant to Article 4 of the proposal on a Regulation on 

OTC derivatives, central counterparties and trade repositories,36 could assess and decide 

when a derivative which is eligible for clearing is sufficiently liquid to be traded 

exclusively on the various organised venues as defined above. ESMA could base its 

decision on, for example, the frequency of trades in a given derivative and the average 

size of transactions. As part of this ESMA would systematically also consider in which 

cases trading on exchanges or electronic trading platforms furthers the G20 commitment. 

This could be the case when, for example, there is an over-concentration of dealers in a 

specific derivative, a large-scale presence of buy-side investors in relation to sell-side 

participants in a given derivative, or when market oversight is shown to be hampered. 

The criteria for assessing sufficient liquidity and these other parameters would need to be 

specified at a subsequent stage. 

(8) What is your opinion of the introduction of a requirement that all 

 

31 European Parliament resolution of 15 June 2010 on derivatives markets: future policy actions (A7-0187/2010) calls for "as many 

eligible derivative products as possible [to] be traded on organised markets [and] for provision of incentives that encourage the 

trading of eligible derivative products on trading venues regulated by MiFID, i.e. on regulated markets and multilateral trading 

facilities (MTFs); ... all financial derivatives that concern public finances in the EU (including sovereign debt of Members States and 

local administration balance sheets) must be standardised and traded on exchange or other regulated trading platforms in order to 

promote transparency of derivatives markets for the public". 

32 CESR Technical Advice to the European Commission in the Context of the MiFID Review - Standardisation and Organised Platform

Trading of OTC Derivatives (CESR/10-1096) 

33 With the introduction of a new title on derivatives 

34 To be defined in Article 4 of Directive 2004/39/EC, see section 2.2.1 above 

35 To be included in Chapters I and II of Title II of Directive 2004/39/EC

36 COM(2010) 484 
14

clearing eligible and sufficiently liquid derivatives should trade exclusively on 

regulated markets, MTFs, or organised trading facilities satisfying the 

conditions above? Please explain the reasons for your views. 

(9) Are the above conditions for an organised trading facility 

appropriate? Please explain the reasons for your views. 

(10) Which criteria could determine whether a derivative is sufficiently 

liquid to be required to be traded on such systems? Please explain the reasons 

for your views. 

(11) Which market features could additionally be taken into account in 

order to achieve benefits in terms of better transparency, competition, market 

oversight, and price formation? Please be specific whether this could consider 

for instance, a high rate of concentration of dealers in a specific financial 

instruments, a clear need from buy-side institutions for further transparency, 

or on demonstrable obstacles to effective oversight in a derivative trading 

OTC, etc. 

(12) Are there existing OTC derivatives that could be required to be 

traded on regulated markets, MTFs or organised trading facilities? If yes, 

please justify. Are there some OTC derivatives for which mandatory trading 

on a regulated market, MTF, or organised trading facility would be seriously 

damaging to investors or market participants? Please explain the reasons for 

your views. 

2.3. Automated trading and related issues 

Automated trading also known as algorithmic trading can be defined as the use of 

computer programmes to enter trading orders where the computer algorithm decides on 

aspects of execution of the order such as the timing, quantity and price of the order. This 

form of trading is used by an increasingly wide range of market users (including for 

example funds and brokers). A specific type of automated or algorithmic trading is 

known as high frequency trading (HFT). HFT is typically not a strategy in itself but the 

use of very sophisticated technology to implement traditional trading strategies.37

Existing evidence is inconclusive about the impact of HFT on market efficiency. Some 

studies suggest that HFT using market making and arbitrage strategies has added 

liquidity to the market, reduced spreads and helped align prices across markets.38

However, the average transaction size has decreased considerably and some participants 

question the value of the additional liquidity provided. They argue there may be 

improved liquidity for investors who trade retail-size orders but it is now more difficult 

for institutional investors to execute large orders. Also, there are different views about 

whether HFT increases or reduces market volatility. 

 

37 Although there is debate about how it could be defined, it is perhaps best defined as trading that uses sophisticated technology to 

try to interpret signals from the market and, in response, executes high volume, automated trading strategies, usually either quasi 

market making or arbitraging, within very short time horizons. It usually involves execution of trades as principal (rather than for a 

client) and involves positions being closed out at the end of the day. 

38 In its Technical advice to the European Commission in the context of the MiFID review (dated 29 July 2010), CESR estimates that 

between 13 to 40% of total share trading was from HFT. 
15

Perhaps the most significant new risk arising from automated trading is the threat it can 

pose to the orderly functioning of markets in certain circumstances. Such threats can 

arise from rogue algorithms, from algorithms overreacting to market events or from the 

increased pressure on trading venue systems to cope with the large numbers of orders 

generated by automated trading.39 These risks can arise whether the automated trader has 

direct access to the market or uses the facilities of another firm to access the market 

(sometimes referred to as 'sponsored access').40

For HFT there are concerns that not all high frequency traders are currently required to 

be authorised under MiFID as the exemption in Article 2.1(d) of the framework directive 

for persons who are only dealing on own account can be used by such traders. Therefore 

there is a concern that even if a HFT trader is involved in a significant amount of trading 

they may not necessarily be subject to MiFID requirements and to supervision by a 

competent authority. 

Some market participants have also raised concerns that they are at a disadvantage to 

HFT as they are not able to make a similar investment in trading technology. Such 

participants argue they are at a disadvantage as HFT can execute orders and hit liquidity 

ahead of them. 

While HFT may be increasingly providing liquidity to the market in the place of more 

traditional market making activities, some investors suggested that unlike registered 

market makers on trading venues there is no obligation or incentive for high frequency 

traders to continue to provide liquidity to the market in the event of adverse market 

conditions. Therefore, they are able to withdraw liquidity at any time. 

There have also been concerns raised by some market participants that some specific 

algorithmic trading strategies may be contrary to the Market Abuse Directive (MAD)41. 

If practices are contrary to the MAD then action should already be taken by competent 

authorities under that directive as the prohibitions are broadly drafted to cover all forms 

of trading. Nonetheless the Commission services consider that further improvements 

could be introduced in this directive, notably by better defining conduct or practices by 

means of automated trading that may constitute market abuse. 

The Commission services consider that the framework directive could be amended as 

follows: 

a) Automated trading would be defined42 in a broad manner. Automated trading 

would be defined as trading involving the use of computer algorithms to 

determine any or all aspects of the execution of the trade such as the timing, 

quantity and price. High frequency trading would be considered a subcategory of 

automated trading; 

 

39 The 6 May 2010 "flash crash" is a possible case in point although the specific trigger of events appears not to relate directly to HFT. 

40 IOSCO released in August 2010 its final report on "Principles for Direct Electronic Access to Markets" under which it recommends 

that "neither the market nor an intermediary should offer Direct Electronic Access (DEA) unless adequate pre-trade information is 

provided, and both regulatory and financial controls, including automated pre-trade controls, are in place to enable intermediaries to 

implement appropriate risk limits." 

41 While the majority of algorithmic trading strategies do not involve abusive behaviour, specific strategies (such as layering and 

spoofing) could breach the Market Abuse Directive and have been subject to guidance issued by supervisors. 

42 In Article 4 of Directive 2004/39/EC
16

b) All persons involved in high frequency trading over a specified minimum 

quantitative threshold would be authorised as investment firms.43 This would 

ensure that they are subject to organisational requirements (such as systems and 

risk management obligations and capital requirements) and to full regulatory 

oversight; 

c) A series of new specific organisational requirements44 would be introduced with 

the possibility of further specification in implementing acts on each of the issues 

below: 

- authorised firms involved in automated trading would have in place 

robust risk controls to mitigate potential trading system errors; 

- firms involved in automated trading would notify their competent 

authority of the computer algorithm(s) they employ, including an 

explanation of its design, purpose and functioning; 

- firms who provide "sponsored access" to automated traders would have 

in place robust risk controls and filters to detect errors or attempts to 

misuse facilities; 

- operators of trading venues would have in place proper risk controls and 

arrangements to mitigate the risk of errors generated by automated 

trading leading to disorderly trading (e.g. circuit breakers) or the 

breakdown of their trading systems (e.g. by stress testing to ensure 

resilience); 

- operators of trading venues would give equal and fair access to market 

participants to co-location services. 

d) Implementing measures could further specify minimum tick sizes;45

e) Market operators would be required to ensure46 that if a high frequency trader 

executes significant numbers of trades in financial instruments on the market then 

it would continue providing liquidity in that financial instrument on an ongoing 

basis subject to similar conditions that apply to market makers; and 

f) Market operators would be required to ensure47 that orders would rest on an order 

book for a minimum period before being cancelled. Alternatively they would be 

required to ensure that the ratio of orders to transactions executed by any given 

participant would not exceed a specified level. In either case, further specification 

would be needed on the specific period or level. 

(13) Is the definition of automated and high frequency trading provided 

above appropriate? 

(14) What is your opinion of the suggestion that all high frequency 

 

43 In Article 5 of Directive 2004/39/EC 

44 In Articles 13, 14 and 39 of Directive 2004/39/EC and relevant new provisions applicable to organised trading facilities 

45 These would need to apply to all trading, not just automated trading 

46 In Articles 14 and 39 of Directive 2004/39/EC and relevant new provisions applicable to organised trading facilities

47 In Articles 14 and 39 of Directive 2004/39/EC and relevant new provisions applicable to organised trading facilities 
17

traders over a specified minimum quantitative threshold would be required 

to be authorised? 

(15) What is your opinion of the suggestions to require specific risk 

controls to be put in place by firms engaged in automated trading or by firms 

who allow their systems to be used by other traders? 

(16) What is your opinion of the suggestion for risk controls (such as 

circuit breakers) to be put in place by trading venues? 

(17) What is your opinion about co-location facilities needing to be 

offered on a non-discriminatory basis? 

(18) Is it necessary that minimum tick sizes are prescribed? Please 

explain why. 

(19) What is your opinion of the suggestion that high frequency traders 

might be required to provide liquidity on an ongoing basis where they 

actively trade in a financial instrument under similar conditions as apply to 

market makers? Under what conditions should this be required? 

(20) What is your opinion about requiring orders to rest on the order 

book for a minimum period of time? How should the minimum period be 

prescribed? What is your opinion of the alternative, namely of introducing 

requirements to limit the ratio of orders to transactions executed by any given 

participant? What would be the impact on market efficiency of such a 

requirement? 

2.4. Systematic internalisers 

MiFID introduced specific provisions for systematic internalisation.48 The core 

requirement for systematic internalisers (SIs) is to publish firm quotes in shares admitted 

to trading on a regulated market that are classified as 'liquid' under MiFID when dealing 

in sizes up to standard market size. 

To date only 10 investment firms have been registered as systematic internalisers. The 

low number of SIs may be attributable to a number of possible factors such as lack of 

clarity in the definition of a systematic internalisers49 and the relative inflexibility of the 

quote publication regime. 

The Commission services consider appropriate to: 

a) Provide more objective criteria in the implementing regulation for determining 

when a firm is a SI, in particular, by replacing the material commercial relevance 

test with clear quantitative thresholds and clarify the application in substance of 

the non-discretionary rules and procedures. 

 

48 The obligations of systematic internalisers to publish firm quotes are specified in Article 27 of Directive 2004/39/EC, while more 

detailed requirements, including trade transparency, are laid out in Article 21 to 34 of Regulation 1287/2006. 

49 Systematic internaliser is defined in Article 4(1)(7) of Directive 2004/39/EC, while Article 21 of Regulation 1287/2006 further specifies 

criteria for determining whether an investment firm is a systematic internaliser.
18

b) Clarify that once the conditions are fulfilled, SI are obliged to register towards 

competent authorities. 

c) Require SI's to maintain quotes to both buy and sell. 

d) Require SIs to maintain a minimum quote size equivalent to 10% of the standard 

market size of any liquid share in which they are a SI. 

e) Require SIs who make use of the exemption from identifying themselves in posttrade reports to publish trading data monthly instead of quarterly as a condition of 

using this exemption. 

A further issue relevant to which activities fall within the systematic internaliser 

definition is how the execution of orders by the use of matched principal trades would be 

treated for the purposes of MiFID (see paragraph 7.2.8). 

(21) What is your opinion about clarifying the criteria for determining 

when a firm is a SI? If you are in favour of quantitative thresholds, how could 

these be articulated? Please explain the reasons for your views. 

(22) What is your opinion about requiring SIs to publish two sided 

quotes and about establishing a minimum quote size? Please explain the 

reasons for your views. 

2.5. Further alignment and reinforcement of organisational and market 

surveillance requirements for MTFs and regulated markets as well as 

organised trading facilities 

Under MiFID the two types of multilateral trading venues (i.e. regulated markets and 

MTFs) have to comply with similar requirements in terms of organisational arrangements 

and market surveillance.50 Differences mainly reflect areas where MTF markets tend to 

differ in their nature from traditional markets (e.g. many MTFs trade very specialised 

instruments or only provide a secondary market in the instruments they trade). It should 

also be noted that operators of regulated markets have used the flexibility offered by 

MiFID to set up a variety of different types of MTFs in conjunction with their regulated 

markets.51

Nonetheless, two main concerns have been expressed in relation to a lack of alignment of 

the organisational and also the market surveillance requirements for these two types of 

trading venues. First, differences in the details of organisational requirements in MiFID 

that apply to MTFs and regulated markets may lead, in practice, to a lighter regime for 

the former. This is considered especially problematic where the nature and scale of the 

competing business models are similar. Second, existing obligations for operators of 

regulated markets and MTFs to monitor trades conducted on their venues to identify 

 

50 The organisational requirements for regulated markets are set out in Article 39 of Directive 2004/39/EC, while the corresponding 

requirements for MTFs are provided in Article 14 of Directive 2004/39/EC. The requirements for MTFs and regulated markets to 

monitor for disorderly conduct or conduct that may involve market abuse can be found in Articles 26 and 43 respectively of Directive 

2004/39/EC. 

51 These can be either intended as markets for SMEs or as competitors for pan-European trading. 
19

breaches of rules, disorderly trading and market abuse, should be better coordinated, 

bearing in mind that a financial instrument can be traded on a number of different 

platforms. While the role of monitoring for market abuse is undertaken by competent 

authorities and MiFID already provides a mechanism for the exchange of information 

between supervisors where trading occurs on different venues,52 market operators also 

perform an important surveillance function in detecting possible abuses. 

In this context, the Commission services consider appropriate to: 

a) Further align organisational requirements for MTFs with those for regulated 

markets so that regulated markets and MTFs operating similar businesses of a 

similar size are subject to equivalent organisational standards and regulatory 

oversight. Specifically, the Commission services consider that in addition to the 

organisational requirements in Article 13 of MiFID, MTF operators could also be 

required to have in place more specific arrangements to identify and manage 

conflicts of interest, arrangements and systems to identify and mitigate risks to its 

operations and arrangements for the sound management of the technical 

operations of the system (including effective contingency arrangements to deal 

with risks of system disruptions). 

b) Strengthen market surveillance by requiring operators of regulated markets, 

MTFs and organised trading facilities outlined Section 2.2 above which trade the 

same financial instruments to cooperate and exchange information in order to 

better detect market abuse or misconduct that takes place across different 

venues.53 This would require such venues to immediately inform one another (in 

addition to their competent authority) of a decision to suspend or remove a 

financial instrument from trading, of a system disruption including the triggering 

of a circuit breaker, and of disorderly trading conditions or conduct that may 

involve market abuse. The venues in receipt of the information would need to 

reply, also informing their competent authority, of any precautionary measures 

they propose to take, including a justification if no measures are foreseen.54

(23) What is your opinion of the suggestions to further align 

organisational requirements for regulated markets and MTFs? Please explain 

the reasons for your views. 

(24) What is your opinion of the suggestion to require regulated markets, 

MTFs and organised trading facilities trading the same financial instruments 

to cooperate in an immediate manner on market surveillance, including 

informing one another on trade disruptions, suspensions and conduct 

involving market abuse?

2.6. SME markets 

Small and medium sized enterprises (SMEs) across Europe significantly contribute to 

economic growth, employment, innovation and social integration. A number of recent 

 

52 Namely the Transaction Reporting Exchange Mechanism (TREM) set up by CESR 

53 Amending Articles 26 and 43 of Directive 2004/39/EC 

54 New implementing measures could specify the timeframe and precise information requirements. 
20

initiatives have considered the need to assist SMEs in obtaining financing. Two main 

sources of funding for such companies are private financing by banks or other 

institutions or raising finance through capital markets (e.g. the issue of shares). SMEs 

often face a higher cost of capital than larger enterprises. SME markets55 aim at 

providing smaller, growing companies with a platform to raise capital both through 

initial offerings and ongoing fund raisings. Currently SME markets mostly fall within the 

MTF regime under MiFID. SME markets aim at providing smaller, growing companies 

with a platform to raise capital both trough initial offering and ongoing fund raising. 

In order to promote SME markets, the Commission services consider that regulated 

markets and MTF could be given the possibility of creating a specialised SME market. 

For doing that, the framework directive could be amended to include a new definition of 

an "SME market"56 and to introduce specific harmonised requirements for SME markets 

under the provisions on regulated markets57 and MTFs58. The regime would set out 

requirements that are proportionate and tailored to take into account the specific nature 

and needs of these markets. The definition of an "SME market" could be based on 

specific criteria concerning the companies that could be listed, such as thresholds (e.g. 

using the definition of SME of the Prospectus Directive59) and market capitalisation (e.g. 

companies for which the market capitalisation is less than 35% of the average market 

capitalisation on the trading venues of the Home Member State of the issuer60). The main 

features of the requirements applied to SME markets would be provided for in the 

framework directive. The regime could include: 

a) Further detail about the organisational and systems requirements applying to the 

operator of the SME market; 

b) Eligibility conditions for issuers to be traded on the SME market such as which 

companies qualify as an SME, that key persons in the SME should be fit and 

proper and relating to the legal nature of the SME and transferability of its shares; 

c) The need for an admission document adapted to take into account the special 

nature of the issuers on the market; 

d) The need for an audited annual report for SMEs on the market; 

e) The monitoring of trading on the market by the market operator to ensure fair and 

orderly trading and to detect market abuse such as insider dealing and market 

manipulation; 

f) Requirements for the settlement of transactions on the market; 

 

55 There are currently at least 17 specialist markets for SMEs that operate across Europe. 

56 Article 4(1) of Directive 2004/39/EC 

57 Articles 40, 42 and 43 of Directive 2004/39/EC, Articles 35 and 37 of Commission Regulation1287/2006 

58 Articles 13 and 14 of Directive 2004/39/EC 

59 Directive 2003/71/EC of the European Parliament and the Council on the prospectus to be published when securities are offered to 

the public or admitted to trading (OJ L 345 of 31.12.2003) as amended in Article 2(1)(f) "small and medium-sized enterprises" means 

companies, which, according to their last annual or consolidated accounts, meet at least two of the following three criteria: an 

average number of employees during the financial year of less than 250, a total balance sheet not exceeding EUR 43,000,000 and 

an annual net turnover not exceeding EUR 50,000,000. 

60 As suggested in the report commissioned by French Minister of Finance, "An EU-listing Small Business Act" by Fabrice Demarigny. 
21

g) Pre- and post trade transparency requirements for the market; 

h) Oversight of the market operator by its home competent authority. 

The aim is that the EU regime, which will give an EU quality label to these markets, 

provide for more visibility and thus might attract more investors and enhance the 

possibility of inter-linkages between markets, would impose harmonised requirements 

that are proportionate and adapted to SME markets and SME issuers while continuing to 

provide appropriate protection for users of these markets, and investors in SMEs. 

(25) What is your opinion of the suggestion to introduce a new definition 

of SME market and a tailored regime for SME markets under the framework 

of regulated markets and MTFs? What would be the potential benefits of 

creating such a regime? 

(26) Do you consider that the criteria suggested for differentiating the 

SME markets (i.e. thresholds, market capitalisation) are adequate and 

sufficient? 

3. PRE- AND POST-TRADE TRANSPARENCY

The key rationale for transparency is to provide investors with access to information 

about current trading opportunities, to facilitate price formation and assist firms to 

provide best execution to their clients. It is also intended to address the potential adverse 

effect of fragmentation of markets and liquidity by providing information that enables 

users to compare trading opportunities and results across trading venues. Post trade 

transparency is also used for portfolio valuation purposes. Transparency is crucial for 

market participants to be able to identify a more accurate market price and to make 

trading decisions about when and where to trade. 

The absence of reliable price information would greatly increase the cost for investors to 

operate in the market. They would be much less certain about the value of a financial 

instrument at any given point in time and much less inclined, given the high analytical 

cost, to undertake transactions in those instruments. As a consequence the number of 

transactions would be significantly lower, resulting in reduced liquidity and increased 

indirect transaction costs61. If, in addition, there would be little or no information 

available about where to find counterparties with the opposite trading interest, the lack of 

transparency would result in significant search costs. It would be much more difficult for 

market participants to search across different venues and obtain the best result for 

themselves or their client. 

Pre- and post trade transparency serves to address these issues. The transparency regime 

in MiFID only applies to shares admitted to trading on regulated markets (including 

when those shares are traded on a MTF or over the counter). It was designed to 

harmonise the available information, mitigate the potential effects of fragmentation of 

 

61 Direct transaction costs refer to the fees paid to, for instance, a trading venue for executing an order. Indirect transaction costs refer 

to bid/offer spreads, potential market impact and other costs related to executing an order. 
22

market liquidity, integrate EU equity markets in the eyes of issuers and investors, 

increase the potential number of active market participants in a security, and thus 

increase liquidity. 

3.1. Equity markets 

3.1.1. Pre-trade transparency 

Pre-trade transparency refers to the obligation to publish (in real-time) current orders and 

quotes (i.e. prices and amounts for selling and buying interest) relating to shares.62 Pretrade transparency obligations apply to regulated markets, MTFs and systematic 

internalisers. 

Individual market participants would sometimes prefer not to disclose their own trading 

interest, while having full access to the trading intentions of everybody else. In that 

context the growth of electronic trading has facilitated the generation of dark liquidity 

and the use of dark orders63 which market participants apply to minimise market impact 

costs. An increased use of dark pools does however raise regulatory concerns as it may 

ultimately affect the quality of the price discovery mechanism on the "lit" markets. 

Therefore, the issue of dark liquidity merits ongoing observation by regulators and clear 

boundaries. 

The current regime tries to balance the interest of the wider market with the interest of 

individuals by allowing for waivers from transparency in specific circumstances.64 65 For 

example, the large in scale waiver was designed to accommodate the need of wholesale 

market participants to be able to execute large orders without too large a price impact. 

This waiver is essential in striking the right balance between market transparency and 

protecting legitimate interests of market participants who are essential contributors to the 

liquidity of markets. 

Therefore, the reasons for allowing waivers from pre-trade transparency in the various 

circumstances described in the current framework still appear valid. However, the 

 

62 Article 27, 29 and 44 of Directive 2004/39/EC provides for the general obligation of systematic internalisers, MTFs and regulated 

markets to make pre-trade transparency data available. Article 29 and 44 of Directive 2004/39/EC make reference to 'the size or type 

of orders' and 'the market model for which pre-trade disclosure may be waived', in particular transactions that are concluded 'by 

reference to prices established outside the systems' of the regulated market or MTF and "transactions that are large in scale". The 

waivers for pre-trade transparency are further defined in Article 18 and 20 of Regulation 1287/2006. 

63 A dark order can be defined as an electronic order that can be automatically executed and for which there in no pre-trade 

transparency, cf. IOSCO Consultation Report, "Issues Raised by Dark Liquidity", October 2010, p. 4. 

64 Although these waivers are each different, they all reflect the aim of providing some flexibility to market participants without 

jeopardising overall transparency. The waiver for an order which is large in scale is to mitigate potential market impact if the whole 

order would be disclosed. Other waivers are generally meant to accommodate orders which would not contribute to price formation

or could even result in misleading information. The order management facility waiver mimics what an investor might otherwise do

manually in order to manage his orders. 

65 According to data from the Committee of European Securities Regulators (CESR), of all the trading in shares in the EEA occurring 

on trading venues more than 90% is pre trade transparent (with less than 10% taking place under the use of waivers). The data 

shows that the amount of trades using waivers has only slowly increased in recent years. See CESR Technical advice to the 

European Commission in the context of the MiFID review and Responses to the European Commission Request for Additional 

Information, 29 July 2010, CESR/10-802, page 7 para. 12. 
23

Commission services see room for improvement as to the calibration, actual content and 

consistent application of the waivers in the future in order to ensure the right balance and 

to avoid negative spillovers beyond their intended scope of application. The regulatory 

aim would be to adjust the framework in order to enhance legal certainty and clarity for 

supervisors and market participants alike. The waiver regime should be applied 

consistently across the EU. 

The Commission services consider some changes to the framework directive to be 

required66 to ensure the waivers are applied consistently and coherently and to give 

ESMA a role in monitoring their use. The Commission services suggest that: 

a) Implementing acts could be proposed on the specific methods for the application 

of the waiver rules in order to ensure legal certainty regarding their interpretation; 

b) ESMA could also be required in the framework directive to monitor the waivers 

on an ongoing basis and to report annually to the Commission about their use; 

c) Competent authorities of Member States could be obliged to notify ESMA and 

other competent authorities of the intended use of waivers and provide an 

explanation regarding their functioning.67 ESMA could then be required to 

publish an opinion about whether the use of the waiver is consistent with MiFID. 

If a competent authority proposed to allow the use of the waiver contrary to an 

ESMA opinion it would be required to publicly justify its reasons for doing so; 

d) An actionable indication of interest (i.e. an indication of interest that includes all 

necessary information to agree on a trade) would be treated as an order and 

subject to applicable pre-trade transparency requirements and such indication of 

interest could not be made transparent to direct participants in a trading system 

without also being made public. 

Furthermore, the Commission will need to later supplement these changes with a number 

of amendments to the implementing regulation in order to clarify the practical 

implementation of these exemptions. 

a) It could be clarified68 that remaining unexecuted parts of initially large in scale 

orders ("stubs") which do not meet the thresholds anymore could not remain dark; 

b) It could be also clarified69 that trades executed under the reference price waiver 

would be executed at the gross price and would not incorporate any embedded fee 

in the price; an appropriate minimum order size for the reference price waiver 

would also be specified. 

In the absence of conclusive evidence of the effects of the current thresholds for the 

large-in-scale waiver, the Commission services consider that these could be retained. 

While the current thresholds may appear to be inconsistent with the decreasing average 

sizes of transactions that actually take place on transparent order books, it is not evident 

that they are resulting in higher execution costs, further market fragmentation, or 

 

66 To articles 29(2) and 44(2) of Directive 2004/39/EC 

67 Thereby formalising current process under CESR. 

68 Article 20 of Regulation 1287/2006 

69 Article 18(1)(a) of Regulation 1287/2006 
24

significant difficulties to execute large orders.70 In this context, decreasing the thresholds 

could have undesired effects in terms of encouraging trading outside lit markets. 

(27) What is your opinion of the suggested changes to the framework 

directive to ensure that waivers are applied more consistently? 

(28) What is your opinion about providing that actionable indications of 

interest would be treated as orders and required to be pre-trade transparent? 

Please explain the reasons for your views. 

(29) What is your opinion about the treatment of order stubs? Should 

they not benefit from the large in scale waiver? Please explain the reasons for 

your views. 

(30) What is your opinion about prohibiting embedding of fees in prices 

in the price reference waiver? What is your opinion about subjecting the use 

of the waiver to a minimum order size? If so, please explain why and how the 

size should be calculated. 

(31) What is your opinion about keeping the large in scale waiver 

thresholds in their current format? Please explain the reasons for your views.

3.1.2. Post trade transparency 

Post trade transparency refers to the obligation to publish a trade report every time a 

transaction in a share has been concluded.71 This obligation applies to regulated markets, 

MTFs and investment firms and to trades whether executed on or outside a trading 

venue. This information differs from pre-trade transparency data because it gives 

historical information about share transactions executed (rather than information on 

trading opportunities). 

Post trade transparency is important for efficient price formation and for best execution 

to show which venues or firms are providing the best prices. It is also useful to enable 

clients of firms to monitor whether they are receiving best execution (i.e. whether the 

order has been executed at a reasonable price and on an appropriate venue) and is used 

for the pricing of portfolios. 

Market participants require information about trading activity that is reliable, timely and 

available at a reasonable cost. Market participants have expressed concerns related to the 

timing of publication. Publication of trade reports must generally take place in real-time, 

and in any case within 3 minutes, but for large transactions delays between 60 minutes 

and up to 4 trading days are allowed, depending on the liquidity of the share and the size 

of the transaction.72 Many supervisors as well as market participants seem to agree that 

 

70 See CESR Technical advice to the European Commission in the context of the MiFID review and Responses to the European 

Commission Request for Additional Information, 29July 2010, CESR/10-802, page 10 para. 26. 

71 Article 28, 30 and 45 of Directive 2004/39/EC provides for the general obligation of investment firms (including systematic 

internalisers), MTFs and regulated markets to make post-trade transparency data available.

72 Publishing a large trade immediately could move the market against the person taking the position and make it more costly to

execute large orders. The reasoning for allowing exemptions to the general rule of full and immediate transparency for large orders is 

similar to that of pre-trade transparency. 
25

the maximum permitted delays should be reduced. This would help to make post trade 

information available sooner to the market. 

For real time publication, the Commission services consider it necessary to: 

a) Strengthen the framework directive requirements73 by specifying that post trade 

information would be published as close to instantaneously as is technically 

possible; 

b) In the implementing regulation74: 

– Reduce the deadline for reporting in real time from 3 minutes to 1 minute; 

and 

– Require systems not to be designed to publish details in a "batch" but 

instead to publish the details as soon as they are entered into the system. 

For the deferred publication regime of large transactions, the Commission services 

consider necessary in the implementing regulation to:75 

a) Shorten the delays permitted so that almost all transactions are published no later 

than the end of the trading day. Only the very largest trades that occur late in the 

trading day could be able to be published on the next day but even then before the 

opening of the following trading day; 

b) Shorten the intra-day delay period from 3 hours to 2 hours; and 

c) Raise the intra day transaction size thresholds. 

(32) What is your opinion about the suggestions for reducing delays in the 

publication of trade data? Please explain the reasons for your views. 

3.2. Equity-like instruments 

The pre and post trade transparency requirements currently only apply to shares admitted 

to trading on a regulated market. A number of instruments that are similar to shares are 

outside the scope of MiFID transparency requirements. Given the similarity of the 

instruments to equities, support from market participants and supervisors and the fact that 

some Member States already apply transparency requirements to such instruments, the 

Commission services consider that the framework directive76 could be amended to 

extend the transparency regime to the following equity like financial instruments if 

admitted to trading on a regulated market: 

a) Depositary receipts; 

 

73 Articles 28 (1), 30 (1) and 45 (1) of the Directive 2004/39/EC 

74 Article 29 of Regulation 1287/2006 

75 In Table 4, Annex II of Regulation 1287/2006

76 Articles 25, 29, 30, 44 and 45 of Directive 2004/39/EC 
26

b) Exchange traded funds; and 

c) Certificates issued by companies (i.e. securities issued by a company that rank 

above ordinary shareholders but below unsecured debt holders for the repayment 

of the investment). 

The regime would in principle be based on the regime that applies to shares but with 

appropriate differentiation to take into account specific differences in the nature of the 

instruments concerned. For example, appropriate thresholds for applying the pre-trade 

large in scale and post trade deferred publication regimes would be developed for each 

type of financial instrument in the implementing measures. 

(33) What is your opinion about extending transparency requirements to 

depositary receipts, exchange traded funds and certificates issued by 

companies? Are there any further products (e.g. UCITS) which could be 

considered? Please explain the reasons for your views. 

(34) Can the transparency requirements be articulated along the same 

system of thresholds used for equities? If not, how could specific thresholds be 

defined? Can you provide criteria for the definition of these thresholds for 

each of the categories of instruments mentioned above? 

3.3. Trade transparency regime for shares traded only on MTFs or 

organised trading facilities 

The MiFID pre- and post-trade transparency regime applies to shares admitted to trading 

on a regulated market. The regime covers trading of such shares whether it takes place on 

a regulated market, on a MTF or OTC. The regime does not apply though if an 

instrument is only admitted to trading on a MTF or another organised trading facility as 

outlined in Section 2.2 above. In the former case the higher level transparency 

obligations for MTFs in the Directive, instead of the more detailed regime77, apply to the 

shares. This leaves a potential difference in the level of transparency for shares that are 

only admitted to trading on a MTF. In practice the number of such shares is currently 

limited (e.g. shares on SME markets). But it is possible that in the future with the greater 

innovation and competition allowed by MiFID, MTFs and organised trading facilities 

may increasingly admit shares to their venues that are not admitted to trading 

elsewhere.78

The Commission services therefore consider that the framework directive79 could be 

amended to provide that the more detailed transparency regime for shares admitted to 

trading on a regulated market also applies to shares that are only admitted to trading on a 

MTF or organised trading facilities. The Commission services consider that such an 

amendment could be onerous for MTFs or organised trading facilities that operate SME 

markets and therefore would suggest a calibrated approach for such MTFs or organised 

trading facilities. This would consist of providing for the principle of a proportionate 

 

77 Article 14(1) of the Directive 2004/39/EC 

78 See also Section 2.1 above 

79 Articles 25, 29, 30, 44 and 45 of Directive 2004/39/EC
27

regime for these MTFs or organised trading facilities in the framework directive, whereas 

specific details could be further developed in implementing legislation. 

(35) What is your opinion about reinforcing and harmonising the trade 

transparency requirements for shares traded only on MTFs or organised 

trading facilities? Please explain the reasons for your views. 

(36) What is your opinion about introducing a calibrated approach for 

SME markets? What should be the specific conditions attached to SME 

markets? 

3.4. Non equity markets 

Existing price and market data reporting tools for non-equities are not always considered 

sufficient. Prices in several non-equity OTC markets are a function of the willingness of 

dealers to provide investors with quotes on request through electronic or manual 

(telephone) channels and enter into trades with them; not a public interaction of supply 

and demand. The balance between transparency and liquidity in non-equities (as in 

equities) is hotly debated, with many arguing that too much transparency has a 

detrimental effect on liquidity. 

Improvements could therefore aim to help the market deal with inherent information 

asymmetries, support fair and orderly pricing, and improve overall market efficiency and 

resilience. The Commission services consider that the principles of the existing MiFID 

transparency regime for shares could be adopted, but the detailed requirements should be 

suitably tailored to the specificities of the different non-equity asset classes. However, in 

order to support consolidation of trade data, publication of post-trade transparency data 

would, as far as possible, follow the same channels as for equities.80 

Therefore, the Commission services consider that the MiFID framework directive could 

be amended to require pre- and post-trade transparency for all trades in specific nonequity products, whether executed on regulated markets, MTFs, organised trading 

facilities or OTC. These new requirements would be differentiated by asset class. The 

new transparency regime would be achieved through the setting up of new obligations 

for investment firms, whether trading OTC or within organised trading facilities, as well 

as for MTFs and regulated markets.81 82 

This requirement would apply to: 

a) All bonds and structured products with a prospectus or which are admitted to 

trading either on a regulated market or MTF; and 

b) All derivatives eligible for central clearing according to Article 4 and all 

derivatives reported to trade repositories according to Article 6(1) of the 

 

80 See section 4 below. 

81 This would require amendments to, or new articles alongside, articles 27, 28, 29, 30, 44 and 45 of the Directive 2004/39/EC as well 

as corresponding provisions for any new categories of venues (see section 2.2 above). 

82 See also CESR Technical Advice to the European Commission in the Context of the MiFID Review: Non-equity Markets 

Transparency, 29July 2010, CESR/10-799 
28

Commission proposal on OTC derivatives, central counterparties and trade 

repositories.83

These instruments are considered to be the more liquid and more frequently traded 

market segments per asset class. 

3.4.1. Pre-trade transparency 

In terms of overarching requirements, the framework directive would specify that all 

regulated markets, MTFs, and organised trading facilities as per section 2.2.3 above 

offering trading in the above non-equity instruments would publish their pre-trade 

information in a continuous manner. As for investment firms executing trades OTC, the 

framework directive would require that their pre-trade quotes reflect current market value 

and are binding below a specific trade size. Similarly to the systematic internaliser 

regime, this would however not mean an obligation to quote on a constant basis for every 

product. This would only mean that an investment firm which is willing and interested to 

quote or receiving a request to quote on a specific product which it agrees to meet, would 

be required to make its quote both in terms of price and volume available to the public, 

and commit to it below the specified size. 

The Commission services consider that the implementing measures for pre-trade 

requirements applicable to regulated markets, MTFs, and organised trading facilities as 

per section 2.2.3 above would provide for a real-time and continuous updating of 

available and actionable trading interest. Depending on the nature of the system and asset 

class, these would specify the range and depth of binding commitments to buy and sell 

the instruments above. As for implementing measures outlining quoting requirements for 

investment firms acting OTC, the Commission services consider that these would specify 

that quoted prices could not significantly deviate from pre-trade information available for 

comparable or identical instruments on regulated markets, MTFs or organised trading 

facilities as per section 2.2.3 above, as well as specify the size-threshold per asset-class 

under which quotes would be binding. This could represent a commonly accepted value 

of trades in each asset-class beneath which the risk associated with the trade can easily 

be laid off in the market, and is likely to be undertaken by or on behalf of retail investors. 

3.4.2. Post-trade transparency 

The Commission services consider that the framework directive would specify that the 

timing and content of post-trade information to be published for the instruments above by 

investment firms acting OTC and all organised trading venues, including regulated 

markets, MTFs and any organised trading facilities as per section 2.2 above, would be as 

prompt and precise as possible. 

As non equity products are very different one from another, the Commission services 

consider that the exact post-trade transparency regime would need to be defined for each 

asset class and in some cases for each type of instrument within this asset class. The 

 

83 COM(2010) 484 
29

Commission services consider that new provisions in the implementing regulation84 for 

post-trade transparency could be articulated around the following:85 

a) In order to minimise information asymmetries and improve pricing, the post-trade 

transparency regime would be transaction-based. It would provide data on 

transactions in terms of price, volume, time of trade, and the main reference 

characteristics of the traded instrument rather than aggregate data; 

b) The transparency regime would be properly calibrated to the class of financial 

instruments (bond, structured finance product, derivative) and to the type of 

instrument (option, swap, forward) as well as underlying variable, for instance a 

financial asset or a commodity, as appropriate; 

c) The transparency regime would be predicated on a system of thresholds and 

delays, based on transaction size; 

(37) What is your opinion on the suggested modification to the MiFID 

framework directive in terms of scope of instruments and content of 

overarching transparency requirements? Please explain the reasons for your 

views. 

(38) What is your opinion about the precise pre-trade information that 

regulated markets, MTFs and organised trading facilities as per section 2.2.3 

above would have to publish on non-equity instruments traded on their 

system? Please be specific in terms of asset-class and nature of the trading 

system (e.g. order or quote driven). 

(39) What is your opinion about applying requirements to investment 

firms executing trades OTC to ensure that their quotes are accessible to a large 

number of investors, reflect a price which is not too far from market value for 

comparable or identical instrument traded on organised venues, and are 

binding below a certain transaction size? Please indicate what transaction size 

would be appropriate for the various asset classes. 

(40) In view of calibrating the exact post-trade transparency obligations 

for each asset class and type, what is your opinion of the suggested parameters, 

namely that the regime be transaction-based, and predicated on a set of 

thresholds by transaction size? Please explain the reasons for your views. 

(41) What is your opinion about factoring in another measure besides 

transaction size to account for liquidity? What is your opinion about whether a 

specific additional factor (e.g. issuance size, frequency of trading) could be 

considered for determining when the regime or a threshold applies? Please 

justify. 

3.5. Over the counter trading 

The Commission services consider that (notwithstanding section 2.2.3 above concerning 

derivatives) the MiFID could continue to be neutral as to where a trade is executed. 

 

84 Amending and/or complementing Sections 2 and 3 of Chapter IV of Regulation 1287/2006 

85 See also CESR Technical Advice to the European Commission in the Context of the MiFID Review: Non-equity Markets 

Transparency, 29July 2010, CESR/10-799
30

Nonetheless, concerns have been raised by some market participants over the lack of 

granular information about the nature and extent of trading that is taking place in various 

instruments outside regulated markets, MTFs and systematic internalisers. Such OTC 

trading is currently subject to the full range of MiFID organisational (e.g. conflicts of 

interest) and conduct of business requirements and subject to post-trade and transaction 

reporting requirements. 

Regulators from some Member States have suggested that there could be greater 

granularity of information about such trading. The Commission services consider that as 

well as requiring further post trade identification of trades on organised trading facilities 

(referred to in the requirements in section 2.2.1), there could be identification and 

flagging of trades that are OTC in post trade transparency reports.86 This would ensure 

that there is much more granular and accurate information about levels of OTC trading. 

(42) Could further identification and flagging of OTC trades be useful? 

Please explain the reasons.

4. DATA CONSOLIDATION

Besides requiring market data to be reliable, timely and available at a reasonable cost, 

investors also require the information to be brought together in a way that allows 

comparison of prices across different venues. Experience since the implementation of 

MiFID shows that the reporting and publication of trade data in shares is not living up to 

this expectation.87 The main problems relate to the quality and format of the information, 

as well as the cost charged for the information and the difficulty in consolidating the 

information. If these issues are not fully addressed, they could undermine the 

overarching objectives of MiFID as regards transparency, competition and investor 

protection. While a number of initiatives have been put in place to try to address these 

issues there are practical and commercial obstacles that appear to necessitate regulatory 

intervention to improve post trade information and facilitate consolidation. 

Data consolidation is primarily considered to be a challenge in equity markets. 

Nonetheless, as stated in section 3.4 above, since post-trade transparency requirements 

are being considered for non-equity instruments, the Commission services consider that 

the provisions below could apply also to non-equity markets, subject to specific 

adaptations if necessary. 

The suggestions of the Commission services in this area can be grouped under a number 

of different headings: 

a) Improving the quality and consistency of raw trade data and ensuring it is 

provided in a consistent format (to facilitate consolidation); 

 

86 In Article 28 of Directive 2004/39/EC and any relevant new Articles referred to in footnote 68 above. 

87 Prior to MiFID trade data would typically be available from the incumbent exchange in each Member State. OTC trades were 

sometimes not reported at all. MiFID has required post-trade reporting of OTC trades and spurred competition among trading and 

reporting venues. This has made the trade data environment more complex and made proper trade data consolidation more 

important. 
31

b) Reducing the cost of post-trade data for investors; and 

c) Introducing a consolidated tape for the EU market. 

4.1. Improving the quality of raw data and ensuring it is provided in a 

consistent format 

CESR has identified concerns about quality and consistency of the raw data in post trade 

reports and the lack of consistency in the formatting of data (which makes it difficult to 

later consolidate the data across markets).88 It has also expressed concerns about the lack 

of any legal requirements to publish data through bodies with responsibilities relating to 

data monitoring and publication. There is also a lack of clarity about which investment 

firm is responsible for reporting over the counter transactions and how transactions are 

reported where there are a series of transactions that are in effect a single trade. This has 

led to significant double reporting and counting of trades, especially OTC trades. Finally 

concerns have been raised that in isolated cases trades may have been reported in 

locations far away from where they took place to avoid market and regulatory scrutiny. 89 

While MiFID provides details on the general requirements that need to be met for post 

trade transparency, the Commission services consider that the framework directive could 

be amended90 to require all firms who execute transactions to publish their trade reports 

through an Approved Publication Arrangement (APA).91 

The following conditions could be set: 

a) An APA could be a regulated market, a MTF, an organised trading facility or 

another organisation (such as a data vendor or a trade repository in the case of 

derivatives, subject to it being able to meet the necessary requirements notably in 

terms of timing); 

b) An APA would be authorised by the competent authority of the Member State 

where it is based and subject to on-going supervision of the competent authority. 

This authorisation would be valid throughout the EU; 

c) An APA would assist in improving the quality and format of information in trade 

reports. It would also help prevent situations where an investment firm reports a 

trade in a location or via a method seeking to avoid scrutiny. For that purpose it 

would need to meet specific criteria, notably: 

– Guarantee a high level of data security; 

 

88 See CESR Technical advice to the European Commission in the context of the MiFID review and Responses to the European 

Commission Request for Additional Information, 29July 2010

89 There have been isolated cases of trades being reported in unexpected locations seemingly to avoid scrutiny. 

90 In Articles 28, 35 and 40 of Directive 2004/39/EC and any new post-trade transparency provisions applicable to non-equities 

91 With this approach, competent authorities would approve entities wishing to act as an APA, and APAs would be required to operate 

data publication arrangements to prescribed standards. 
32

– Demonstrate that they can efficiently and consistently disseminate trade data 

in a way that ensures fast access to the data on a non-discriminatory basis at a 

reasonable cost; 

– Effectively identify erroneous trade reports by undertaking appropriate 

checks to ensure that relevant fields are completed in trade reports and 

obvious errors are identified; 

– Maintain adequate resources and contingency arrangements; and 

– Manage conflicts of interest appropriately and submit regular and timely 

reports to the relevant competent authority. 

In order to improve the quality and interoperability of raw data at the source and further 

ease the process with which data can be consolidated, the Commission services consider 

that the implementing regulation could be amended to supplement existing provisions 

and provide much more detail and clarity about both the content92 and format of trade 

reports. This would address the current problems caused by trading venues and firms not 

standardising the content and format of information reported to the market (which in turn 

creates a significant obstacle to consolidation). This would ensure information is clearer, 

more comparable and can be more easily consolidated. Also, it would be necessary to 

clarify in the implementing regulation which investment firm would report information 

about over the counter transactions and how transactions would be reported where a 

series of transactions are in effect a single economic trade.93

(43) What is your opinion of the suggestions regarding reporting to be 

through approved publication arrangements (APAs)? Please explain the 

reasons for your views. 

(44) What is your opinion of the criteria identified for an APA to be 

approved by competent authorities? Please explain the reasons for your views. 

(45) What is your opinion of the suggestions for improving the quality 

and format of post trade reports? Please explain the reasons for your views. 

(46) What is your opinion about applying these suggestions to non-equity 

markets? Please explain the reasons for your views. 

4.2. Reducing the cost of post trade data for investors 

The second major issue that has been identified in relation to post trade transparency data 

is the high cost of the data.94 MiFID currently requires that transparency information 

must be made available to the public on a reasonable commercial basis and in a manner 

 

92 Namely, the tables in annex to Regulation 1287/2006

93 In Article 27 of Regulation 1287/2006 

94 Due to the relatively large number of entities publishing trade data and the cost charged by some entities for that data the total cost 

for constructing a complete real time consolidated tape has been estimated at about €500 per screen per month. In comparison the 

cost for the similar product in the US is around €70. 
33

which is easily accessible to market participants.95 A number of complementary 

measures to efficiently address the issue are necessary: 

(i) Unbundling of data 

Trading venues typically sell their pre-trade data and post trade data in the same 

'package'. This means that often it is not possible to buy one set of data without buying 

another. A majority of market participants believe that requiring 'unbundling' of the data, 

meaning data would be available in more granular form, would contribute to bringing 

down costs.96 The Commission services consider that the framework directive could be 

amended97 to require the selling of unbundled pre- and post-trade data. Further 

specifications on how far data would need to be disaggregated would be required at a 

subsequent stage. This requirement would extend to any third party that resells or 

disseminates the data. 

(ii) Data to be made available for free after 15 minutes 

Currently some trading venues make their trade data available free of charge 15 to 30 

minutes after its initial publication. The Commission services consider that the 

framework directive98 could impose a standard time of 15 minutes after which trade data 

would be made available for free as this would help reduce costs, in particular for retail 

clients. Once again, this requirement would also apply to third parties that resell or 

disseminate the data. 

(iii) Defining reasonable cost 

The Commission services consider that in addition further detail could be provided about 

what constitutes a "reasonable" cost for the selling or dissemination of data. 

(47) What is your opinion of the suggestions for reducing the cost of trade 

data? Please explain the reasons for your views. 

(48) In your view, how far data would need to be disaggregated? Please 

explain the reasons for your views. 

(49) In your view, what would constitute a "reasonable" cost for the 

selling or dissemination of data? Please provide the rationale/criteria for such 

a cost. 

(50) What is your opinion about applying any of these suggestions to nonequity markets? Please explain the reasons for your views. 

 

95 Articles 28(1), 30(1) and 45(1) of Directive 2004/39/EC 

96 The idea is that once the data elements can be bought separately, the pricing power of the individual data source is less strong. In 

particular data elements that are considered relatively expensive will easily be omitted from the customised data consolidation

arrangement for a particular user. Provided that a data source still wishes to sell this particular set of information the price will have 

to be reduced accordingly. A minority of market participants oppose this idea, arguing either that it is technically difficult/costly or that 

market participants generally want to buy all the data, leading to no material change in the market for trade data. 

97 In Articles 28, 30 and 45 of Directive 2004/39/EC with more detail specified in implementing measures

98 In Articles 28, 30 and 45 of Directive 2004/39/EC with more detail specified in implementing measures. 
34

4.3. A European Consolidated tape 

A consolidated tape could be defined as an integrated reporting system regarding the 

essential characteristics of trades, as described in the framework directive regarding 

shares,99 in instruments in all markets on- and off-exchange wherever they are traded. A 

mandated tape would provide comprehensive consolidation of post-trade data. It could 

also offer market users a single point of access to post-trade information about trading of 

instruments (both on different trading venues and OTC) across Europe. 

Hence, the regulatory objectives of such a European consolidated tape could be summed 

up as follows: 

– Consolidate the entire data available in the EU and make it available to the market 

at a reasonable price; 

– Mitigate the effects of a fragmented market structure where a number of 

instruments are traded on a multitude of trading venues and thereby promote the 

creation of a single market; and 

– Ensure that the trade data is recorded comprehensively and picked-up so that the 

quality of the data available is improved. 

The Commission services, therefore, consider that MiFID could be amended to provide 

for the establishment of a mandatory consolidated tape and to set the conditions that such 

a tape should satisfy. This would require amendments to the framework directive itself. 

The conditions might include, for example: 

a) Requirements relating to the information that must be included in the 

consolidated tape; 

b) Its format, accessibility, latency and cost; and 

c) The period for which data must be kept. 

The precise details would depend upon the model adopted for the consolidated tape. The 

Commission services submit the following three options for consideration: 

Option A 

One option would be to mandate that the formal consolidated tape would be operated by 

a single, non-profit seeking entity, established and appointed by a legal act. 

This is similar to the model used in the United States where a separate entity100 was set 

up to operate the consolidated tape. In Europe a similar model could be used with either a 

dedicated entity providing the consolidated tape or an existing public authority or 

industry body with the necessary expertise operating the consolidated tape. Trading 

platforms and APAs would have to make their data available to this entity in a prescribed 

 

99 Art. 45 (1) and Art. 30 (1) of Directive 2004/39/EC

100 Consolidated Tape Association (CTA) 
35

format. The single entity would then consolidate the information and make it available to 

the public in a non-discriminatory fashion on a reasonable cost basis. 

In order to be appointed, the single entity would need to demonstrate that it fulfils at least 

the following conditions: 

– Guarantee a high level of data security; 

– Demonstrate that it can efficiently and consistently accept, collect and consolidate 

data supplied by trading venues and APAs and then disseminate trade data in a way 

that ensures fast access to the data on a non-discriminatory basis at a reasonable 

cost; 

– Maintain adequate contingency arrangements; and 

– Manage conflicts of interest appropriately and submit regular and timely reports to 

the relevant competent authority. 

In accordance with the US regime, revenue from the provision of data would be paid to 

trading platforms and APAs that have provided the data in accordance with a prescribed 

formula minus the costs incurred by the single entity. Hence, the on-going funding of the 

single entity would be met by the revenues generated. 

Option B 

Another option would be to also mandate that the consolidated tape would be operated 

by a single entity. However, this entity would be a commercial undertaking that is 

appointed following a public tender upon the merit of its bid submitted to the European 

Commission. 

In order to be appointed, the single entity would need to demonstrate that it fulfils the 

same conditions as under Option A above. 

The mode of operation would be similar to the one described for Option A, ie trading 

venues and APAs would make their data available to the single entity, the single entity 

would consolidate the data and then make it available to the public. 

As to the revenue side different sub-options can be discussed here: 

– One alternative would be for trading venues and APAs to make their data available 

to the single entity on a reasonable commercial basis. The single entity would then 

also make the consolidated stream available to the market on a reasonable 

commercial basis. That way the single entity would be required to constantly 

optimise its processes and operate as a commercial undertaking in a competitive 

environment to remain profitable. 

– The second alternative would be along the lines of Option A where trading venues 

and APAs would make the data available to the single entity for free and would 

then participate in the revenue the single entity would obtain from selling it to the 

market on a reasonable commercial basis according to a prescribed formula. 
36

In addition, this option would be different from Option A because the appointment of the 

single entity would be for a limited period of time after which the mandate would be 

subject to another public tender. This approach may also maintain competitive pressure 

on the provider of the consolidated tape to constantly review and improve the service it 

provides to the public or otherwise lose the mandate. 

Option C 

A variation on Option B would be to prescribe in MiFID conditions that must be met for 

the provision of a consolidated tape and then allow competing commercial providers to 

provide the consolidated tape if they meet those conditions. Within a defined timeframe 

these providers would need to be approved by competent authorities and start to operate. 

The framework directive would need to be adapted to contain criteria for approval of the 

consolidated tape providers. The approval process would encompass similar criteria to 

the approval of APAs or the conditions applicable to the single entity described under 

Options A and B. 

On the revenue side the consolidated tape providers would be required to acquire the data 

and make it available to the market as a whole on a reasonable commercial basis. 

It is worth noting that at this stage the Commission Services do not envisage proposing 

the implementation of a consolidated tape for pre-trade transparency data. Given the 

current structure of EU-markets a consolidated tape on the pre-trade side, while desirable 

in its own right, does not appear to be paramount as the level of harmonisation of 

markets in the EU differs substantially from those in the US. Interconnection between 

different EU markets and the consolidation of quotes is fully possible today but 

mandating it could give rise to unnecessary costs. As the timeliness of consolidation of 

pre-trade transparency data would be even more important than on the post-trade side, 

due to the fact that the data would need to be available instantaneously to be useful for 

market participants, the current market structure would appear to render a mandatory 

consolidation of pre-trade information less essential.

(51) What is your opinion of the suggestion for the introduction of a 

European Consolidated Tape for post-trade transparency? Please explain the 

reasons for your views, including the advantages and disadvantages you see in 

introducing a consolidated tape. 

(52) If a post-trade consolidated tape was to be introduced which option 

(A, B or C) do you consider most appropriate regarding how a consolidated 

tape should be operated and who should operate it? Please explain the reasons 

for your view 

(53) If you prefer option A please outline which entity you believe would 

be best placed to operate the consolidated tape (e.g. public authority, new 

entity or an industry body). 

(54) On Options A and B, what would be the conditions to make sure that 

such an entity would be commercially viable? In order to make operating a 

European consolidated tape commercially viable and thus attaining the 

regulatory goal of improving quality and supply of post-trade data, should 
37

market participants be obliged to acquire data from the European single entity 

as it is the case with the US regime? 

(55) On Option B, which of the two sub-options discussed for revenue 

distribution for the data appears more appropriate and would ensure that the 

single entity described would be commercially viable? 

(56) Are there any additional factors that need to be taken into account in 

deciding who should operate the consolidated tape (e.g. latency, expertise, 

independence, experience, competition)? 

(57) Which timeframe do you envisage as appropriate for establishing a 

consolidated tape under each of the three options described? 

(58) Do you have any views on a consolidated tape for pre-trade 

transparency data? 

(59) What is your opinion about the introduction of a consolidated tape 

for non-equity trades? Please explain the reasons for your views. 

5. MEASURES SPECIFIC TO COMMODITY DERIVATIVE MARKETS

MiFID applies to all types of commodity derivatives which meet the definition of a 

financial instrument irrespective of the underlying physical commodity (e.g. agricultural 

commodities, energy, or emission allowances).101 Recent developments in commodity 

markets have highlighted a number of challenges. Many commentators have raised 

concerns that the increased presence of financial investors, especially in some key 

benchmark commodity derivative markets (e.g. oil and agricultural markets) may lead to 

excessive price increases and volatility.102 Others have pointed to more technical 

problems and price dislocations.103 Finally concerns over market integrity have been 

raised, namely in EU energy and carbon markets. 

Amid the uncertainty, the G20 agreed "to improve the regulation, functioning, and 

transparency of financial and commodity markets to address excessive commodity price 

volatility." For its part, the Commission, as announced in its Communication of 2 June 

2010, is proposing and further considering a comprehensive, balanced and ambitious set 

of policy initiatives which will touch upon commodity derivatives markets. Among 

others, this concerns the proposal on OTC derivatives, central counterparties and trade 

repositories,104 the proposal on short-selling and certain aspects of credit default 

swaps,105 the upcoming review of the Market Abuse Directive, and the ongoing work on 

 

101 Commodity derivatives are financial instruments as provided in of Annex I Section C (5) to (7) and (10) of Directive 2004/39/EC, and 

Articles 38 and 39 of Regulation No. 1287/2006. 

102 For example, the European Parliament, in its resolution above, calls for a ban on "purely speculative trading in commodities". 

103 See for example, the "Rapport du groupe de travail sur la volatilité des prix du pétrole sous la présidence de Jean-Marie Chevalier" 

(February 2010) p.16ff. and the "Rapport d’étape: Prévenir et gérer l’instabilité des marchés agricoles" par Jean-Pierre Jouyet, 

Christian de Boissieu, and Serge Guillon (September 2010) 

104 COM(2010) 484 

105 COM(2010) 482 final
38

Packaged Retail Investment Products (PRIPs). The review of MiFID is an integral part of 

this effort. 

However, in order to fully match the level of ambition and commitment expressed by the 

G20,106 the Commission services consider that a separate chapter in the new title on 

derivatives in the MiFID framework directive could be added to help ensure that 

sufficient clarity and regulatory focus are devoted to how commodity derivative markets 

function in the future.107 In addition to position reporting obligations by categories of 

traders active on organised trading venues, regulators could be given complete powers to 

manage and control positions in commodity derivatives more rigorously.108

Each commodity market is different, and the magnitude of the challenge varies 

accordingly. However, the EU regulatory framework applicable to commodity derivative 

markets would, as far as possible, remain common to all types of commodity derivatives 

markets while recognising the need for suitable exemptions for non-financial 

participants.109

5.1. Specific requirements for commodity derivative exchanges 

Commodity derivative contracts traded on organised trading venues are generally the 

most liquid, with the broadest participation by users and investors, and can serve as a 

benchmark price setting and discovery function feeding into, for example, energy and 

food prices for EU users and consumers. Currently, organised commodity derivative 

trading venues employ a variety of means to monitor positions taken by members of the 

venue and other traders, and in cooperating with regulators in order to comply with their 

general duty to preserve fair and orderly markets and detect conduct that may involve 

market abuse. 

In the absence of any position reporting obligation towards regulators in MiFID, the way 

positions are monitored and the information made available to regulators varies across 

jurisdictions and organised trading venues. In addition, the granularity of the information 

available does not readily enable regulators to get a comprehensive and objective picture 

of the activities of different types of traders (commercial versus financial participants). 

More systematic, standardised information on positions in relation to these contracts 

would be helpful, both to regulators (including the category and identity of the end-

 

106 The G20 calls "on relevant regulators to collect data on large concentrations of trader positions on oil in our national commodities 

futures markets... [and] to also collect related data on over-the-counter oil markets and to take steps to combat market manipulation 

leading to excessive price volatility. We call for further refinement and improvement of commodity market information, including 

through the publication of more detailed and disaggregated data, coordinated as far as possible internationally". 

107 In follow up to the report of the Task Force on Commodity Futures Markets of the International Organisation of Securities 

Commissions (IOSCO) of March 2009, this would support efforts by European and global regulators in improving commodity market 

information and their ability to identify possible harmful practices, including across OTC and physical markets. 

108 See Section 9.2 below 

109 Cf. the exemptions for commodity firms under Article 2(1)(i) and (k) of Directive 2004/39/EC, and the debate around corporate enduser exemptions from mandatory clearing or higher collateral requirements for some OTC derivatives.
39

client) and market participants (including only aggregate positions of categories of endclients).110

The Commission services therefore consider necessary to introduce, in the framework 

directive, a position reporting obligation by categories of traders for contracts traded on 

all EU organised trading venues which admit commodity derivatives to trading: regulated 

markets, MTFs, or organised trading facilities.111 

Any system of position reporting by categories of traders could be designed to provide 

meaningful, value-added information to regulators and the public on the activities of 

different market participants. The following options exist: 

a) Refer to regulatory classifications used in EU financial markets legislation (e.g. 

investment firms, credit institutions, alternative investment fund managers, 

UCITS, pension funds, insurance companies) with investment firms and banks 

required to report on whose behalf they are trading including the regulatory 

classification (if any) of their end customers. Commercial traders would thus be 

all traders not listed as specific regulated entities under the EU financial markets 

legislation. 

b) Rely on the way derivatives are accounted for under international accounting 

standards, i.e. IFRS IAS 39. Positions would be distinguished by whether the 

relevant transaction qualifies for hedge accounting or not. 

c) A third option would be a combination of the two preceding ones. The end 

beneficiary would first be classified by any regulatory regime it is subject to, and 

secondly the transaction would be labelled as being a hedge or non-hedge 

transaction, based on the way it is accounted for. 

Finally, it has been observed that problems of convergence between futures and spot 

prices in certain US agricultural derivatives are principally due to deficiencies in the 

contract specifications drawn up by the exchange. In order to pre-empt the issue 

emerging in Europe the Commission services consider that a further specification to the 

MiFID implementing regulation112 could be added requiring regulated markets, MTFs 

and organised trading facilities to design commodity derivatives contracts which they 

admit to trade and which can be physically settled in a way that ensures convergence 

between futures and spot prices. 

(60) What is your opinion about requiring organised trading venues 

which admit commodity derivatives to trading to make available to regulators 

(in detail) and the public (in aggregate) harmonised position information by 

type of regulated entity? Please explain the reasons for your views. 

(61) What is your opinion about the categorisation of traders by type of 

 

110 As proposed in the Commission Communication on "A Better Functioning Food Supply Chain in Europe", 28 October 2010 – 

COM(2009) 591 and accompanying Staff Working Document on "Agricultural commodity derivative markets: the way ahead", in 

which it was recommended that position reporting obligations by categories of traders should be introduced and that the possibility 

of enabling regulators to set position limits will be assessed. 

111 In a specific chapter to the new title on derivatives in Directive 2004/39/EC 

112 Article 37(e) of Regulation 1287/2006
40

regulated entity? Could the different categories of traders be defined in 

another way (e.g. by trading activity based on the definition of hedge 

accounting under international accounting standards, other)? Please explain 

the reasons for your views. 

(62) What is your opinion about extending the disclosure of harmonised 

position information by type of regulated entity to all OTC commodity 

derivatives? Please explain the reasons for your views. 

(63) What is your opinion about requiring organised commodity 

derivative trading venues to design contracts in a way that ensures 

convergence between futures and spot prices? What is your opinion about 

other possible requirements for such venues, including introducing limits to 

how much prices can vary in given timeframe? Please explain the reasons for 

your views. 

5.2. MiFID exemptions for commodity firms 

Broadly speaking, commodity firms may be exempt from MiFID when they deal on own 

account in financial instruments or provide investment services in commodity derivatives 

on an ancillary basis as part of their main business and when they are not subsidiaries of 

financial groups.113 These exemptions are intended to cover commercial users and 

producers of commodities, under the assumption that commercial firms and specialist 

commodity firms do not pose systemic risks comparable to traditional financial 

institutions nor interact with investors. 

It has been suggested that commercial companies benefiting from the MiFID exemptions 

active in the oil market should not provide investment services in commodity derivatives 

even as an ancillary activity.114 As these MiFID exempt firms are not subject to any 

MiFID provisions – including the conduct of business rules – some national regulators 

and market participants have argued that unsophisticated clients would not be adequately 

protected. On the other hand, this notion of ancillary activity appears to be an essential 

provision for agricultural cooperatives, enabling them to provide hedging tools to their 

farmers while remaining exempt from a regulatory regime ill-calibrated to the small risks 

they pose to the financial system. Both securities and prudential regulators' point of view 

is that there is a case for providing a more narrow interpretation of allowed exempt 

activities in line with the overall purpose of MiFID.115 

Therefore, the Commission services consider that these exemptions could be modified as 

follows: 

a) The framework directive would be amended so that the first part of the exemption 

in Article 2(1)(i) would exclude dealing on own account with clients of the main 

business. This would be consistent with the suggestion to modify the exemptions 

 

113 Article 2(1)(i) and (k) of Directive 2004/39/EC exempts the same firms from the Capital Requirements Directive (CRD) as well. 

114 See Rapport du groupe de travail sur la volatilité des prix du pétrole, sous la présidence de Jean Marie Chevalier (February 2010), 

p.52f. 

115 CESR-CEBS Technical Advice to the European Commission on the review of commodities business, 15 October 2008, CESR/08-

752.
41

in Article 2(1)(d) (see section 7.2.8 below) and would more clearly limit the 

scope of the exemption to apply to the intended business of hedging physical and 

price risks; 

b) New implementing measures would ensure that the second part of the exemption 

in Article 2(1)(i) concerning the notion of ancillary activity is applied in a very 

precise and narrow way. This could rely on quantitative (e.g. revenue from the 

ancillary activity could not exceed a certain percentage of the main activity) as 

well as qualitative (e.g. the firm cannot dedicate specific resources or personnel 

for carrying out the ancillary activity) distinctions; 

c) The exemption in Article 2(1)(k) of the framework directive would be deleted. 

Recent experience with various commodity firms setting up MiFID-licensed 

subsidiaries and the political consensus to limit exemptions from financial 

regulation only to necessary cases, clearly underlines that the former justification 

for a specific exemption from MiFID for commodity derivative trading houses is 

no longer valid. 

The capital requirements applicable to investment firms whose main business consists 

exclusively of the provision of investment services or activities in relation to commodity 

derivatives, including firms potentially affected by restricting the scope of the 

exemptions from MiFID in this way, will be addressed in a separate review.116 

Meanwhile, increased transparency towards regulators in relation to some significant 

commercial participants, also to help identify the build up of any systemic risk and 

combating market abuse, would be promoted by requiring exchanges to report the 

transactions of non-regulated members to regulators117. Also, with respect to OTC trades, 

the Commission proposal on OTC derivatives, central counterparties and trade 

repositories,118 foresees a reporting threshold whereby a non financial entity could be 

required to report its trades to the trade repository if the size of its derivatives position 

exceeds a certain threshold i.e. it could be deemed to have become systematically 

important. 

(64) What is your opinion on the three suggested modifications to the 

exemptions? Please explain the reasons for your views. 

5.3. Definition of other derivative financial instrument 

There are several aspects to consider in determining whether an OTC derivative contract 

on commodities which can be physically settled has the characteristics of other financial 

instruments119. If physical delivery takes place after more than two trading days or after 

the period generally accepted in the market as the standard delivery time, the contract 

will meet the definition of a financial instrument if it fulfils all the following conditions: 

 

116 See Article 48 of Directive 2006/49/EC 

117 See section 6 below 

118 COM(2010) 484, Article 7 

119 Articles 38 and 39 of Regulation 1287/2006. 
42

a) it is traded on or is equivalent to a contract traded on a regulated market, MTF or 

similar third country facility; 

b) it is cleared by a central counterparty (CCP) or is subject to the payment of 

margin; and 

c) it is a standardized contract in terms of price, lot, date of delivery, etc. 

Taking into account the Commission proposal on OTC derivatives, central counterparties 

and trade repositories,120 the Commission services consider that the criterion of whether 

a contract is cleared by a CCP or subject to margining121 could be deleted from the 

framework directive and implementing regulation as a condition of meeting the 

definition of other financial instrument. The Commission services consider that if an 

OTC physically settled contract meets the two other criteria mentioned above (i.e. similar 

to an exchange trade contract and standardised), it would be sufficient to assume this 

contract presents the same characteristics as other derivative financial instruments. It 

would then be the responsibility of ESMA to identify which contracts present a systemic 

risk and therefore need to be cleared. 

(65) What is your opinion about removing the criterion of whether the 

contract is cleared by a CCP or subject to margining from the definition of 

other derivative financial instrument in the framework directive and 

implementing regulation? Please explain the reasons for your views. 

5.4. Emission allowances 

Emission allowances are an instrument created by the Emissions Trading Scheme 

Directive.122 The nature and characteristics of these allowances (certificate giving the 

right to emit 1 metric tonne of CO2) could lend themselves to be classified as an 

intangible asset or a physical commodity. Emission allowances themselves are not 

classified as financial instruments under MiFID.123 On the other hand, derivative 

contracts on these allowances (and other environmental credits) are financial instruments 

under MiFID under the same criteria as derivatives on commodities.124 

The Commission services note that the activity of carbon markets aims to satisfy specific 

public policy objectives in the area of climate change. Classification of emission 

allowances as financial instruments would have a major regulatory impact on the carbon 

market which brings together not only large industrial players with requisite capacity and 

expertise in the financial field or financial firms operating as intermediaries and 

proprietary investors but also smaller compliance buyers, including SMEs, currently with 

relatively limited exposure to the financial markets as a whole. 

 

120 COM(2010) 484, especially Article 3 creating the clearing obligation 

121 Annex I, Section C(7) and (10) of Directive 2004/39/EC and Article 38(1)(b) of Regulation 1287/2006.

122 As created by Directive 2003/87/EC O.J. L 275 25.10.2003. 

123 The legal classification of emission allowances is not uniform in the Member States. Some Member States consider emission 

allowances as property rights, whereas others consider them personal rights. Romania has classified them as financial instruments. 

124 See Section C(10) of Annex of Directive 2004/39/EC and Articles 38(3) and 39 of Regulation 1287/2006. Nonetheless, it has been 

suggested that the concept of emission allowances in the framework directive should explicitly refer to units recognised for 

compliance with the requirements of the Emissions Trading Scheme directive (Directive 2003/87/EC). 
43

More recently, there have been calls to extend the responsibilities of financial regulators 

to the supervision of secondary trading of spot emission allowances in addition to the 

derivatives market they already oversee.125 Supervision of trading of spot emission 

allowances would be a natural extension of their new supervisory duties relating to the 

auctioning of emission allowances.126 The supervision of secondary spot trading will be 

explored by the Commission in 2011 as part of its broader study on market oversight in 

the European carbon market pursuant to Article 12(1a) of Directive 2003/87/EC.127 

In the light of recent debates concerning the regulation of carbon markets128, the 

Commission services consider that more in-depth study is required to assess the 

suitability and proportionality of classifying emission allowances as financial 

instruments. That approach will be examined in the forthcoming study as one of the 

options available to enhance the level of market oversight in the European carbon 

market. That study will involve a separate stakeholder consultation. 

(66) What is your opinion on whether to classify emission allowances as 

financial instruments? Please explain the reasons for your views.

6. TRANSACTION REPORTING

Transaction reporting under MiFID enables supervisors to monitor the activities of 

investment firms and ensure compliance with MiFID, and to monitor for abuses under 

the Market Abuse Directive (MAD). Investment firms are required to report to competent 

authorities all trades in all financial instruments admitted to trading on a regulated 

market, regardless of whether the trade takes place on that market or not.129

Transaction reporting is also useful for general market monitoring, as it provides insight 

into how firms and markets behave. Records of trading activity can be used by 

supervisors for various purposes, including monitoring market stability, cases of short 

selling, and analysing market trends including speculation during times of uncertainty. 

Notably, transaction reporting can reveal how individual positions are created, give 

insight into trading patterns between firms, and be used for micro-prudential supervision. 

 

125 See the report "La régulation des marchés du CO2: rapport de la mission confiée à Michel Prada" commissioned by the French 

Ministry of Finance, C. Lagarde, and released on 19 April 2010. 

126 As foreseen in Commission Regulation No 1031/2010 on the timing, administration and other aspects of auctioning of greenhouse 

gas emission allowances pursuant to Directive 2003/87/EC of the European Parliament and the Council establishing a scheme for 

greenhouse gas emission allowances trading within the Community http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:302:0001:0041:EN:PDF

127 In its forthcoming Communication to the European Parliament and to the Council, the Commission will provide a preliminary 

assessment of the current levels of protection of the carbon market from market misconduct and abuse. The Communication will 

also outline the next steps foreseen by the Commission in this field.

128 Among others, EU financial and energy regulators have underlined the interdependencies between electricity and gas markets and 

other markets, such as emission allowances as well as other energy commodities (e.g. oil and coal). The market participants are

often the same and there are close linkages in price formation, suggesting spot allowances trading could benefit from identical rules 

as EU electricity and gas markets. On the other hand some have suggested that EUAs should be classified as financial instruments 

under MiFID. 

129 Article 25(3) of Directive 2004/39/EC and Articles 10 to 14 of Regulation 1287/2006. 
44

The current scope and functioning of transaction presents specific challenges to be 

addressed. First, because market supervision is the main reason for transaction reporting, 

the requirements under MiFID need to mirror the scope of the MAD. The ongoing 

review of the latter compels a number of changes. Second, reporting requirements today 

diverge between Member States, which adds costs for firms and limits the use of trade 

reports for competent authorities. Finally, for cost and efficiency purposes, double 

reporting of trades under MiFID and the recently proposed reporting requirements to 

trade repositories should be avoided.130

6.1. Scope 

The current transaction reporting requirements apply to financial instruments admitted to 

trading on a regulated market, including transactions in such an instrument executed 

outside the market, notably on an MTF or OTC. In order to ensure that transaction 

reporting captures all relevant trading under MAD, some changes are necessary. 

First, MAD will likely be extended to financial instruments admitted to trading or traded 

only on MTF's,131 as well as possibly to other instruments only traded on organised 

trading facilities outlined in Section 2.2 above.132 The latter transactions are currently 

considered to be OTC trades. Extending reporting requirements to all transactions in 

financial instruments admitted to trading on an MTF or an organised trading facility 

would ensure that all transactions executed on these facilities are captured, including 

when such transactions take place OTC. 

Second, market manipulation by way of instruments that can influence the price of a 

financial instrument traded on a regulated market, MTF or organised trading facility 

outlined in Section 2.2 above is not explicitly covered under MAD. When such 

instruments are not themselves traded on organised trading platforms, transaction 

reporting under MiFID does not apply either. However, MAD is foreseen to be amended 

to this effect, necessitating a corresponding change to capture this type of OTC trading in 

MiFID. 

Third, the MAD provisions against using inside information apply to all financial 

instruments whose value depends on that of a financial instrument traded on a regulated 

market. This includes depositary receipts. Transactions in such instruments currently do 

not need to be reported under MiFID when they are not themselves traded on organised 

trading platforms133. Yet this type of OTC trading is already in scope of the MAD 

provisions today. 

Fourth, the Commission services are considering an extension of the MAD to market 

manipulation of commodities markets through commodity derivatives markets. 

Commodity derivatives may be used to manipulate markets in the underlying 

 

130 COM(2010) 484 

131 Some Member States have already extended the scope of MAD to such instruments. See CESR Review Panel report MAD Options 

and Discretions 2009 CESR/09-1120 

132 As described in section 2.2 above, the Commission services consider it necessary to define admission to trading as the decision by 

the operator of a regulated market, MTF, or organised trading facility to allow a financial instrument to be traded on its systems. 

133 However, by way of recital 45 of Directive 2004/39/EC Member States have the option to extend reporting to instruments that are not 

admitted to trading on a regulated market. 
45

commodity. Such behaviour may not be caught under the current text of the MAD, as the 

commodity itself will typically not be a financial instrument. This extension of the MAD 

would therefore need to be followed in MiFID by extending the transaction reporting 

obligation to all commodity derivatives, including those which are only traded OTC. 

Fifth, regulated markets, MTFs, or other organised trading facilities outlined in Section 

2.2 above may currently allow access to persons who are not authorised as investment 

firms under MiFID, and which are currently not subject to transaction reporting 

obligations, but are in scope of the market abuse provisions. This situation can impair the 

quality of market monitoring and supervision. 

Finally, MAD will also likely be extended to capture attempted market abuse. As 

attempted market abuse is not limited to transactions in financial instruments, but also 

extends to orders to trade, this extension creates the need for consolidated and 

comparable order information. This information is currently available from trading 

platforms, but not all supervisors have access to it on an ongoing basis, nor is the 

information stored in a systematic way. Notably, the format and time may differ from 

market to market. 

In this context, the Commission services consider that the scope of transaction reporting 

could be amended to:134

a) Extend the scope of transaction reporting in the framework directive to all 

transactions in financial instruments that are admitted to trading or traded on a MTF 

or an organised trading facility outlined in Section 2.2 above or that are related to the 

credit risk of a single issuer of such financial instruments. 

b) Extend the scope of transaction reporting in the framework directive to cover all 

financial instruments the value of which correlates with the value of a financial 

instrument traded on a regulated market, MTF or organised trading facility. 

c) Extend the scope of transaction reporting in the framework directive to depositary 

receipts that are related to a financial instrument that is admitted to trading or traded 

on a regulated market, a MTF or an organised trading facility outlined in Section 2.2 

above.135

d) Extend transaction reporting in the framework directive to commodity derivatives 

that are not admitted to trading or traded on a regulated market, a MTF or an 

organised trading facility outlined in Section 2.2 above. 

e) Introduce a transaction reporting obligation in the framework directive on regulated 

markets, MTFs and any organised trading facilities outlined in Section 2.2 above that 

offer access to firms not authorised as investment firms or credit institutions. 

 

134 By amending Article 25(3) of Directive 2004/39/EC

135 See CESR consultation paper on "Transaction reporting on OTC Derivatives and Extension of the Scope of Transaction Reporting 

Obligation", 19 July 2010, CESR/10-809 
46

f) Amend the framework directive to oblige regulated markets, MTF's and organised 

trading facilities to store order data in a manner accessible to supervisors for at least 

five years. 

(67) What is your opinion on the extension of the transaction reporting 

regime to transactions in all financial instruments that are admitted to 

trading or traded on the above platforms and systems? Please explain the 

reasons for your views. 

(68) What is your opinion on the extension of the transaction reporting 

regime to transactions in all financial instruments the value of which 

correlates with the value of financial instruments that are admitted to trading 

or traded on the above platforms and systems? Please explain the reasons for 

your views. 

(69) What is your opinion on the extension of the transaction reporting 

regime to transactions in depositary receipts that are related to financial 

instruments that are admitted to trading or traded on the above platforms 

and systems? Please explain the reasons for your views. 

(70) What is your opinion on the extension of the transaction reporting 

regime to transactions in all commodity derivatives? Please explain the 

reasons for your views. 

(71) Do you consider that the extension of transaction reporting to all 

correlated instruments and to all commodity derivatives captures all relevant 

OTC trading? Please explain the reasons for your views. 

(72) What is your opinion of an obligation for regulated markets, MTFs 

and other alternative trading venues to report the transactions of nonauthorised members or participants under MiFID? Please explain the reasons 

for your views.

(73) What is your opinion on the introduction of an obligation to store 

order data? Please explain the reasons for your views. 

(74) What is your opinion on requiring greater harmonisation of the 

storage of order data? Please explain the reasons for your views. 

6.2. Content of reporting 

Various differences in national implementation and interpretation regarding transaction 

reporting have led to diverging reporting requirements. In order to minimise differing 

requirements, reduce costs and improve efficiency in the exchange of transaction 

information between regulators, specific changes are necessary. 

First, Member States take differing views on which legs of the process of order execution 

constitute executing a transaction. Some Member States consider that only the execution 

of a transaction on an organised venue or OTC is reportable, while others consider that 

changing the essential characteristics of an order also constitutes a reportable transaction. 

There is also disagreement as to whether the aggregation of orders is considered to be 

executing the order. 
47

Second, national schemes differ as regards collecting data that identifies the person who 

has made the underlying investment decision. Some Member States do not require this 

information at all. This hampers automated detection of market abuse, and complicates 

investigations of possible market abuse as such information first needs to be gathered 

from investment firms. Member States that collect this information do so either through 

direct reporting by the client-facing entity, or by passing on client information down the 

execution chain. As a result, the number of transaction legs that need to be reported, as 

well as the way the client and counterparty fields are populated in a transaction report 

differs across the Member States. This divergence limits the use of transaction reporting 

for purposes of detecting and investigating possible cases of market abuse, because it 

hinders the exchange of information between supervisors. It also leads to diverging 

obligations on firms. 

Third, the Commission services are also considering whether, in order to provide further 

information to monitor for market abuse, transaction reports could identify the trader 

within a firm who executes the transaction. This field is a so-called "trader ID". When 

the investment decision is made by an automated system (i.e. when a computer algorithm 

has decided on the aspects of execution of the order such as timing, quantity and price), 

the transaction report could identify an algorithm as having made the investment 

decision. 

Further, it will be necessary for implementing measures to fully harmonise the content of 

transaction reports as any differences between Member States not only create difficulties 

for firms but act as an obstacle to competent authorities being able to exchange and 

understand exchanged information on transactions. Therefore, subsequent clarifications 

to transaction reporting are needed in the implementing acts. 

In this context, the Commission services consider that the transaction reporting 

obligations could be modified as follows: 

a) Amend the implementing regulation to specify that, for transaction reporting 

purposes, a transaction refers to any agreement concluded with a counterparty to 

buy or sell one or more financial instruments.136 

b) Amend the framework directive to introduce an obligation on firms that receive 

and transmit or otherwise handle orders but which are not executing transactions 

in the above sense to transmit the required details of such orders to the receiving 

investment firm137. 

c) Amend the framework directive to require transaction reports to include means of 

identifying the person who has made the investment decision (the client 

identifier) 138 and the trader who executes the transaction. Transaction reports 

would need to identify the person who has made the investment decision through 

the chain of order transmission to the final execution of the transaction. This 

would require that all entities in a chain of transactions have the obligation to 

 

136 By amending article 5 of regulation 1287/2006. 

137 By amending Article 25 of Directive 2004/39/EC 

138 Amending Article 25(4) of Directive 2004/39 and Article 13(4) of Regulation 1287/2006 
48

pass on all the details of the trade including client identifiers as in b) above they 

are themselves not subject to transaction reporting. 

d) Amend the framework directive to allow for the adoption of implementing acts on 

a common European transaction reporting format and content, including the 

reporting form, identification of the instrument traded, date and time, price 

against which the transaction took place, identification of the reporting parties, 

identification of the client, trading capacity, number of the report, technical 

format of transmission, and way of transmission.139

(75) What is your opinion on the suggested specification of what 

constitutes a transaction for reporting purposes? Please explain the reasons 

for your views. 

(76) How do you consider that the use of client identifiers may best be 

further harmonised? Please explain the reasons for your views.

(77) What is your opinion on the introduction of an obligation to 

transmit required details of orders when not subject to a reporting 

obligation? Please explain the reasons for your views.

(78) What is your opinion on the introduction of a separate trader ID? 

Please explain the reasons for your views. 

(79) What is your opinion on introducing implementing acts on a 

common European transaction reporting format and content? Please explain 

the reasons for your views. 

6.3. Reporting channels 

Transactions need to be reported to competent authorities, who then exchange this 

information as necessary for market supervision purposes.140 The reporting obligation 

could be met by the investment firm itself, a third party acting on its behalf or by a trade 

matching or reporting system approved by the competent authority or by the regulated 

market or MTF through whose systems the transaction was completed.141 

First, reporting to different competent authorities who then exchange this information is 

giving rise to certain inefficiencies. This is because investment firms need to report to 

different competent authorities depending on where they execute a transaction and 

competent authorities need to develop and maintain IT infrastructure to exchange the 

transaction reports. 

Second, supervisors' enforcement powers over reporting channels that are not regulated 

entities are unclear. Such entities need to be approved, but the conditions for approval are 

not specified. This has possible data quality implications. 

 

139 CESR has already put forward numerous proposals including a third trading capacity (client facilitation) in addition to those of agent 

and principal, and standards for mandatory client and counterparty identifiers (CESR/10-808) 

140 See CESR Level 3 guidelines on transaction reporting (CESR/07-301) 

141 Article 25(5) of Directive 2004/39/EC. 
49

Third, the Commission's proposal on OTC derivatives, central counterparties and trade 

repositories (EMIR)142 captures trading in derivatives which is or may become reportable 

under MiFID.143 This would lead to double reporting requirements on investment firms. 

In this context, the Commission services consider that the transaction reporting 

obligations could be modified as follows: 

a) Amend the framework directive144 to explicitly enable direct reporting by investment 

firms to a reporting mechanism at EU level. Transaction reports could be sent to such 

a mechanism, i.e. a database permanently accessible to competent authorities. This 

would remove the costs of running separate databases by the competent authorities. 

b) Amend the framework directive145 to clarify that third parties reporting on behalf of 

investment firms should be approved by competent authorities as an "Approved 

Reporting Mechanism" (ARM) on condition that they can meet the requirements 

imposed by article 25, and are subject to the same sanctions that apply to the firm on 

whose behalf the report is made. 

c) Amend the framework directive146 to waive the MiFID reporting obligation on an 

investment firm which has already reported an OTC contract to a trade repository or 

competent authority under EMIR and approved as an ARM under MiFID. 

(80) What is your opinion on the possibility of transaction reporting 

directly to a reporting mechanism at EU level? Please explain the reasons for 

your views. 

(81) What is your opinion on clarifying that third parties reporting on 

behalf of investment firms need to be approved by the supervisor as an 

Approved Reporting Mechanism? Please explain the reasons for your views. 

(82) What is your opinion on waiving the MiFID reporting obligation on 

an investment firm which has already reported an OTC contract to a trade 

repository or competent authority under EMIR? Please explain the reasons 

for your views. 

(83) What is your opinion on requiring trade repositories under EMIR 

to be approved as an ARM under MiFID? Please explain the reasons for your 

views. 

 

142 COM(2010) 484 

143 EMIR contains the obligation for financial counterparties and non-financial-institutions above a certain threshold to report the details 

of all OTC derivative contracts and derivatives contracts executed on MTFs to trade repositories, i.e. to entities that centrally collect 

and maintain the records of OTC derivatives. Competent authorities will have access to the information stored in the trade 

repositories. Where there is no trade repository available, the OTC derivatives contract should be reported to the supervisor. 

144 By amending Article 25(3) of Directive 2004/39/EC 

145 By amending Article 25(5) of Directive 2004/39/EC 

146 By amending Article 25(5) of Directive 2004/39/EC
50

7. INVESTOR PROTECTION AND PROVISION OF INVESTMENT SERVICES

Several regulators and market participants have raised concerns in the area of investor 

protection both with regard to the content and the practical application of certain MiFID 

provisions. The latter referred to cases of advice of unsuitable products or the impact of 

complex products on investors who did not fully appreciate their risk. Also in light of the 

experience of the financial crisis, the Commission services consider that a revision of 

several provisions is necessary. 

These relate to three areas: 

1. Some modifications are suggested in order to ensure that the scope of the directive is 

sufficiently clear and includes financial products, services, practices and entities 

which are currently not covered; 

2. The conduct of business rules, while comprehensive, detailed and calibrated by 

service and investor-type (retail or professional), require some modifications in light 

of the financial crisis; and 

3. Specific updates to the authorisation provisions and the organisational requirements 

and operational arrangements, policies and procedures which firms have to maintain 

are needed in order to address some deficiencies present in the provision of 

investment services. 

In the area of investor protection, the present consultation has also to be read in 

conjunction with the Commission Green Paper on Corporate Governance in Financial 

Institutions and Remuneration Policies147, the Commission Communication on Packaged 

Retail Investment Products (PRIPs)148 and with the subsequent contributions from 

stakeholders to the consultation on legislative steps for the PRIPs initiative149, as well as 

the Consultation on Legal Certainty of Securities Holding and Dispositions.150 The 

present paper elaborates on some issues covered by these work streams; nevertheless all 

issues which imply a modification or supplementing MiFID with additional rules will be 

part of the MiFID legislative proposal. 

The present document does not deal with remuneration policies and practices in the 

perspective of excessive risk-taking and short termism. Investment firms and credit 

institutions providing services in accordance with MiFID are already fully covered under 

the new Directive amending Directives 2006/48/EC and 2006/49/EC as regards capital 

requirements for the trading book and for re-securitisations, and the supervisory review 

 

147 COM (2010) 284 final 

148 COM(2009) 204 final. 

149 Working Document of the Commission Services (DG Internal Market) - Consultation by Commission services on legislative steps for

the Packaged Retail Investment Products initiative, published on 26 November 2010 

(http://ec.europa.eu/internal_market/consultations/2010/prips_en.htm). In line with the Working Document, the present consultation 

document on the MiFID review does not cover so-called "pre-contractual disclosures" (rules on the 'key investor information' 

document, or KIID).

150 See http://ec.europa.eu/internal_market/consultations/docs/2010/securities/consultation_paper_en.pdf As a result of this ongoing 

consultation, the question of changing the ancillary service of "safekeeping and administration of financial instruments for the 

account of clients, including custodianship and related services such as cash/collateral management" (Annex I, Section B(1) of 

Directive 2004/39/EC) to an investment service will not be consulted upon in this document. 
51

of remuneration policies (so called CRD III151) and under Commission Recommendation 

of 30 April 2009 on remuneration policies in the financial services sector. According to 

the CRD III, CESR is required to cooperate closely with CEBS in ensuring the existence 

of guidelines on remuneration policies in the provision of investment services and 

activities, in the perspective of the Directive (Article 22 of Directive 2006/48/EC). 

7.1. Scope of the Directive 

The Commission services consider that improvements are necessary in three areas152. 

7.1.1. Optional exemptions for some investment service providers 

Member States have the option not to apply MiFID to firms or persons providing 

reception and transmission of orders and/or investment advice in relation to a broad 

range of financial instruments.153 Member States may only apply this exemption when 

the activities of the persons are regulated at national level, but MiFID does not specify 

any details of what this national regulation should consist of. These entities cannot 

provide services cross border, and indeed in most cases do not appear to be interested to 

do so.154

The financial crisis has underlined that, amid the complexity of financial markets and 

products, investors depend to a large extent on suitable recommendations provided by 

professional advisers. Investors should enjoy the same level of protection irrespective of 

the location or the nature of the service providers. Exempting some service providers 

even on a national basis without setting a minimum regulatory framework for investor 

protection no longer seems appropriate. On the other hand, these service providers are 

often small and medium sized firms (or even natural persons), frequently reflecting the 

development of national markets; thus the application of the whole MiFID framework 

may appear disproportionate. 

In the light of the above, the Commission services consider that, while it is appropriate 

for Member States to retain the possibility to exempt certain entities providing advice 

(with or without the subsequent reception and transmission of clients' orders) from the 

Directive, these firms could be subject, in national legislation, to requirements analogous 

to the MiFID ones in the following areas: 

a) proper authorisation process, including the assessment of fit and proper 

criteria155; 

b) information to clients156; 

c) suitability test157; 

 

151 The directive is awaiting publication. 

152 A fourth change in the scope of the directive concerns the question of safekeeping of financial instruments in the above footnote. 

153 Article 3 of Directive 2004/39/EC 

154 These entities are often small firms, or even individuals, and are not allowed to hold clients' funds or securities. 

155 Article 5 and 9 of Directive 2004/39/EC 

156 Article 19 (2) and (3) of Directive 2004/39/EC 
52

d) payments received from third parties (inducements); 

e) reporting to clients158 and 

f) duty to act in the best interest of the client when transmitting orders received 

from clients.159

These principles would be introduced in Article 3 of MiFID in order to narrow the scope 

of the exemption by circumscribing the powers of Member States in regulating these 

entities and in order to ensure adequate protection of investors irrespective of the entity 

providing the services. 

(84) What is your opinion about limiting the optional exemptions under 

Article 3 of MiFID? What is your opinion about obliging Member States to 

apply to the exempted entities requirements analogous to the MiFID conduct 

of business rules for the provision of investment advice and fit and proper 

criteria? Please explain the reasons for your views. 

7.1.2. Application of MiFID to structured deposits 

In the context of the Communication on packaged retail investment products (PRIPs),160

the Commission has underlined the importance of ensuring a more consistent regulatory 

approach concerning the distribution of different financial products to retail investors, 

which however satisfy similar investor needs and raise comparable investor protection 

challenges. Most of the elements of the MiFID regime were identified as a benchmark 

for the sale of different categories of PRIPs, even when they are covered under other 

directives, as in the case of some insurance products.161

In light of the above, the Commission services consider that relevant parts of MiFID 

could be extended to cover products which are currently not regulated at EU level. This 

is the case for structured deposits,162 which have similar characteristics as other 

categories of financial instruments already covered under MiFID, such as a long term 

investment objective, the structured form and the active marketing to retail investors. 

Therefore, the Commission services consider that MiFID conduct of business and 

conflicts of interest rules could be extended to the advised and non-advised sale of these 

products by credit institutions.163 

 

157 Article 19 (4) of Directive 2004/39/EC 

158 Article 19 (8) of Directive 2004/39/EC

159 Article 45 (7) of Directive 2006/73/EC 

160 See consultation of Commission services on legislative steps for the Packaged Retail Investment Products initiative of 26 November 

2010 (http://ec.europa.eu/internal_market/consultations/docs/2010/prips/consultation_paper_en.pdf) and Communication on 

Packaged Retail Investment Products COM(2009) 204 final (29 April 2009) and update in the form a working paper on 16 December 

2009. 

161 This is also in line with current practice in various Member States where MiFID investor protection rules apply also to some nonMiFID products. 

162 Working document of the Commission services published on 26/11/2010, p. 8. – See also Report of the 3L3 Task Force on 

Packaged Retail Investment Products (PRIPs) , 6/10/2010, p. 18. 

163 Amending Article 1(2) in relation to the applicability of MiFID to credit institutions in Directive 2004/39/EC
53

(85) What is your opinion on extending MiFID to cover the sale of 

structured deposits by credit institutions? Do you consider that other 

categories of products could be covered? Please explain the reasons for your 

views. 

7.1.3. Direct sales by investment firms and credit institutions 

Some national regulators have raised concerns with respect to the applicability of MiFID 

when investment firms or credit institutions issue and sell their own securities. While the 

application of MiFID is clear when investment advice is provided as part of the sale, 

greater clarity is needed in the case of non-advised services, where the investment firm or 

bank could be considered not to be providing a MiFID service. 

Some practical issues have also emerged with respect to investment firms and credit 

institutions distributing products to investors on the basis of an agreement with the issuer 

in the provision of the services of placing and underwriting. In particular, it seems 

necessary to clarify in practice the situation of investment firms that can be acting on 

behalf of an issuer and, as part of the same transaction, on behalf of the investor as 

well.164

On the first issue, the Commission services consider that it would be necessary to specify 

that MiFID also applies to investment firms and credit institutions selling their own 

securities when not providing any advice. To this end, the definition of the service of 

execution of orders on behalf of clients could be modified in order to also include the 

direct sale of their own securities by banks and investment firms.165 

Concerning the second point, the Commission Services consider that MiFID conduct of 

business rules clearly apply to the provision of services to investors, irrespective of the 

circumstance that a firm is acting, at the same time, on behalf of the issuer and of the 

investor. However, in order to ensure a convergent application of these principles in 

concrete situations, implementing measures should be adopted in this area. 

(86) What is your opinion about applying MiFID rules to credit 

institutions and investment firms when, in the issuance phase, they sell 

financial instruments they issue, even when advice is not provided? What is 

your opinion on whether, to this end, the definition of the service of execution 

of orders would include direct sales of financial instruments by banks and 

investment firms? Please explain the reasons for your views. 

7.2. Conduct of business obligations 

MiFID establishes the general obligation for investment firms and credit institutions to 

act honestly, fairly and professionally in accordance with the best interests of their clients 

when providing investment services.166 Based on these general principles, specific 

conduct of business rules are further spelled out. These rules concern the information to 

 

164 Additional Information in Relation to the Review of MiFID CESR/10-860 

165 Amending Article 4(1)(5) of Directive 2004/39/EC 

166 Article 19(1) of Directive 2004/39/EC. 
54

be given to clients before167 and after168 the provision of investment services, as well as 

"know-your-customer" tests adapted to the type of client and investment service.169

Finally, any payments likely to influence the choice of service or financial instrument 

(inducements) have to comply with specific requirements.170 

Conduct of business rules are calibrated to the characteristics of different categories of 

investors and their need of protection. For this purpose, clients are divided into three 

categories - retail clients, professional clients,171 and eligible counterparties.172

Professional clients are in turn divided between professional clients per se (such as 

banks, pension funds, investment funds and other financial institutions) and professional 

clients on request. 

Experience since the application of the Directive and the financial crisis have revealed 

the need to assess whether this differentiated treatment is still adequate. 

7.2.1. "Execution only" services 

MiFID allows investment firms to provide investors with a means to buy and sell certain 

financial instruments in the market without undergoing any assessment of the 

appropriateness of the given product - that is, the assessment against knowledge and 

experience of the investor.173 These "execution-only" services are only available when 

certain conditions are fulfilled, namely when it involves so-called non-complex financial 

instruments.174 

There seems to be a certain degree of uncertainty on what can qualify as a non-complex 

product and on the services that can be covered by this regime175. The Commission 

services suggest two alternative options: 

Option A 

 

167 Article 19(3) of Directive 2004/39/EC and Articles 28-34 of Directive 2006/73/EC, Article 21(3) of Directive 2004/39/EC and Article 

46(2) of Directive 2006/73/EC. 

168 Article 19(8) of Directive 2004/39/EC and Articles 40-43 of Directive 2006/73/EC. 

169 When providing investment advice or portfolio management firms should conduct a suitability test taking into consideration the 

knowledge and experience, the financial situation and the investment objectives of the client (Article 19(4) of Directive 2004/39/EC 

and Articles 35 and 37 of Directive 2006/73/EC). When providing the other services, firms should assess the appropriateness of the 

service for the client according to his knowledge and experience (Article 19(5) of Directive 2004/39/EC and Article 36, 37 of Directive 

2006/73/EC). Under specific circumstances intermediaries may provide services often described as "execution-only" services, where 

they are not obliged to assess the appropriateness of the service for the client (Article 19(6) of Directive 2004/39/EC and Article 38 

of Directive 2006/73/EC). 

170 Article 26 of the 2006/73/EC regulating different categories of inducements, including the obligation to disclose third party 

inducement and ensure that they are designed to enhance the quality of the service for the client and do not impair compliance with 

firms' duty to act in the best interest of the client.

171 Annex II to Directive 2004/39/EC 

172 Article 24 of Directive 2004/39/EC. This category only exists in relation to certain services (particularly, execution of orders), while it 

does not apply to the provision of investment advice and portfolio management 

173 Article 19(6) of Directive 2004/39/EC 

174 The relevant instruments are specified in the first indent of Article 19(6) of Directive 2004/39/EC; further criteria to identify financial 

instruments that may be subject to "execution-only" regime are specified under Article 38 of Directive 2006/73/EC. 

175 See also CESR proposal for modifying Article 19(6) in CESR/10-859, p.25-31
55

Supplementing Article 19(6) with the following elements: 

a) Amending the reference to "shares" in Article 19 (6) in the framework directive, 

in order to clarify that these shares that may be treated as automatically noncomplex are shares admitted to trading on a regulated market or MTF or on an 

equivalent third country market, where these are shares in companies, and 

excluding shares in collective investment undertakings, convertible shares and 

other shares that embed a derivative; 

b) Differentiating the categories of money market instruments, bonds or securitised 

debt in order to limit their classification as non-complex instruments in the 

following cases: 

– bonds and other forms of securitised debt admitted to trading on a 

regulated market or on an equivalent third country market – excluding in 

any case those embedding a derivative such as convertible bonds and 

exchangeable bonds, or incorporating a structure which makes it difficult 

for the client to understand the risk involved; 

– money market instruments – excluding asset-backed securities and other 

structured instruments that embed a derivative or incorporate structures 

which make it difficult for the client to understand the risk involved. 

c) The current regime would also be modified in order to exclude the provision of 

execution-only services when the ancillary service of granting of credit or loans 

to the client to allow the client to carry out the transaction in one or more 

financial instruments, is also provided.176 The reason for this need for an 

exclusion is because the granting of credits or loans increases the client's leverage 

and risk exposure and the overall complexity of the transaction; and 

d) In addition to the proposals under (a), (b) and (c), a differentiation could also be 

introduced for UCITS in Article 19(6) in order to further refine the categories of 

instruments which may be subject to the execution only regime. The current 

framework, where UCITS are always classified as non-complex instruments, 

could evolve in order to take into account the adoption of complex portfolio 

management techniques in the management of some UCITS. 

Option B 

Deleting Article 19(6) 

This implies abolition of the execution only regime. In support of this option it may be 

argued that retail clients – who are essentially concerned by the provision of execution 

only – should always expect a higher standard of service from intermediaries, including 

on-line brokerage which is the typical channel for this kind of services. 

(87) What is your opinion of the suggested modifications of certain 

categories of instruments (notably shares, money market instruments, bonds 

 

176 Annex I, section B (2) of MiFID. 
56

and securitised debt), in the context of so-called "execution only" services? 

Please explain the reasons for your views. 

(88) What is your opinion about the exclusion of the provision of 

"execution-only" services when the ancillary service of granting credits or 

loans to the client (Annex I, section B (2) of MiFID) is also provided? Please 

explain the reasons for your views. 

(89) Do you consider that all or some UCITS could be excluded from the 

list of non-complex financial instruments? In the case of a partial exclusion of 

certain UCITS, what criteria could be adopted to identify more complex 

UCITS within the overall population of UCITS? Please explain the reasons 

for your views. 

(90) Do you consider that, in the light of the intrinsic complexity of 

investment services, the "execution-only" regime should be abolished? Please 

explain the reasons for your views. 

7.2.2. Investment advice177 

In the context of recent debates on the quality of investment advice, including the debate 

on PRIPs, several possible areas for improvement have emerged. 

1) Under MiFID178 intermediaries providing investment advice are not expressly 

required to explain the basis on which they provide advice (e.g. the range of 

products they consider and assess) and more clarity is thus needed as to the kind of 

service provided by the intermediary. The Commission services consider that the 

framework directive:179

a) could include a requirement for intermediaries to inform the investor whether 

they give advice on the basis of an independent and fair analysis; 

b) could provide that, when the investment firm informs the client that advice is 

based on an independent and fair analysis: 

– it would be obliged to assess a sufficiently large number of financial 

instruments available on the market, notably, financial instruments of 

different types and from different providers. Implementing measures 

should be adopted for a uniform application of the new requirements; 

– the firm would be prohibited from accepting any payments or benefits 

from any product providers (see section 6.2.4. on inducements). 

2) While a general obligation to report to clients on the services provided is already in 

place in the framework directive,180 the Commission services consider appropriate 

introducing further details concerning investment advice in the implementing 

 

177 Investment advice as defined in Article 4(1)(4) of Directive 2004/39/EC and 52 of Directive 2006/73/EC. 

178 Namely Article 19(3) of Directive 2004/39/EC 

179 Article 19(3) of Directive 2004/39/EC and Articles 30 of Directive 2006/73/EC 

180 Article 19(8) of Directive 2004/39/EC 
57

directive. Notably firms providing advice would report personally to the client in 

writing the underlying reasons for the advice provided, including the explanation 

about how the advice meets the investor's profile.181

3) The Commission services consider that, as a consequence of the provision of advice, 

investors could expect, or could be able to require, a longer term assistance from 

intermediaries providing the service. Therefore: 

a) The firm would be required to report regularly – at least every six months - to the 

client about the market value (or the fair value when the market value is not 

available) and the performance of the financial instruments recommended to the 

client, except in the case of complex products where the reporting could be 

quarterly (see section 7.2.3 below). In addition, the firm would in any case report 

when material modifications in the situation of the financial instruments 

recommended to the client occur;182

b) The firm would request the client, on an annual basis, to update the information 

concerning his personal circumstances.183 If the client refuses to do so, the firm 

would be allowed to assume that the initial circumstances are still unchanged; and 

c) The firm would confirm, at least on an annual basis that, based on the evolution 

of the financial instruments initially recommended and of the personal 

circumstances of the client, those instruments are still suitable to the client's 

personal situation, including in terms of risk diversification of his overall 

investments.184

4) The Commission services consider that the implementing directive could be 

modified in order to clarify that investment advice may also be provided through 

distribution channels, such as the internet.185

(91) What is your opinion of the suggestion that intermediaries providing 

investment advice should: 1) inform the client, prior to the provision of the 

service, about the basis on which advice is provided; 2) in the case of advice 

based on a fair analysis of the market, consider a sufficiently large number of 

financial instruments from different providers? Please explain the reasons for 

your views. 

(92) What is your opinion about obliging intermediaries to provide 

advice to specify in writing to the client the underlying reasons for the advice 

provided, including the explanation on how the advice meets the client's 

profile? Please explain the reasons for your views. 

 

181 Introducing in Directive 2006/73/EC a specific provision implementing Article 19(8) of Directive 2004/39/EC when advice is provided.

182 Introducing a new Article in Section 4, Chapter III of Directive 2006/73/EC 

183 Amending Article 35 of Directive 2006/73/EC 

184 ibid 

185 In the Technical Advice to the Commission in the context of the MiFID review, CESR notices that the current wording of Article 52 of 

Directive 2006/73/EC may lead to the wrong interpretation that personal recommendations issued through distribution channels 

cannot qualify as investment advice (CESR/10-859, p. 32). Formal adjustments in the Directive are appropriate in order to clarify this 

wording.
58

(93) What is your opinion about obliging intermediaries to inform the 

clients about any relevant modifications in the situation of the financial 

instruments pertaining to them? Please explain the reasons for your views. 

(94) What is your opinion about introducing an obligation for 

intermediaries providing advice to keep the situation of clients and financial 

instruments under review in order to confirm the continued suitability of the 

investments? Do you consider this obligation be limited to longer term 

investments? Do you consider this could be applied to all situations where 

advice has been provided or could the intermediary maintain the possibility 

not to offer this additional service? Please explain the reasons for your views. 

7.2.3. Informing clients on complex products 

Information and reporting requirements represent an important part of the MiFID 

investor protection framework.186

As a result of the crisis, CESR has noted that there is a case for strengthening the right to 

request information for professional and retail clients who trade OTC derivatives and 

other complex or tailor-made products (e.g. structured products), although on an 

appropriately calibrated basis.187 In addition to the protections foreseen in MiFID when 

customized financial instruments are traded with clients (notably, the "know your 

customer" obligation in the provision of investment advice), the Commission services 

consider that, as part of the firms' obligation to inform clients about financial instruments 

and to report on the services provided, the following three pieces of information could be 

made available to the client: 

a) Prior to the transaction, a risk/gain and valuation profile of the instrument in 

different market conditions;188 

b) During the life of the product, quarterly valuations of such complex products.189

The requirement of the independence and the integrity of the valuations could be 

foreseen. The firm could also be asked to exert continuous due diligence on the 

initial and subsequent valuation that are being provided to the client; and 

c) In the case of structured products, quarterly reporting on the evolution of the 

underlying assets during the lifetime of the product. 

A further improvement could consist in introducing a general obligation for firms 

holding client financial instruments to inform the clients in a timely manner when 

material modifications in the situation of the financial instruments occur. This would 

complement the current obligation in the implementing directive to send to clients, at 

 

186 Recitals 44 and l 45 and Article 31 of Directive 2006/73/EC 

187 CESR/10-860, p.3 

188 Amending Article 31 of Directive 2006/73/EC. Following the future developments on key investor information documents concerning 

PRIPs, which also aims at improving knowledge and comprehensibility of risks, proper co-ordination between the two obligations will 

be ensured. 

189 Introducing a new Article to Section 4, Chapter III of Directive 2006/73/EC 
59

least once a year, a statement of their assets.190These adjustments could be also expanded 

to cover eligible counterparties who currently do not benefit from any information and 

reporting requirements.191

Finally, since investors seem increasingly interested in the aspect of the social 

responsibility in the investment field, the Commission services consider appropriate to 

require investment firms to disclose any available information concerning ethical or 

socially oriented investment criteria in the context of information about financial 

instruments.192

(95) What is your opinion about obliging intermediaries to provide 

clients, prior to the transaction, with a risk/gain and valuation profile of the 

instrument in different market conditions? Please explain the reasons for 

your views. 

(96) What is your opinion about obliging intermediaries also to provide 

clients with independent quarterly valuations of such complex products? In 

that case, what criteria should be adopted to ensure the independence and the 

integrity of the valuations? 

(97) What is your opinion about obliging intermediaries also to provide 

clients with quarterly reporting on the evolution of the underlying assets of 

structured finance products? Please explain the reasons for your views. 

(98) What is your opinion about introducing an obligation to inform 

clients about any material modification in the situation of the financial 

instruments held by firms on their behalf? Please explain the reasons for your 

views 

(99) What is your opinion about applying the information and reporting 

requirements concerning complex products and material modifications in the 

situation of financial instruments also to the relationship with eligible 

counterparties? Please explain the reasons for your views. 

(100) What is your opinion of, in the case of products adopting ethical or 

socially oriented investment criteria, obliging investment firms to inform 

clients thereof? 

7.2.4. Inducements 

A series of issues with respect to the requirements regulating inducements merits review. 

Firstly, disclosure is currently required prior to the provision of the services and it covers 

the existence, the nature and the amount of the inducements ("disclosure requirement"). 

The prior disclosure may be made in a summary form. If the amount of inducements 

 

190 Article 43 of directive 2006/73/EC 

191 Article 24 and Article 19 of Directive 2004/39/EC 

192 Article 31 of Directive 2006/73/EC. Following the future developments on key investor information documents concerning PRIPs, 

proper co-ordination between the two obligations will be ensured. 
60

cannot be clearly ascertained, it is sufficient to disclose the method of calculating that 

amount.193 From this, the following three key issues have emerged194: 

a) There are difficulties in distinguishing between summary and detailed disclosures 

of inducements to clients; 

b) The current ex-ante disclosure is not complemented by any ex-post disclosure, 

even in cases when it is not possible to disclose the exact amount of inducements 

prior to the provision of the relevant service; 

c) Technical details as to the content of the disclosure (existence, nature and amount 

of inducements) are not provided in the directive and this has led to different 

implementation by firms. 

Secondly the requirement that third parties' inducements would be designed to enhance 

the quality of the service to the client ("enhancement requirement") is important, in as 

much as it precludes simply relying on the mere disclosure of inducements. Nevertheless, 

some practical difficulties have appeared notably with respect to portfolio management 

and investment advice. 

The Commission services consider that the following modifications could be introduced 

in the inducements regime: 

a) A modification of the disclosure requirement in the implementing directive in 

order to maintain the ex-ante detailed disclosure, abolish the possibility of 

disclosing inducements in summary form and introduce an ex-post reporting 

obligation (notably, in cases when the ex-ante disclosure referred to the methods 

of calculating inducements). 

b) Implementing acts could clarify the technical details of different items to be 

disclosed and could also define templates for disclosure in order to harmonise the 

presentation of inducements to clients. 

c) Further convergence of practical application aspects of the enhancement 

requirement through implementing acts to supervisors. For instance, in assessing 

whether the inducements have been designed to enhance the quality of the service 

to the client, supervisors would take into account the long term assistance 

provided by firms to their clients (as mentioned in previous paragraph 7.2.2). 

d) In the case of portfolio management banning third party inducements would be 

envisaged, because of the discretionary nature of this service and the possibility 

for the portfolio manager to take a decision without prior consent from the client. 

e) In the case of investment advice provided on an independent basis, third party 

inducements would be incompatible with the independent nature of the advice 

provided. Ban of third party inducements for the intermediary providing 

independent advice would consequently be envisaged. 

 

193 Article 26 of Directive 2006/73/EC implementing Article 19(1) of Directive 2004/39/EC 

194 CESR/10-860, p. 6
61

(101) What is your opinion of the removal of the possibility to provide a 

summary disclosure concerning inducements? Please explain the reasons for 

your views. 

(102) Do you consider that additional ex-post disclosure of inducements 

could be required when ex-ante disclosure has been limited to information 

methods of calculating inducements? Please explain the reasons for your 

views. 

(103) What is your opinion about banning inducements in the case of 

portfolio management and in the case of advice provided on an independent 

basis due to the specific nature of these services? Alternatively, what is your 

opinion about banning them in the case of all investment services? Please 

explain the reasons for your views. 

7.2.5. Provision of services to non-retail clients and classification of clients 

The Commission services consider that the general framework of the client classification 

system provides an adequate and satisfactory degree of flexibility195 and could thus 

remain unchanged. Nonetheless, the current crisis and alleged mis-selling practices 

involving local authorities, municipalities and corporate clients have shown that the 

ability of some non-retail clients to understand the risk they are exposed to, especially in 

the case of very complex products, may be inadequately reflected in the MiFID 

framework. 

In line with the rationale of the directive to calibrate protection requirements to the 

different categories of clients, many detailed conduct of business requirements are not 

meaningful in the relationship between eligible counterparties in their multiple daily 

dealings. On the other hand, the overarching high level principle to act honestly, fairly 

and professionally and the obligation to be fair, clear and not misleading should apply 

irrespective of client categorization. In addition, the eligible counterparty regime applies 

to the provision of execution of orders, dealing on own account and reception and 

transmission of orders to categories of entities classified as counterparties (such as credit 

institutions). It does not currently differentiate between the products actually traded or 

different entities in the same category (e.g. smaller and bigger credit institutions). 

Finally, the implementing directive allows firms to assume that, in relation to the 

products and services for which the client is classified as a professional, he/she has the 

necessary level of experience and knowledge196. Experience shows that, in practice, the 

presumption is often inaccurate since clients are generally classified as professionals 

without any differentiation between different products and services. Last but not least, 

recent alleged mis-selling has shown that the classification of local public authorities and 

municipalities raises uncertainty. Only the more experienced among them could be able 

to qualify for professional client status on-demand, while suitable flexibility for 

municipalities to access financial markets would be retained. 

 

195 For instance, eligible counterparties may ask to be treated as professional or even retail clients in order obtain more protective 

treatment. 

196 Article 35 (2), first subparagraph, and Article 36 second subparagraph of Directive 2006/73/EC
62

As a result, the Commission services consider that some alternative or complementary 

options for modification can be envisaged: 

a) To clarify that the framework directive's principles to act honestly, fairly and 

professionally and the obligation to be fair, clear and not misleading also apply in 

the relationship with eligible counterparties.197 

b) Appropriate modifications in the framework directive198 would be introduced to 

limit the availability of the eligible counterparty regime in certain circumstances, 

and notably: 

– to exclude transactions in complex products (such as asset backed 

securities and non-standard OTC derivatives); and/or 

– to exclude non-financial undertakings and certain financial institutions 

from the eligible counterparty regime. The exclusion could be based on the 

size of the institutions (smaller institutions) or on the nature of the business 

(for instance, entities which are not active in the securities markets). 

c) The presumption that professional clients have the necessary level of experience 

and knowledge would be abolished or limited to less complex financial 

instruments in order to grant to professional clients a more rigorous assessment of 

suitability or appropriateness.199

d) Municipalities would be excluded from being classified as eligible counterparties 

or professional clients per se.200 

(104) What is your opinion about retaining the current client classification 

regime in its general approach involving three categories of clients (eligible 

counterparties, professional and retail clients)? Please explain the reasons for 

your views. 

(105) What are your suggestions for modification in the following areas: 

a) Introduce, for eligible counterparties, the high level principle to 

act honestly, fairly and professionally and the obligation to be fair, 

clear and not misleading when informing the client; 

b) Introduce some limitations in the eligible counterparties regime. 

Limitations may refer to entities covered (such as non-financial 

undertakings and/or certain financial institutions) or financial 

instruments traded (such as asset backed securities and nonstandard OTC derivatives); and/or 

c) Clarify the list of eligible counterparties and professional clients 

 

197 An amendment to Article 24 of Directive 2004/39/EC to this effect could constitute the basis on which subsequently to define more 

detailed obligations in the implementing directive, such as for instance the nature and content of the information and reporting 

requirements concerning complex products between eligible counterparties suggested above. 

198 Amending Article 24 of Directive 2004/39/EC 

199 Article 35 (2), first subparagraph, and Article 36 second subparagraph of Directive 2006/73/EC. 

200 Amending Annex II, Section I(3) of Directive 2004/39/EC
63

per se in order to exclude local public authorities/municipalities? 

Please explain the reasons for your views. 

(106) Do you consider that the current presumption covering the 

professional clients' knowledge and experience, for the purpose of the 

appropriateness and suitability test, could be retained? Please explain the 

reasons for your views. 

7.2.6. Liability of firms providing services 

While investment firms are subject to possible administrative sanctions by the competent 

authorities if they infringe MiFID rules, the directive does not deal with the liability of 

firms towards clients in cases where infringement of MiFID rules causes damage. Thus, 

the conditions for such civil liability vary according to Member States' civil legal orders 

and may sometimes be difficult to establish. 

The Commission services regularly receive complaints, especially from retail investors, 

claiming that firms have violated conduct of business obligations. Introducing a principle 

of civil liability of investment services providers would be essential for ensuring an equal 

level of investor protection in the EU. 

Such a principle, could be included in the framework directive and would enable clients 

to claim damages against investment firms infringing MiFID rules, particularly in areas 

concerning the relationship between firms and clients and where specific obligations 

towards the client are foreseen. The following areas could be covered: information 

requirements,201 suitability and appropriateness test,202 reporting requirements,203 best 

execution204 and client order handling.205 

(107) What is your opinion on introducing a principle of civil liability 

applicable to investment firms? Please explain the reasons for your views. 

(108) What is your opinion of the following list of areas to be covered: 

information and reporting to clients, suitability and appropriateness test, best 

execution, client order handling? Please explain the reasons for your views. 

7.2.7. Execution quality and best execution 

The best execution obligation,206 the availability of data on execution quality, and the 

pre- and post-trade transparency requirements addressed in Section 3 above are closely 

linked. A well functioning pre- and post trade transparency regime provides a critical 

part of the information needed to assess execution quality and hence also to review firms' 

execution arrangements. Nevertheless, other information can also be relevant. This 

 

201 Article 19(3) of Directive 2004/39/EC 

202 Article 19(4) and (5) of Directive 2004/39/EC 

203 Article 19(8) of Directive 2004/39/EC 

204 Article 21(5) of Directive 2004/39/EC 

205 Article 22(1) of Directive 2004/39/EC 

206 Article 21 of Directive 2004/39/EC and Articles 44-46 of implementing Directive 2006/73/EC
64

concerns for instance the number of orders cancelled prior to execution or the speed of 

execution. 

The Commission services consider that an obligation could be introduced in the 

framework directive on trading venues to produce data on execution quality; in line with 

the proposal to extend pre- and post-trade requirements beyond shares, data on execution 

quality would be published for all financial instruments traded on different types of 

venues207. The information about execution quality would help firms, together with the 

measures concerning pre- and post-trade data addressed in Section 3, to improve 

compliance with best execution obligations. 

The Commission services have also received frequent feedback from investors in 

different Member States concerning the quality of information they receive on the 

execution policies adopted by firms and the possibility to verify firms' compliance with 

best execution obligations. In addition to strengthening provisions on civil liability as per 

the previous section, the Commission services consider that requirements relating to best 

execution in the implementing directive could be strengthened to ensure that firms 

provide different categories of clients with meaningful, clearer and substantive 

information to enable them to effectively understand how their orders are executed and at 

which venue and check that they receive best execution.208 

In particular, detailed requirements in the implementing directive could also cover 

professional clients and firms carrying out portfolio management and reception and 

transmission of orders. Further, execution policies could clearly make a distinction based 

on types of instruments, clients and orders. Firms using internal matching systems could 

clearly disclose and explain how best execution is achieved, and firms executing orders 

on a single execution venue could provide an explanation for this. Finally, a template for 

policies to facilitate disclosure to clients could be introduced. 

Implementing acts could also be envisaged in order to ensure a uniform application of 

MiFID principles across the EU. 

(109) What is your opinion about requesting execution venues to publish 

data on execution quality concerning financial instruments they trade? What 

kind of information would be useful for firms executing client orders in order 

to facilitate compliance with best execution obligations? Please explain the 

reasons for your views. 

(110) What is your opinion of the requirements concerning the content of 

execution policies and usability of information given to clients should be 

strengthened? Please explain the reasons for your views. 

7.2.8. Dealing on own account and execution of client orders 

Dealing on own account by investment firms is listed among the investment services and 

activities requiring authorisation. The MiFID definition of dealing on own account is 

very broad since it includes trading against proprietary capital resulting in the conclusion 

 

207 In new provisions in Directive 2004/39/EC and in Section 4, Chapter IV of Regulation 1287/2006 

208 In Article 46 of Directive 2006/73/EC
65

of transactions in financial instruments.209 On the other hand, the exemption regime in 

MiFID narrows significantly the coverage of this activity by excluding persons who do 

not provide any investment service or activities other than dealing on own account, 

unless they are market makers or deal on own account outside a regulated market or an 

MTF on an organised, frequent and systematic basis.210 

Experience shows that practice and supervision in Member States differ on how MiFID 

is applied to specific cases of firms dealing on own account and on the scope of this 

activity. This is particularly the case when firms execute client orders (another 

investment service which requires authorisation) against their proprietary capital. The 

Commission services consider that the definition of dealing on own account and the 

corresponding exemption could be modified to make clear that the exemption applies to 

persons who do not provide any investment services or activities other than dealing on 

own account unless they are market makers or deal on own account by executing client 

orders. Firms dealing on own account by executing client orders would continue to be 

authorised for the execution of orders on behalf of clients and to be subject to the 

corresponding obligations towards clients (for instance best execution211). 

Another issue concerning the definition of dealing on own account concerns the 

treatment under MiFID of orders executed for clients using matched principal (also 

known as "back to back") trading. Provided the legs of the trades are precisely matched, 

this method of executing orders can either be considered only as the execution of client 

orders, or also as dealing on own account, based on the argument that the firm's 

proprietary capital may be put at risk if one of the matched trades fails.212 The 

classification of this part of executing client orders has potential implications, in terms 

of, for instance, the applicability of the systematic internaliser regime and the capital 

treatment under the Capital Adequacy Directive.213 

The Commission services consider that it should be clarified that generally under MiFID, 

the execution of client orders on a matched principal basis should be treated as also 

involving the activity of dealing on own account.214 But this should not affect the 

treatment under the Capital Adequacy Directive. The potential application of the 

systematic internaliser regime to such trading is however less clear as in substance a back 

to back trade involves a trade between two clients (even if technically the firm may 

interpose itself). 

(111) What is your opinion on modifying the exemption regime in order to 

clarify that firms dealing on own account with clients are fully subject to 

MiFID requirements? Please explain the reasons for your views. 

(112) What is your opinion on treating matched principal trades both as 

 

209 Article 4(1)(6) of Directive 2004/39/EC. 

210 Article 2(1)(d) of Directive 2004/39/EC. 

211 As established in recital 69 of Directive 2006/73/EC. 

212 The definition of "execution of orders on behalf of clients" and "dealing on own account" can be found in Articles 4(1)(5) and 4(1)(6) 

of Directive 2004/39/EC. 

213 Currently article 5(2)(a) of Directive 2006/49/EC provides that a firm does not hold financial instruments on own account if they are 

precisely matched.

214 In Article 4(1)(6) of Directive 2004/39/EC 
66

execution of client orders and as dealing on own account? Do you agree that 

this should not affect the treatment of such trading under the Capital 

Adequacy Directive? How should such trading be treated for the purposes of 

the systematic internaliser regime? Please explain the reasons for your views.

7.3. Authorisation and organisational requirements 

7.3.1. Fit and proper criteria 

The framework directive requires persons who effectively direct the business of an 

investment firm to be of sufficiently good repute and sufficiently experienced as to 

ensure the sound and prudent management of the investment firm (so called "fit and 

proper test")215. This provision is generic and has led to different application in Member 

States. The implementing directive regulates the responsibility of senior management in 

ensuring the compliance of investment firms with their obligations under the MiFID. 

Following the Commission services consultation on corporate governance issues216, the 

Commission services consider that this framework could be clarified and strengthened 

with particular reference to the role of executive and non-executive directors. As to fit 

and proper criteria, different roles could be mirrored in different professional skills (for 

instance, non-executive directors should have professional experience in the financial 

field to enable them to carry out their role and should fulfil independence requirements in 

relation to the firm where they provide their activity). In addition, the role of supervisors 

could clearly include the initial and on-going assessment of fitness and propriety of 

directors. 

The Commission services consider that the following modifications in the framework 

and in the implementing directives could be envisaged: 

1) fit and proper criteria would clearly apply to all members of the board of directors 

(both executive and non-executive directors) and not only to persons who 

effectively direct the business217. Fit and proper criteria could include the 

assessment of time commitment, especially for non-executive members of the 

board; 

2) competent authorities would be satisfied, at the moment of the authorisation and in 

the on-going monitoring of the firms, that all members of the board are and 

continue to be of sufficiently good repute and sufficiently experienced to ensure the 

sound and prudent management of the firm and compliance with the applicable 

rules; 

3) implementing measures could clarify the details of these requirements in order to 

adapt them to different roles and functions and ensure their uniform application218; 

 

215 Article 9 of Directive 2004/39/EC 

216 Green Paper on "Corporate governance in financial institutions and remuneration policies" (COM(2010) 284 final)

217 Article 9 of directive 2004/39/EC 

218 New provision in the implementing directive 
67

4) the definition of senior management219 in the implementing directive would 

explicitly include executive directors. The supervisory function220 mentioned in the 

implementing directive would explicitly include non-executive directors. These 

specifications would ensure the full involvement of executive and non-executive 

directors, according to the respective competences, in the firm's compliance with 

relevant requirements. 

(113) What is your opinion on possible MiFID modifications leading to the 

further strengthening of the fit and proper criteria, the role of directors and 

the role of supervisors? Please explain the reasons for your view. 

7.3.2. Compliance, risk management and internal audit functions 

The implementing directive sets the general framework for the establishment and the 

operation of internal control functions. A prominent role is granted to the compliance 

function221 which has to monitor that firms implement and maintain policies and 

procedures to detect and minimize the risk of non-compliance with their obligations 

under MiFID and to assess the adequacy and effectiveness of such policies and 

procedures, also in the light of their actual application. A relevant role is also recognized 

to the risk management function222 in order to identify risks relating to the firm's 

activities and set, where appropriate, the level of risk tolerated by the firm. The internal 

audit function223 is required to establish an audit plan to evaluate the overall adequacy of 

the firm's systems and internal control mechanisms. Senior management receive and 

assess on a frequent basis, written reports on the matters covered by the different 

functions. Organizational requirements also include the obligation for firms to establish 

and maintain procedures for the handling of retail clients' complaints224. 

The Commission services consider that the involvement of board members in the 

functioning of the three internal functions could be further strengthened. In particular, the 

Commission services consider that the implementing directive could specify that the 

three functions should be able to report directly to the board of directors and that the 

removal of the officers responsible for the internal control functions would be subject to 

prior approval by the board and should be notified to the supervisor225. 

Furthermore, the Commission services consider that the current framework for the 

handling of client complaints could be strengthened. The implementing directive could 

foresee the specific involvement of the compliance function in the procedures established 

by the firm to handle complaints received from any clients (irrespective of their 

category). The periodic report from the compliance function could specifically 

summarize complaints received from clients and their treatment. Based on the assessment 

of the functioning of internal policies and procedures, including the assessment of the 

 

219 Article 2 (9) of Directive 2006/73/EC 

220 Article 9 (4) of Directive 2006/73/EC 

221 Article 6 of Directive 2006/73/EC

222 Article 7 of Directive 2006/73/EC 

223 Article 8 of Directive 2006/73/EC 

224 Article 10 of Directive 2006/73/EC 

225 Article 9 of Directive 2006/73/EC 
68

behaviours of personnel in complying with obligations under the directive, the periodic 

report of the compliance function could also include proposals to address any 

deficiencies which may have emerged.

(114) What is your opinion on possible MiFID modifications leading to the 

reinforcing of the requirements attached to the compliance, the risk 

management and the internal audit function? Please explain the reasons for 

your view. 

7.3.3. Organisational requirements for the launch of products, operations and services 

MiFID sets a high level framework for firms' organisational requirements226.The 

appropriate design of distribution and sales policies and the adoption of adequate firms' 

internal controls around products and services development are crucial to avoid 

detrimental practices toward clients. The Commission services consider that the current 

organisational requirements in the implementing directive could be specified in order to 

stress their relevance at the stage when firms design and shape their general policies and 

decide the products, operations and services that will be offered to retail and professional 

clients227; this would be particularly relevant in the case of new products or variations to 

existing services provided by the firm. The following modifications could be introduced: 

a) require investment firms to run an assessment of the compatibility of the product, 

service or operation with the characteristics and needs of the clients to whom 

these products would be offered;228

b) strengthen the duty of the compliance function in ensuring that procedures and 

measures are in place to ensure the product, service or operation complies with all 

applicable rules including those relating to disclosure, suitability/appropriateness, 

inducements and proper management of conflicts of interest (including 

remuneration);229

c) ensure as part of the organisational requirements for risk management that the 

risks to the firm of new products, operations and services are adequately 

managed;230 

d) stress testing the products and services as appropriate;231 

e) periodically review the distribution and performance of products and services;232

f) ensure that staff possess the necessary expertise to understand the characteristics 

and risk of products and services provided and receive the appropriate training 

when new products are offered233; and 

 

226 Articles 13(2) and (3) of Directive 2004/39/EC

227 Amending Section 1, Chapter II of Directive 2006/73/EC 

228 Article 5 (1) of Directive 2006/73/EC 

229 Article 6 of Directive 2006/73/EC 

230 Article 7 of Directive 2006/73/EC 

231 Article 5 (1) of Directive 2006/73/EC 

232 Article 5(5) of Directive 2006/73/EC 

233 Article 5 (1) of Directive 2006/73/EC 
69

g) ensure that the board of directors, if applicable, or a corresponding governing 

body has effective control over the aspects mentioned above. To this effect, 

information about the products and services could be systematically included in 

compliance reports to senior management and to regulators on request.234

(115) Do you consider that organisational requirements in the 

implementing directive could be further detailed in order to specifically cover 

and address the launch of new products, operations and services? Please 

explain the reasons for your views. 

(116) Do you consider that this would imply modifying the general 

organisational requirements, the duties of the compliance function, the 

management of risks, the role of governing body members, the reporting to 

senior management and possibly to supervisors? 

7.3.4. Specific organisational requirements for the provision of the service of portfolio 

management 

The Commission services consider that the specificities of the service of portfolio 

management235 could be further taken into account in the context of organisational 

requirements. The service of portfolio management on a discretionary client-by-client 

basis requires a specific authorization under MiFID and is subject to the general 

organizational requirements and conduct of business rules236. The area of the actual 

management of portfolios by firms, however, is not covered by any specific provision. 

The Commission services consider that the implementing directive237 could require firms 

providing portfolio management to formalize and retain documents concerning the 

definition and implementation of their investment strategies in managing clients' 

portfolios. Firms would pay special attention to the various strategies and ensure that 

they fit the profile of the investors over all of the life of the mandate in accordance with 

suitability requirements238. They would also have to make sure that they would be able to 

implement efficiently and consistently these strategies without diverging from the 

parameters set at the beginning. The general investment policies and various systems and 

procedures to implement and monitor the managing of the portfolios would be approved 

and checked on a regular basis by senior management. 

(117) Do you consider that specific organisational requirements could 

address the provision of the service of portfolio management? Please explain 

the reasons for your views. 

 

234 Article 6 and 9(2) of Directive 2006/73/EC

235 Article 4(1)(9) of Directive 2004/39/EC 

236 Articles 13 and 19 of Directive 2004/39/EC 

237 Article 5 of directive 2006/73/EC 

238 Article 19 (4) of Directive 2004/39/EC. 
70

7.3.5. Conflicts of interest and sales process 

Conflicts of interest requirements239 cover a broad range of situations that may occur in 

the provision of investment services and activities. This also includes the remuneration of 

sales forces and the structure of incentives for the distribution of financial products. 

The Commission services consider that the framework for addressing conflicts of interest 

within MiFID is still appropriate to prevent failures in the sales process provided that it is 

consistently applied across Europe. The key element of this framework is the 

management and the avoidance of conflicts – not just disclosure. While the framework 

also addresses circumstances in which the disclosure of conflicts of interest might be 

necessary, this is a measure of last resort and not a means for managing conflicts of 

interest. For instance, it would be very difficult for a firm which creates strong incentives 

for its sales staff to sell certain products, e.g. through internal bonus structures, to be able 

to manage the conflicts of interest thereby created. It is unlikely that such a firm could, in 

this situation, demonstrate compliance with MiFID. 

The Commission services consider that the convergent application of conflicts of interest 

provision has to be ensured across the Union in order to grant the same level of investor 

protection in different jurisdictions and the same treatment of intermediaries providing 

the services. To this end, implementing measures in the area of conflicts of interest 

would be useful for a consistent application of MiFID principles. 

(118) Do you consider that implementing measures are required for a 

more uniform application of the principles on conflicts of interest?

7.3.6. Segregation of client assets 

Recent cases where ownership of assets has been in dispute240 as a result of poor rules or 

practices underline the importance to have strong requirements in this area. Therefore, 

the Commission services consider appropriate to introduce modifications in the 

implementing directive241 in the following areas. 

1. A recital242 currently allows the exclusion of client asset protection rules when 

full ownership of funds and financial instruments has been transferred to an 

investment firm to cover any client obligations. The indiscriminate application of 

such a possibility would jeopardise the effectiveness of segregation of client 

assets requirements. The Commission services consider that these arrangements 

would not be allowed, at least when dealing with retail client assets.243 Member 

States would also be given the option to exclude title transfer collateral 

arrangements in the case of professional clients and eligible counterparties and to 

require that, when such arrangements are allowed, clients receive a specific 

warning in writing giving appropriate evidence of the risk of these arrangements. 

 

239 Article 13 (3) and 18 of Directive 2004/39/EC

240 For instance, the Lehman Brothers case 

241 Section 3, Chapter II of Directive 2006/73/EC 

242 Recital 27 of Directive 2004/39/EC 

243 We note that the UK Financial Services Authority is consulting on a similar proposal for retail clients assets (CP 10/15 – July 2010). 
71

2. MiFID allows the use of securities financing transactions involving client 

financial instruments held by the investment firm, subject to clients' express 

consent.244 The Commission services consider that the implementing directive 

could require firms, at least for retail client assets, to adopt specific arrangements 

to ensure that the borrower of client assets (for instance in the case of stock 

lending activities) provides the appropriate collateral and that the firm monitors 

the continued appropriateness of such collateral and takes the necessary steps to 

maintain the balance with the value of client assets. 

3. Firms are required to provide retail clients with clear, full and accurate 

information on the terms of the use of the financial instruments and relevant 

risk.245 The Commission services consider that the described information is a 

useful tool irrespective of the type of client and would be consequently extended 

to all categories of clients in order to increase awareness of the risk of such 

practices. 

4. Investment firms are required to place client funds into accounts opened with a 

central bank or a credit institution or certain money market funds and, except for 

central banks, to exercise all due skill, care and diligence in the selection and 

review of the institutions they choose.246 As a result of the financial crisis, it has 

emerged that the concentration of client money in group entities may face the risk 

of contagion when intra-group insolvency occurs. The Commission services 

consider that diversification in the placement of client funds could be one of the 

criteria of conducting the due diligence and that implementing acts could be 

proposed in this area. 

(119) What is your opinion of the prohibition of title transfer collateral 

arrangements involving retail clients' assets? Please explain the reasons for 

your views. 

(120) What is your opinion about Member States be granted the option to 

extend the prohibition above to the relationship between investment firms 

and their non retail clients? Please explain the reasons for your views. 

(121) Do you consider that specific requirements could be introduced to 

protect retail clients in the case of securities financing transaction involving 

their financial instruments? Please explain the reasons for your views. 

(122) Do you consider that information requirements concerning the use 

of client financial instruments could be extended to any category of clients? 

(123) What is your opinion about the need to specify due diligence 

obligations in the choice of entities for the deposit of client funds? 

 

244 Article 19 of Directive 2006/73/EC 

245 Article 32 (7) of Directive 2006/73/EC

246 Article 18 of Directive 2006/73/EC 
72

7.3.7. Underwriting and placing 

Corporate finance business is covered under different investment and ancillary services 

in MiFID: underwriting and placing, advice to undertakings, including services related to 

mergers, services related to underwriting.247 Firms providing the investment service of 

underwriting and placing need to be authorised and are subject to MiFID requirements. 

The most relevant aspects248 emerging from the provision of these services include 

managing in an appropriate way the process preceding the issue of the new instruments, 

governing the internal flow of information concerning the offering, ensuring a proper 

pricing of the securities, ensuring the availability of the necessary information about the 

new instruments, allocating the securities in a way that respects the interest of the 

different actors involved, and keeping complete internal records of the entire process.249 

Given the specificities surrounding these services more detailed and tailored 

requirements in the implementing directive might be appropriate. The following options 

could be considered: 

a) Requiring firms to establish specific organisational arrangements and 

procedures concerning all the different steps of the underwriting process 

(preliminary contacts with the issuer, formation of the syndication, pricing of 

the securities, actual issue of the securities, methods used to mitigate risk) and to 

keep the relevant records 

b) Introducing specific rules in the implementing directive in order to deal with the 

allotment process, including conduct of business rules (for instance, information 

requirements towards issuers and investors concerning procedures and criteria 

adopted by the firm in distributing the financial instruments; specific 

recordkeeping obligations which also include the overall allotment of financial 

instruments in the case of syndications involving different investment firms) 

c) Addressing relevant practices through specific conflicts of interest requirements 

in order to better capture the peculiarities of underwriting and placing activities. 

This model has already been followed for conflicts of interests arising in the 

context of investment research.250 

 

247 Annex I, Section A(6) and (7) – Section B(3) and (6) of Directive 2004/39/EC 

248 Detailed practices also differ depending on the types of instruments involved (notably, equity or debt securities)

249 Some specific practices have recently attracted attention. Based on contributions from CESR and market participants, these 

practices may be described as follows: 

- pre-sounding, i.e. discussion between investment firms and potential investors, prior to any public announcements, in order to 

assess the likely demand for bond issues. These preliminary contacts may lead to certain investors holding inside information; 

- inflating of orders and over-marketing of issues. The former consists of the investors overbidding for new securities in order to 

receive a good allocation of them in the case of oversubscription; the latter indicates an aggressive marketing by the 

investment firm concerning an inflated order book. Both practices give an altered picture of the demand for an issue; 

- shadow book-building, that is testing the interest of investors before the announcement of an issue. This practice would cause 

the shortening of the official book-building process and would not allow investors to properly evaluate the new issues. 

 Other issues sometimes mentioned concern the over-pricing, that is an over-estimation of the issue price and, more in general, a 

pricing which favours issuers rather than investors (or, also, institutional investors rather than issuers) and the unfair treatment of 

different investors (or categories of investors) in the allotment of the securities. 

250 Article 25 of Directive 2006/73/EC
73

(124) Do you consider that some aspects of the provision of underwriting 

and placing could be specified in the implementing legislation? Do you 

consider that the areas mentioned above (conflicts of interest, general 

organisational requirements, requirements concerning the allotment process) 

are the appropriate ones? Please explain the reasons for your views. 

8. FURTHER CONVERGENCE OF THE REGULATORY FRAMEWORK AND OF 

SUPERVISORY PRACTICES 

This section presents suggestions aimed at narrowing or eliminating some options and 

discretions and increasing the effectiveness of supervision and enforcement, especially in 

areas not touched upon in the previous sections of this consultation document. They are 

based both on the principles and proposals of the de Larosière group and the agreement 

of ECOFIN,251 as well as the manifest need to equip competent authorities with specific 

new powers in the wake of the crisis. 

8.1. Options and discretions 

8.1.1. Tied agents 

Member States may currently allow252 investment firms to use tied agents as a means of 

offering their services and soliciting business253. This option has been exercised in most 

Member States. Based on CESR assessment254, the rules governing tied agents have 

worked well so far. Thus, the Commission services consider that only a few adjustments 

to these provisions would be necessary. 

In particular: 

a) National discretion of allowing tied agents255 could be abolished and the 

possibility to use tied agents would be generalised in all Member States. 

b) The possibility for Member States to allow tied agents to handle clients' money 

and/or financial instruments could be restricted.256 Although this possibility is 

subject to the tied agent remaining under the full and unconditional responsibility 

of the investment firm, it may pose undue risks especially when tied agents 

represent investment firms which are themselves not authorised to hold client 

money and/or financial instruments. Therefore, tied agents would not be allowed 

to hold client money or assets. 

 

251 See Report of High-level Group on Financial Supervision in the EU chaired by Jacques de Larosière, 25 February 2009, and Agreed 

Council conclusions on Strengthening EU Financial Supervision, 10 June 2009. 

252 Article 23(1) of Directive 2004/39/EC 

253 Tied agents are defined under article 4 (1) (25) of Directive 2004/39/EC 

254 CESR/10-859, p. 33 

255 Article 23(1) of Directive 2004/39/EC 

256 Article 23(2) of Directive 2004/39/EC 
74

c) Tied agents would be treated as a branch257 independently of whether the 

investment firm operates any other branches on the territory of the host Member 

State. This would ensure their appropriate and consistent supervision across the 

EU. 

d) Where an investment firm intends to use tied agents in providing services cross 

border, the current MiFID provisions allow, but do not prescribe, the transmission 

of the identity of tied agents from the home to the host competent authority. The 

host supervisor has the option, but not the obligation, of publishing this 

information.258 For investor protection reasons, it is important to give investors 

the possibility to check the identity of a tied agent. Therefore, it would be 

appropriate to make both requirements mandatory. 

e) Finally, the passporting provisions only apply to investment firms which intend to 

use tied agents. The cross-border activities of credit institutions using tied agents 

are not regulated under EU legislation, resulting in an unlevel playing field 

between the two types of institutions providing the same services. In order to 

ensure sufficient transparency for investors and competent authorities, the 

provisions on tied agents under articles 31 and 32 of Directive 2004/39/EC could 

also be applicable to credit institutions.259 

(125) What is your opinion of Member States retaining the option not to 

allow the use of tied agents? 

(126) What is your opinion in relation to the prohibition for tied agents to 

handle clients' assets? 

(127) What is your opinion of the suggested clarifications and 

improvements of the requirements concerning the provision of services in 

other Member States through tied agents? 

(128) Do you consider that the tied agents regime require any major 

regulatory modifications? Please explain the reasons for your views. 

8.1.2. Telephone and electronic recording260 

MiFID leaves to Member States the possibility to require firms to record telephone and 

electronic communications involving client orders. Most Member States have used this 

option. However, the wide discretion introduced by MiFID has led to different 

approaches between Member States, ranging from the lack of any obligations to very 

detailed rules in this area. 

 

257 Article 32 (2), second paragraph, of Directive 2004/39/EC

258 Article 31 (2) of Directive 2004/39/EC 

259 This would imply qualifying the exclusions in Article 1(2) of Directive 2004/39/EC as regards Articles 31 and 32 by stating that the 

exclusions do not apply in the case of tied agents. 

260 Article 51(4) of Directive 2006/73/EC
75

The Commission services consider that a common mandatory regime for telephone and 

electronic recording across the EU would be beneficial, in view of improving the 

detection of abusive and manipulative behaviours affecting the integrity of the markets. 

Such a regime would notably benefit supervisors but also firms (who would be able to 

demonstrate more easily their behaviour). This requirement should be in accordance with 

EU data protection rules.261 

However, it is important to acknowledge the existence of specificities in supervisory 

techniques between competent authorities and the considerable technical details involved 

in this area. Therefore, on the one hand, a degree of discretion could be left for Member 

States to impose requirements additional to those under the common pan-EU mandatory 

regime and, on the other, implementing measures could be adopted to specify the details 

associated with the pan-EU requirements, again in accordance with the EU data 

protection legal framework. 

In this context, the Commission services consider it necessary to introduce an obligation 

to record client orders covering the services of receipt and transmission of orders and 

execution of orders and transactions concluded when dealing on own account in all 

financial instruments. Member States would be allowed to extend the obligation to other 

services (notably, portfolio management). It would apply to all forms of telephone 

conversation and electronic communications. Implementing measures could clarify the 

details concerning different technological means. Concerning the retention period, the 

Commission services consider a minimum retention period of 3 years, while leaving the 

possibility to Member States to foresee a longer period. 

(129) Do you consider that a common regulatory framework for telephone 

and electronic recording, which should comply with EU data protection legal 

provisions, could be introduced at EU level? Please explain the reasons for 

your views. 

(130) If it is introduced do you consider that it could cover at least the 

services of reception and transmission of orders, execution of orders and 

dealing on own account? Please explain the reasons for your views. 

(131) Do you consider that the obligation could apply to all forms of 

telephone conversation and electronic communications? Please explain the 

reasons for your views. 

(132) Do you consider that the relevant records could be kept at least for 3 

years? Please explain the reasons for your views. 

8.1.3. Additional requirements on investment firms in exceptional cases 

MiFID has introduced the general principle that firms are subject to home country 

authorisation, supervision and enforcement, even when they provide services in other 

Member States.262 At the national level however, Member States may adopt additional 

 

261 As established in Directives 95/46/EC and 2002/58/EC 

262 The only exception to that principle is foreseen in the case of branches established in other Member States; in that case the host 

supervisor is competent for supervising the compliance of the branch with MiFID conduct of business obligations. 
76

requirements on investment firms in "exceptional cases [...] to address specific risks to 

investor protection or to market integrity that are not adequately addressed by the 

Directive".263

Member States have made relatively little use of this option to date.264 This might be 

because of the difficulty of fulfilling the conditions of Article 4 or the adequacy and 

sufficient flexibility of the current relevant provisions of MiFID. 

The review of the provision has to take into account the need to ensure the highest 

possible standard of investor protection, the effects of additional requirements on crossborder provision of services and on the competitiveness of EU firms, as well as of the 

objective of creating a single EU rulebook. 

The Commission services consider that a possible way forward would be to abolish 

Article 4, which has proven difficult to apply, in order for MiFID to be subject only to 

the general principles on the transposition of directives.265 Moreover, the Commission 

services consider appropriate to introduce the on-going obligation for Member States to 

communicate to the Commission any addition or modification in the text of the national 

provisions in the field covered by MiFID.266 This would modify the current obligation 

which may be interpreted as only applying to the initial adoption of those national 

provisions.267 

(133) What is your opinion on the abolition of Article 4 of the MiFID 

implementing directive and the introduction of an on-going obligation for 

Member States to communicate to the Commission any addition or 

modification in national provisions in the field covered by MiFID? Please 

explain the reasons for your views. 

8.2. Supervisory powers and sanctions 

The Commission services consider that increasing the effectiveness of supervision and 

enforcement could require: 

a) Enhancing the powers of competent authorities to investigate in the area of 

securities; 

b) Introducing effective and deterrent sanctions; 

These modifications would have to be in line with the overall powers and competences 

of regulators, and especially with those under the Market Abuse Directive. 

 

263 Article 4 of Directive 2006/73/EC

264 So far, only France, Ireland and the UK have made use of this possibility. The received notifications can be found on the 

Commission website: http://ec.europa.eu/internal_market/securities/isd/mifid_implementation_en.htm 

265 This would entail that Member States should fulfil the objectives of MiFID and could adopt additional measures only where these 

measures do not contravene the letter or spirit of MiFID or of EU law in general. 

266 The existing notifications under Article 4 of Directive 2006/73/EC would be confirmed through a specific grandfathering clause. 

267 Article 53 (4) of Directive 2006/73/EC 
77

8.2.1. Powers of Competent Authorities 

MiFID already includes a substantial set of powers that Member States have to make 

available to competent authorities268 (Article 50 of MiFID). This includes for instance 

the power to carry out on-site inspections and to request the freezing and/or the 

sequestration of assets. The exercise of the supervisory powers has to respect 

fundamental rights recognised in the EU Charter of Fundamental Rights and EU law 

establishing the legal framework on the protection of these fundamental rights, such as 

EU data protection law. 

In the view of the Commission services, competent authorities could have the additional 

power, according to national rules, to ask a judicial authority authorisation to enter 

private premises and to seize documents relevant for the enforcement action. 

8.2.2. Sanctions (definition, amounts, publication) 

The Commission’s work-programme includes the adoption of a communication on 

sanctions in the fields of securities, the banking sector and the insurance sector by the 

end of the year. In this general context the review of the MiFID is of particular 

importance. The approach of the sanctions regime in MiFID is to achieve the result that 

sanctions for violation of MiFID rules adopted by Member States are sufficiently severe 

and they deter those who may violate MiFID requirements from doing so. Sanctions 

should therefore be proportionate to the gravity of the infringement and should be 

consistently applied. 

MiFID requires Member States to ensure that it is possible to impose administrative 

measures or sanctions that are effective, proportionate and dissuasive. Some differences 

and lack of convergence across the EU, in terms of the administrative and criminal 

sanctions available for MiFID infringements as well as the application of those sanctions, 

appear from a CESR report269 . Sanctions seem to vary widely across Member States and 

in some instances are simply too weak in some Member States. This could lead to the 

risk of weak enforcement and even regulatory arbitrage. The Commission services 

consider that the MiFID regulatory framework could possibly specify the existing 

provisions on administrative sanctions.270 In particular Member States could ensure that: 

a) Appropriate administrative measures would mean decisions which have at least 

the effect of putting an end to a breach of the provisions of the national measures 

implementing MiFID and/or eliminating its effect. Such administrative measures 

would include at least: injunctions to put an end to an infringement, temporary 

prohibition of an activity, suspension or replacement of members of the 

management or supervisory bodies or of the bodies as such, and the possibility of 

issuing public notices on the website of competent authorities. 

b) Appropriate administrative sanctions would mean decisions which have the effect 

of acting as a deterrent against the breach of the provisions of the national 

 

268 Article 50 of Directive 2004/39/EC 

269 CESR "Report on the mapping of supervisory powers, supervisory practices, administrative and criminal sanctioning regimes of 

Member States in relation to the Markets in Financial Instruments Directive (MiFID). ", February 2009. 

270 In Article 51 of Directive 2004/39/EC
78

measures implementing MiFID, in particular administrative fines and periodic 

penalty payments. 

c) A sufficient minimum amount for administrative fines would be established. 

Where a maximum level of sanctions is provided for in legislation, it would be 

sufficiently high to guarantee deterrence. 

Moreover, the Commission services are considering whether appropriate whistleblowing 

mechanisms should be established to create incentives to report or tip off infringements 

to the competent authorities and to protect persons who provide such information. For 

example, the cooperation of persons involved in the violation could be taken into account 

in the form of more lenient sanctioning. Competent authorities could have the power to 

reduce, or not to apply, any sanctions to persons materially cooperating in the 

enforcement action. 

In addition, the Commission services are considering whether Member States should 

ensure that the most serious infringements (such as the provision of investment services 

without having been authorised or obtaining the authorisation by making false 

statements) could be punishable by effective, proportionate and dissuasive criminal 

sanctions. 

The Commission services consider that the competent authority could be obliged to 

disclose to the public, at least on its website, every measure or sanction that would be 

imposed for infringement of the provisions adopted in the implementation of MiFID, 

except in certain narrowly defined cases. This would enhance the current requirement, 

where the disclosure of the sanction is a mere option for competent authorities. 

(134) Do you consider that appropriate administrative measures should 

have at least the effect of putting an end to a breach of the provisions of the 

national measures implementing MiFID and/or eliminating its effect? How 

the deterrent effect of administrative fines and periodic penalty payments can 

be enhanced? Please explain the reasons for your views. 

(135) What is your opinion on the deterrent effects of effective, 

proportionate and dissuasive criminal sanctions for the most serious 

infringements? Please explain the reasons for your views. 

(136) What are the benefits of the possible introduction of whistleblowing 

programs? Please explain the reasons for your views. 

(137) Do you think that the competent authorities should be obliged to 

disclose to the public every measure or sanction that would be imposed for 

infringement of the provisions adopted in the implementation of MiFID? 

Please explain the reasons for your views. 

8.3. Access of third country firms to EU markets 

Access of third country firms to EU markets is not harmonised under the MiFID but is 

left to the discretion of Member States, subject to their general obligations under 

Community law and relevant international obligations, and provided that national 

provisions do not result in treatment more favourable than that given to European firms. 
79

In practice, this means that third country firms must be subject to a regulatory regime 

which is at least equivalent to that offered by the MiFID.271 

In addition, the Commission can ask the Council for a mandate for negotiation with third 

countries in order to obtain, in those countries, comparable competitive opportunities for 

EU firms.272 Moreover, MiFID allows the Commission to adopt measures requiring 

competent authorities to limit or suspend authorisation of third-country firms where third 

countries do not extend the same treatment to European firms as they do to domestic 

investment firms.273 

The Commission is also required to publish a list of ‘equivalent third-country markets’ 

for the purposes of the ‘execution-only’ regime.274 This is effectively a concessionary 

regime that can disapply the appropriateness test for transactions initiated by clients in 

‘non-complex’ instruments.275 Under MiFID, a third country market would be considered 

as equivalent to a regulated market if it complies with equivalent requirements to those 

established under Title III of the framework directive (regulated markets). 

Given the current interrelationship of financial markets and its global nature as 

demonstrated by the consequences of the financial turmoil and the effects in EU markets 

of malpractices and/or negligence by actors based in third countries (e.g. Madoff and 

Lehman cases), the Commission services consider it necessary to develop at EU level a 

workable regime for the access of third country investment firms and market operators to 

EU financial markets in order to create a real level playing field for all financial services 

actors in the EU territory. 

Therefore, it is suggested to introduce a mechanism by which access to the EU could be 

granted to investment firms and markets authorised and established in other jurisdictions 

subject to a strict equivalence regime. To this effect, the framework Directive could be 

modified276 to introduce the principle of exemptive relief for investment firms and 

market operators based in jurisdictions with equivalent regulatory regimes applicable to 

markets in financial instruments, as regards areas covered for instance in the EU by 

MiFID, MAD, the Prospectus Directive277 and Transparency Directive278. 

Moreover, the framework directive could grant the Commission the power to define via 

implementing measures the precise criteria and parameters which a third country regime 

must fulfil in order to be considered equivalent. This could involve, for example, 

requirements for authorisation for investment firms or market operators, organisational 

 

271 Recital 28 of MiFID states that branches of investment firms authorised in third countries should not enjoy the freedom to provide 

services or the right of establishment in Member States other than those in which they are established. 

272 Article 15(2) of Directive 2004/39/EC 

273 Article 15(3) second subparagraph of Directive 2004/39/EC 

274 Article 19(6) of Directive 2004/39/EC 

275 See section 7.2.1 above 

276 Article 15 of Directive 2004/39/EC

277 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when 

securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (OJ L 345, 31.12.2003, p. 64) 

278 Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency 

requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending 

Directive 2001/34/EC (OJ L 390 of 31.12.2004, p.38)
80

and conduct of business requirements, powers of competent authorities, and applicable 

rules against market abuse including disclosure requirements for issuers. The conclusion 

of Memoranda of Understanding (MoUs) with third country supervisory authorities 

should also be envisaged. 

This provision could also grant the Commission the power to specify via implementing 

measures the process through which the assessment of equivalence of each individual 

third country jurisdiction would be made. 

Finally, each assessment of equivalence would be made as a separate implementing 

measure necessary to implement exemptive relief. 

Given the fact that third country firms providing services in the EU would be subject to 

the EU client-facing obligations, notably in the areas of conduct of business rules 

(information requirements, appropriateness and suitability, reporting obligations), client 

classification, best execution, client order handling and segregation of clients assets, it is 

considered that at a first stage the access mechanism could be applied only for non-retail 

investors. 

(138) In your opinion, is it necessary to introduce a third country regime in 

MiFID based on the principle of exemptive relief for equivalent jurisdictions? 

What is your opinion on the suggested equivalence mechanism? 

(139) In your opinion, which conditions and parameters in terms of 

applicable regulation and enforcement in a third country should inform the 

assessment of equivalence? Please be specific. 

(140) What is your opinion concerning the access to investment firms and 

market operators only for non-retail business? 

(141)

9. REINFORCEMENT OF SUPERVISORY POWERS IN KEY AREAS

9.1. Ban on specific activities, products or practices 

Recently, there have been various calls to subject complex products such as certain types 

of structured products, to stricter regulatory scrutiny. In this context, the Commission 

services consider necessary to introduce, in clearly specified conditions and subject to a 

clear procedure, the possibility for the Commission to ban the provision of investment 

services and the carrying out of investment activities in certain financial instruments. 

The criteria for such a ban, to be enshrined in the framework directive, could be broad 

ranging but precise in nature. This could apply if: 

a) Investment services are provided in a way which gives rise to significant and 

sustained investor protection concerns; or 
81

b) There is a product or activity threatening the orderly functioning and integrity of 

financial markets or the stability of the whole or part of the financial system. 

In view of the potentially significant consequences for market participants and 

businesses, the Commission services consider that any such ban would, except in 

extraordinary circumstances, require consultation, be based on appropriate evidence of 

risks and require cost/benefit analysis. 

Second, national regulators would be given the power to temporarily ban or restrict the 

trading or the distribution of a product by one or more investment firms or the provision 

of an activity in case of exceptional adverse developments which constitute a serious 

threat to financial stability or to market confidence in a Member State or the European 

Union. In addition, when a specific OTC derivative should be cleared on systemic risk 

grounds but no CCP would offer to clear it, competent authorities could ban trading in 

that OTC derivative pending a CCP offering clearing in the instrument. The Commission 

services consider that the exercise of this power could be pre-notified to and coordinated 

through ESMA.279 

Third, the Commission services consider that when a competent authority or competent 

authorities have not taken measures to address a threat to the orderly functioning and 

integrity of financial markets or the stability of the whole or part of the financial system 

arising from the distribution of a product or the provision of an activity, or the measures 

that have been taken do not sufficiently address the threat, it would be necessary to create 

the relevant mechanism at Union level to ban in a temporary manner the distribution of 

such product or the provision of such activity280. 

(142) What is your opinion on the possibility to ban products, practices or 

operations that raise significant investor protection concerns, generate 

market disorder or create serious systemic risk? Please explain the reasons 

for your views. 

(143) For example, could trading in OTC derivatives which competent 

authorities determine should be cleared on systemic risk grounds, but which 

no CCP offers to clear, be banned pending a CCP offering clearing in the 

instrument? Please explain the reasons for your views. 

(144) Are there other specific products which could face greater 

regulatory scrutiny? Please explain the reasons for your views. 

 

279 This would add to the existing power of regulators to require the removal of trading of a financial instrument from trading under 

Article 50(2)(g) and (k) of Directive 2004/39/EC. 

280 Article 9(5) of Regulation (EU) No .../...of the European Parliament and of the Council establishing a European Supervisory Authority 

(European Securities and Markets Authority) amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC

could be taken into consideration
82

9.2. Stronger oversight of positions in derivatives, including commodity 

derivatives 

Currently, the manner in which competent authorities monitor and supervise positions in 

derivatives on trading venues and OTC varies between EU jurisdictions. This can take 

the form of hard position limits or an ad hoc position management approach.281

As a result of the significant growth in the size of derivative markets in recent years, 

there is a case for stronger oversight of positions in derivatives, especially commodity 

derivatives (as mentioned in Section 5 above), as well as increased harmonisation in 

order to avoid any regulatory arbitrage and ensuring a level playing field within the EU. 

In addition the European Parliament has recently stated that regulators should have 

harmonised powers to set position limits to reduce systemic risk and combat disorderly 

trading, especially for certain categories of derivatives282 echoing various calls to 

introduce positions limits to curb "financial speculation" in commodity derivatives 

markets. 

In light of the above, the Commission services consider that: 

a) The framework directive could be amended283 to bestow competent authorities 

with effective and harmonised powers to intervene at any stage during the life of 

a derivative contract. This heightened form of position management would 

involve competent authorities being able to request any natural or legal person 

entering into a derivative transaction to: 

– Provide a full explanation for the position; 

– Provide all relevant documentation, including evidence of the purpose of 

the position as hedging or otherwise; 

– Reduce the size of the position in the interests of the orderly functioning 

of markets, investor protection, or market integrity. 

b) The amendment would also introduce greater coordination at EU level in the 

requests for explanations and relevant documentation by competent authorities in 

order to ensure a consistent approach in the application of these powers. 

 

281 Exchanges also have the possibility when needed to incorporate flexible position management powers into their rules or adopt 

position limits. The latter are mostly recognised as a potential tool for combating market manipulation in certain types of financial 

instruments. Such limits already exist in a number of jurisdictions for some exchange traded derivatives in order to prevent market 

manipulation and manage settlement risk (e.g. especially for physically settled commodity derivative contracts). 

282 European Parliament resolution of 15 June 2010 on derivatives markets: future policy actions (A7-0187/2010) calls on the 

Commission to develop measures to ensure that regulators are able to set position limits to counter disproportionate price 

movements and speculative bubbles, as well as to investigate the use of position limits as a dynamic tool to combat market 

manipulation, most particularly at the point when a contract is approaching expiry. It also requests the Commission to consider rules 

relating to the banning of purely speculative trading in commodities and agricultural products, and the imposition of strict position 

limits especially with regard to their possible impact on the price of essential food commodities in developing countries and 

greenhouse gas emission allowances. 

283 With a new article in Title IV of Directive 2004/39/EC
83

c) As part of this heightened position management, and when necessary for tackling 

some or all of these threats or for addressing risks to the overall stability or 

delivery and settlement arrangements of physical commodity markets, the 

framework directive could be amended284 to allow for the adoption of 

implementing measures setting ex-ante position limits both for derivative 

contracts traded on exchange and OTC. These limits would take account of 

market developments, the specificities of the different types of derivative 

products and, in the case of commodity derivatives, the evolution of the physical 

market of the relevant commodity.285 

New implementing measures could further define the details of when the powers to 

propose position limits may be triggered. For example, these could be triggered when 

conditions in a given market in terms of liquidity or market concentration jeopardise 

market efficiency or integrity. 

(145) If regulators are given harmonised and effective powers to intervene 

during the life of any derivative contract in the MiFID framework directive do 

you consider that they could be given the powers to adopt hard position limits 

for some or all types of derivative contracts whether they are traded on 

exchange or OTC? Please explain the reasons for your views. 

(146) What is your opinion of using position limits as an efficient tool for 

some or all types of derivative contracts in view of any or all of the following 

objectives: (i) to combat market manipulation; (ii) to reduce systemic risk; 

(iii) to prevent disorderly markets and developments detrimental to investors; 

(iv) to safeguard the stability and delivery and settlement arrangements of 

physical commodity markets. Please explain the reasons for your views. 

(147) Are there some types of derivatives or market conditions which are 

more prone to market manipulation and/or disorderly markets? If yes, please 

justify and provide evidence to support your argument. 

(148) How could the above position limits be applied by regulators: 

(a) To certain categories of market participants (e.g. some or all 

types of financial participants or investment vehicles)? 

(b) To some types of activities (e.g. hedging versus non-hedging)? 

(c) To the aggregate open interest/notional amount of a market? 

 

284 In the new title on derivatives in Directive 2004/39/EC 

285 These powers should also be seen together with the future legal framework on short selling and the emergency powers that should 

be granted to regulators to temporarily restrict or ban short selling and credit default swaps though the latter powers only apply in 

case of exceptional adverse developments which constitute a serious threat to financial stability or to market confidence in a Member 

State or the EU.