EN    EN  
 EUROPEAN COMMISSION 
Brussels, 20.10.2011 
SEC(2011) 1226 final 
  
COMMISSION STAFF WORKING PAPER 
IMPACT ASSESSMENT  
 
Accompanying the document 
Proposal for a  
 
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  
 
on Markets in financial instruments [Recast] 
 
and the  
 
Proposal for a  
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  
 
on Markets in financial instruments 
 
{COM(2011) 656 final} 
{SEC(2011) 1227 final}  
 
 1    COMMISSION STAFF WORKING PAPER 
IMPACT ASSESSMENT  
Accompanying the document 
Proposal for a  
 
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
Markets in financial instruments [Recast] 
 
and the 
 
Proposal for a  
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
Markets in financial instruments 
 
 2    TABLE OF CONTENTS 
1. Introduction................................................................................................................ .. 3 
2. Procedural issues and consulta tion of interested parties.............................................. 6 
2.1. Public consultation....................................................................................................... 7 
2.2. CESR (now ESMA) reports......................................................................................... 7 2.3. External studies .......................................................................................................... .. 7 
2.4. Steering Group ............................................................................................................ .7  
2.5. Impact Assessment Board............................................................................................ 7 3. Policy context, Problem Definition, Ba seline scenario and Subsidiarit....................... 8 
3.1. Problem definition........................................................................................................ 8 
3.2. Problem 1: lack of level playing field between markets and market participants ..... 10 
3.3. Problem 2: Difficulties for SMEs  to access financial markets .................................. 11 
3.4. Problem 3: Lack of sufficient tran sparency for market participants.......................... 12 
3.5. Problem 4: Lack of transparency for re gulators and insufficien t supervisory powers 
in key areas and inconsiste nt supervisory practice .................................................... 13 
3.6. Problem 5: Existence of areas in which i nvestor protection has re vealed deficiencies15 
3.7. Problem 6: Weaknesses in some areas of the organisation, proce sses, risk controls 
and assessment of some market participants.............................................................. 17 
3.8. How would the problem e volve without EU action? The base line scenario ............ 18 
3.9. Subsidiarity and proportionality................................................................................. 19 4. Objectives.................................................................................................................. . 20 
4.1. General, specific and operational ob jectives.............................................................. 20 
4.2. Consistency of the objectives  with other EU policies................................................ 22 
4.3. Consistency of the objectives  with fundamental rights.............................................. 23 
5. Policy options............................................................................................................. 2 3 
6. Analysis of impacts and choice of pr eferred options and instruments....................... 32 
6.1. Regulate appropriately all market structur es and trading practices taking into account 
the needs of smaller participants, especially SMEs ................................................... 33 
6.2. Regulate appropriately new trading technologies and addr ess any related risks of 
disorderly trading ....................................................................................................... 37 
6.3. Increase trade transparency for market participants................................................... 39 
  
 
 3    6.4. Reinforce regulators' powers and consiste ncy of supervisory practice at European 
and international levels .............................................................................................. 42 
6.5. Reinforce transparency towards regulators................................................................ 46 6.6. Improve transparency and overs ight of commodities markets .................................. 48 
6.7. Broaden the scope of regulation on pr oducts, services and providers under the 
directive when needed................................................................................................ 51 
6.8. Strengthen rules of business c onduct for investment firms ....................................... 52 
6.9. Strengthen rules of organisational re quirements for investment firms ...................... 56 
7. The preferred policy options and instrument ............................................................. 58 7.1. The preferred policy options ...................................................................................... 58 7.2. The choice of instruments to ensure  an efficient revision of MiFID ......................... 58 
7.3. Impact on retail investors and SMEs ......................................................................... 61 7.4. Impact on third countries/ impact on EU competitiveness ........................................ 61 7.5. Social impact............................................................................................................. . 62 
7.6. Impact on fundamental rights..................................................................................... 63 7.7. Environmental impact ................................................................................................ 63 8. Estimate of impact in terms of comp liance costs and administrative burden............ 64 
8.1. Estimated overall compliance costs ........................................................................... 64 
8.2. Estimate of impact in terms of administrative burden ............................................... 64 9. Estimate of impact in terms of indirect economic effect ........................................... 65 
9.1. Trading of clearing eligible and sufficien tly liquid derivatives on organised trading 
platforms .................................................................................................................... 65  
9.2. Extension of the trade transparency regime  for equities to shares traded only on 
MTFs or other organised trading facilities................................................................. 66 
9.3. Trade transparency in non-equity markets................................................................. 66 9.4. Consolidation of post-trade data in th e equities and non-equities markets................ 67 
9.5. Ban inducements in the case of investment  advice provided on an independent basis 
and in the case of portfolio management ................................................................... 68 
10. Monitoring and evaluation ......................................................................................... 69 11. ANNEXES: Table of contents ................................................................................... 71 
1. I
NTRODUCTION  
The issuance and trading of financial instruments is essential to ensure the availability of 
capital in the economy and to en sure capital is efficiently allo cated. Financial instruments are 
 
 4    used by economic agents such as companies to raise funds, e.g. for growth and innovation, or 
investors to invest their financial surplus and seek financial returns. They are also used by 
entities to manage risks. Together with the services provided e.g. by banks, payment-service 
providers and clearing and settlement infrastructu res, the market in financial instruments is a 
backbone of a modern economy and essential to feed economic growth and innovation.  
Like any market, financial markets need rules to function. The EU rule s governing the market 
in financial instruments are set out in . th e Markets in Financial Instruments Directive 
(MiFID. Applied since November 2007 (3,5 years), it  is a core pillar of EU financial market 
integration. Adopted in accordance with the "Lamfalussy" process1, it consists of a framework 
Directive (Directive 2004/39/EC)2, an Implementing Directive (Directive 2006/73/EC)3 and 
an Implementing Regulation (Regulation No 1287/2006)4. This impact assessment focuses on 
the revision of the framework Directive 2004/39/ EC while outlining when needed the possible 
changes in the implementing legislation which w ould follow at a later stage. Separate impact 
assessments will be carried out for subse quent changes to implementing legislation. 
MiFID establishes a regulatory framework for the provision of  investment services in 
financial instruments (such as brokerage, advi ce, dealing, portfolio management, underwriting 
etc.) by banks and investment firms and for th e operation of regulated  markets by market 
operators. It also establishes the powers a nd duties of national competent authorities in 
relation to these activities. Due to the level of risks generated by financial activities, the rules governing the market in financial instruments need to be robust, targeted and proportionate. In 
appropriate cases, they need to be precautionary . After the 2008 financia l crisis, the G20 has 
clearly signalled that "less is more" is no lo nger a valid maxim in financial regulation, 
whether in relation to lending to consumers, s ecuritisation and repackag ing of risks by banks, 
or oversight of professional investors and trad ing of financial instruments including complex 
instruments. In particular:  
- The financial crisis has woken the world to the issue of counterparty risk, notably with 
regards to over the counter (OTC) derivatives. The failure of a counterparty in a derivative 
transaction not only leave unhe dged the counterparty but c ould also have systemic 
consequences for the whole financial system. This issue is being addressed in EMIR by 
introducing central counterparties  to better manage this risk. 
- The crisis also demonstrated that financ ial institutions are not always adequately 
capitalised to be able to face adverse circ umstances. The Capital Requirements Directive 
seeks to legally underpin international agreements to ensure that the financial system as a whole is better capitalised to face future risks.  
- There are also undesirable trading products or practices, which competent authorities 
have been unable to act against. This is partly due to insufficien t transparency, and partly to a 
lack of legal tools to fight market abuse. Th e issue of transparency and the possibility of 
product bans is taken up in MiFID. The legal fra mework will be strengthe ned in the review of 
the Market Abuse Directive. 
- While MiFID has sought to introduce competition between trading venues, such 
competition has been limited by lack of competi tion in the post trading infrastructure field. 
Clearing and settlement practices can limit invest ors' ability to choose between platforms. 
This issue will be addressed in MiFID, EM IR and the proposal on central securities 
depositories. 
 
 5    The overarching objective of MiFID has been to further the integration, competitiveness, and 
efficiency of EU financial markets. MiFID is predicated on a series of key principles: cross-
border competition between investment firms and trading venues on a level-playing field, 
market transparency, non-discriminatory and eq ual treatment of market participants, diligent 
corporate governance and avoidanc e of conflicts of interest by intermediaries, and suitable as 
well as effective protection of investors. In concrete terms, it abolished the possibility for Member States to require all trading in fi nancial instruments to take place on specific 
exchanges and enabled Europe-wide compet ition between traditional exchanges and 
alternative venues. It also granted banks and investment firms a strengthened "passport" for 
providing investment services across the EU subject to comp liance with both organisational 
and reporting requirements as we ll as comprehensive rules de signed to ensure investor 
protection. 
The result after 3.5 years in force is more co mpetition between venues in the trading of 
financial instruments, and more choice for i nvestors in terms of service providers and 
available financial instruments, progress which has been compounded by technological 
advances. Overall, transaction costs have  decreased and integration has increased
5. 
However, some problems have surfaced. First, th e more competitive land scape has given rise 
to new challenges. The benefits of open comp etition in trading fina ncial instruments and 
accessing new markets have thus far mostly flowed to intermediaries, institutional investors (such as funds) and nimble traders with the technology necessary to exploit differences 
between markets, not fully to the issuers and en d retail investors.  The market fragmentation 
implied by competition has also made the tradi ng environment more complex, especially in 
terms of collection of trade da ta. Second, regulation is always a few steps behind the market 
reality, and the detailed rules upholding the core precepts a bove need to be periodically 
bolstered. Market and technolog ical developments have outpa ced various provisions in 
MiFID. The common interest in a transparent level playing-field between trading venues and 
investment firms risks being undermined. Third, MiFID suffers from the misplaced 
assumption that professional investors know what is best for themselves and the market as a 
whole, so that there could be minimal oversight  of complex wholesale markets. The financial 
crisis has exposed weaknesses in the regulatio n of instruments other than shares, traded 
mostly between professional investors. Eventu ally, rapid innovation a nd growing complexity 
in financial instruments underline the importan ce of up-to-date, high levels of investor 
protection. While largely vindicated amid the experience of the fi nancial crisis, the 
comprehensive rules of MiFID nonetheless e xhibit the need for targeted but ambitious 
improvements. 
The implementation of MiFID coincides with the onset of the financial crisis and, as ever, 
rapid innovation in financial servi ces. As a result, its effects ar e virtually impossible to assess 
in isolation from the latter. For example, institutional investors increasingly seek to escape pre-trade transparency and hide their trading intentions from the public. Is this due to 
uncertainty caused by the crisis , technical solutions presen ted by investment firms for 
managing their orders in private, or to fr agmentation of trading between venues and a 
reduction in trade size hastened  by MiFID-induced competition?  Or do the available waivers 
from pre-trade transparency not properly addre ss the splitting of large trades into small 
orders? Or is it due to all of the above? Would liquidity and resilience in non-equity markets 
have been better or worse amid the crisis w ith more comprehensive transparency rules under 
MiFID? 
However MiFID underlying principles remain valid. Cross-border pan-EU competition is 
more conducive to efficient allocation than nati onal markets. A fragment ation of liquidity is 
 
 6    not anathema to fair and efficient price discov ery provided all markets play by the same rules 
and transparency is effective. Different in vestors need different degrees of protection. 
Investors should be able to be served by trus tworthy market participants from across the 
Union. Investment firms and trad ing venues need to abide by st rong organisational rules in 
order to avoid market disorder or excessive volatility  in some  asset-classes from undermining 
trust in all financial instruments – and in th e ability of the economy  to finance itself. 
The review of MiFID needs to c onsider this backdrop. Wholesale repairs like those to parts of 
the financial system linked more directly to the crisis, e.g. bank capital or resolution, are not required. A comprehensive review of the underl ying precepts and basic building blocks of 
MiFID is neither necessary nor appropriate only some years after it entered into force. Since experience amid the crisis a nd technological developments in  recent years have neither 
entirely vindicated nor invalida ted its basic precepts or provis ions, an approach targeted at 
fixing visible flaws is proposed in stead. Nonetheless this exercise will be broad in scope as it 
touches upon a diverse set of issues and will affect a broad range of stakeholders. 
It has been decided to address all these issues  through one single legislative initiative for three 
main reasons. First, MiFID is a comprehe nsive regulatory framework in which various 
provisions depend on one another. In tackling some of the chal lenges separately from others 
we could lose sight of the overall picture, and negatively affect th e integrity and clarity of this 
regulatory framework. Second, a series of incr emental reviews with multiple, overlapping 
procedures and objectives could put more strain  on the resources of st akeholders and reduce 
their chances of contributing towards a balanced outcome. Fi nally, in view of rapid and 
ongoing technological developments, to adopt an approach for reviewin g the functioning of 
certain markets, such as for example those in equities, under a different lens compared with 
markets in other instruments would not be e fficient. Phenomena which may occur in one 
market today may emerge in others tomorrow,  and our regulatory framework should be both 
comprehensive and flexible in this respect.  
In conclusion, the revision of MiFID is an integr al part of the reforms aimed at establishing a 
safer, sounder, more transparent and more re sponsible financial system working for the 
economy and society as a whole in the aftermath of the financial crisis.
6 It is also an essential 
vehicle for delivering on the G207 commitment to tackle less re gulated and more opaque parts 
of the financial system, and improve the organi sation, transparency and oversight of various 
market segments, especially in those instru ments traded mostly over the counter (OTC)8, 
complementing the legislative proposal on OTC de rivatives, central counterparties and trade 
repositories9. 
Last, in line with proposals from the de Larosière group and ECOFIN,10 the EU has 
committed to minimise, where appropriate, discre tions available to Member States across EU 
financial services directives. This is a common thread across all area s covered by the review 
of MiFID and will contribute to establishing a single rulebook for EU financial markets, help further develop a level playing field for Memb er States and market participants, improve 
supervision and enforcement, reduce costs for ma rket participants, and improve conditions of 
access and enhance global competitiveness of the EU financial industry
11. 
2. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES  
The proposal for a revision of MiFID and its impact assessment has been prepared in 
accordance with the Commission's better regulation principles. They take into consideration 
the views expressed in a public  consultation from 8 December 2010 to 2 February 2011. They 
 
 7    also take account of input obtained through extensive meetings with a broad range of 
stakeholder groups since December 2009. Finally, th e proposal takes into consideration the 
observations and analysis contained in the doc uments and technical advice published by the 
Committee of European Securities Regulators (CESR), now the European Securities and 
Markets Authority (ESMA). 
2.1. Public consultation  
Commission services have held several ad hoc a nd organised meetings with representatives of 
market participants, public authorities, and other stakeholders on is sues included in the 
revision of MiFID. Six targeted roundtable s were organised between December 2009 and 
January 201012. A large and well-attended public hearing was held over two days on 20-21 
September 201013. A summary of this hearing can be found in Annex 12. Between 8 
December 2010 and 2 February 2011 a public c onsultation was organised to which over 4200 
contributions were received. The non-confiden tial contributions can  be consulted on the 
Commission's website14. The outcome of the consultation has been summarised in Annex 13. 
2.2. CESR (now ESMA) reports 
CESR was granted an informal mandate on 2 March 2010. CESR published several reports on 
MiFID related issues during the course of 201015.  
2.3. External studies  
Two studies16 have been commissioned from external consultants in order to prepare for the 
revision of the MiFID. The first one which was requested from PriceWaterhouseCoopers on 
10 February 2010 and received on 13 July 2010, focused on data gathering on market 
activities and other MiFID related issues. Th e second, from Europe Economics mandated on 
the 21 July 2010 after an open call for tender, received on 23 June focused on a cost benefit 
analysis of the various  policy options to be considered in the context of the revision of 
MiFID. 
2.4. Steering Group  
The Steering Group for this Impact Assessment wa s formed by representatives of a number of 
services of the European Commission, namely th e Directorates General Internal Market and 
Services, Competition, Agriculture, Climate,  Economic and Financial Affairs, Energy, 
Industry and Entrepreneurship, Health and Consumers, Justic e, Trade, Taxation, Digital 
Agenda, Development, the Legal Service and the Secretariat General. This Group met 3 
times, on 10 December 2010, 11 January 2011 and 14 February 2011. The contributions of the members of the Steering Group have been ta ken into account in the content and shape of 
this impact assessment
17.  
2.5. Impact Assessment Board  
DG MARKT services met the Impact Assessment Board on 18 May 2011. The Board 
analysed this Impact Assessment and deli vered its opinion on 23 May[ 2011. During this 
meeting the members of the Board provided DG MARKT services with comments to improve 
the content of the Impact Assessment that led to some modifications of this final draft. These 
are:  
– improved presentation of the initiative's overall context, as well as the different set of 
issues adressed in this initiative by clar ifying the link with othe r international or EU 
 
 8    initiative (including a more precsise assessment of the differences and similarities with the 
US) and prioritising the different issues; 
– improved analysis of the problems by further specifying the magnitude of the problems 
and the underlying problem drivers while clarif ying why EU action is needed, such as G-
20 commitments or precautionary concerns; 
– improved presentation of the options by clarif ying the content of some of the options, 
focusing on the key issues and re grouping some of the options; 
– strenghtening our analysis of the options by better identifying the nature and giving an 
order of magnitude whenever possible of the be nefits, by making sure th at all options were 
assessed against a comprehensive baseline secnario, as well as by discussing more in detail 
the impact on Member States;  
– better explaining why in some cases our prefer red options might differ from stakeholders' 
views. 
3. POLICY CONTEXT , PROBLEM DEFINITION , BASELINE SCENARIO AND SUBSIDIARITY  
3.1. Background and context 
MiFID applies to markets in financial instruments18. The financial mark ets covered by MiFID 
as well as how these markets wo rk is briefly described here. 
Actually, there are different financial instruments with different market features and different 
market participants. Financial instruments are usually split into three large categories, equities, debt instruments and derivatives. Th ese instruments can be traded on organised 
markets which is mostly the case for equities or over the counter (OTC) which is the case for 
most of the debt instruments and derivatives. In terms of respective size, total turnover on 
equities markets amounted in 2010 in Europe to nearly €19.9 trillion
19 . International and 
domestic debt securities markets in terms of  outstanding issued debt amounted in March 2011 
and December 2010 to respectively $29 trillion and $67 trillion for all countries out of which 
the Euro area countries and the UK accounted for $16 trillion and $15 trillion20 . OTC 
derivatives markets in terms of notional amount  outstanding amounted to $601 trillion as of 
end of December 2010 21. 
In addition to their respective size, the relevant financial markets are also different in terms of 
trading features. The nature of the instrument , the type of market participants and the 
organisation of trading vary according to th e instrument. Equity and bonds are fungible 
instruments while most of the derivatives are no t. As such, the level of activity on secondary 
market tends to be higher. But the secondary market is  actually only  really active for shares. 
For bonds, the combination of "buy  and hold" investors,  the fact that the instrument has a 
maturity date and the fact that there are multip le issues for each issuer largely contribute to 
very low activity on the secondary debt market. In addition, markets also differ in the way 
trading is organised. For equities , the larger share of  the transactions ta ke place on organised 
venues with multiple buyers and sellers meet. The meeting of these parties are often organised 
through a central order book system . For debt instruments and derivatives, trading tend to be 
more bilateral and a request for quote system in which counterparty asks counterparty for a 
price on a specific instrument, prevails. The divers ity in the nature of the instrument and in 
the way it is being negotiated n eed to be taken into consider ation when looki ng at MiFID in 
its globality. 
 
 9    3.2. Problem definition 
The problems that the revision of MiFID is aiming to solve are multiple and can be grouped 
as follows: 
–  lack of a level playing fi eld between markets and market  participants has become 
exacerbated as new players and new trading techniques develop 
– difficulties for SMEs to access financial markets 
– lack of sufficient transparency of the fi nancial markets for market participants 
– the lack of sufficient information and power s for national regulator s regarding financial 
markets and intermediaries, and inconsistent supervisory practice 
– existence of areas in which investor protection has revealed deficiencies 
– weaknesses in some areas of the organisation, processes, risk control and assessment of 
some market participants. 
The problem tree included below provides an over view of the main drivers and consequences 
of these various problems. 
 
 
 10    Drivers Problems Consequences
Some products, services or 
services providers 
unsufficiently regulatedSub efficient financial markets
and unecessary costs for 
market participantsLack of sufficient transparency
for market participantsFragmentation and short 
comings in transparency of 
equities market
Opacity of non equities
marketsEvolution of market and 
trading structures 
Risks on investor confidence,
markets order and integrity
Increased weight of financial
transactions in commodities
markets
Existence of areas in which investors
protection has revealed some
deficienciesUneven playing field between
market participants
Systemic risks
Insufficient organisation in the 
provision of services and incorrect 
assessment or control Insufficient information and powers for 
regulators and inconsistent supervisory
practice
Weaknesses in business 
conduct and information 
requirement by investment
firms
Shortcomings in 
organisation of
investment firmsTechnological
developments
Insufficient coordination 
between national market
regulators in implementation
and supervisionDifficulties for SME in accessing
capital markets
 
The following sections provide a summary of the problems hi ghlighted above; for a more 
detailed explanation and background in rela tion to these problems please see Annex 2. 
3.3. Problem 1: Lack of level playing field between markets and market participants 
The implementation of MiFID combined with the effect of technological advances has 
dramatically changed the structure of financia l markets across Europe, notably in the equity 
space, and made the conduct of market particip ants evolve to reflect these developments. 
These changes have undoubtedly helped stimulate competition between trading venues but have also created some distortions of competition between market participants. There are five main reasons for this situation. 
There is concern that despite providing comparable  services to regulated markets, Multilateral 
Trading Facilities (MTFs) may in practice be s ubject to a less stringent supervisory regime 
while at the same time key concepts such as admission to trading
22do not apply to them. 
Further, the fragmentation of trading across different  venues could result in misconduct being 
missed due to the lack of coordi nated monitoring between them.  
New trading venues and market structures, such  as broker crossing systems and derivative 
trading platforms, have emerged that carry out similar activities to MTFs or systematic internalisers
23 without being subject to the same re gulatory requirements, both in terms of 
transparency and investor protection24. The fact finding carried out by CESR25 found that 
 
 11    actual trading through broker cr ossing systems – which are not  subject to any pre-trade 
transparency requirements - increased from an  average of 0.7% of total EEA trading in 2008 
to an average of 1.5% in the first quarter of  2010. This means that between 2008 and the 1st 
quarter of 2010 this % has tripled. Pre-trade transparency is key for the price formation 
process and dark trading (including both br oker crossing networks and dark pools – i.e. 
platforms operated by a RM or a MTF and benefiti ng from pre-trade transparency waivers) is 
expected to increase in the near future followi ng a similar path as in the United States where 
dark trading made up 13.27% of consolidated US  equities trading volume at the end of 201026 
and is expected to still grow  further with estimates by th e end of 2011 of 15%. Regarding 
derivatives markets, the US authorities have cr eated, for derivatives, the new concept of Swap 
Execution Facilities (SEFs)27 to bring such trading venues or structures within the scope of 
financial services regulation. 
Rapid technological changes, and in particul ar the growth of auto mated trading and high 
frequency trading (HFT) that represents an in creasing share of transactions, especially on 
equity markets, have led to concerns about possible new risks to the orderly functioning of 
markets, e.g. due to rogue algorithms or a sudden  withdrawal of liquidity in adverse market 
conditions. The analysis of the May 6, 2010 flash crash28 performed by US regulatory 
authorities has underlined the fact  that even if HFT firms may not  have been the cause of this 
crash, the way and the speed of th eir reaction has greatly amplified its effects. Further, not all 
HF traders are subject to authorisation and s upervision under the MiFID as they can use an 
exemption set in the framework directive29. Even if the effect of this type of trading on the 
markets is still being investigated and discussed, some arguing that it is beneficial in terms of 
liquidity and spreads while others  considering that markets have  become more shallow, it is 
obvious that this type of activity deserves to be  properly regulated simply in light of the size 
that it represents in terms of trading as of today, and the potential spill over effects their 
misbehaviour might have on the whole financial markets. The scale of HFT in Europe already 
accounts for a significant portion of equity trading in th e EU, and is expected  to grow further. 
According to CESR30, HFT trading accounts from  13% to 40% of total share trading in the 
EU. As a comparison, HFT traders account for as  much as 70% of all US equity trading 
volume31. 
The growth of over the counter (OTC) trading on equities ha s led to concerns among some 
national supervisors that it threatens the qu ality of price formation on exchanges and its 
representative nature, as a substa ntial part of the transactions are not being taken into account. 
Further, as far as derivatives are concerned, it has been agreed by the G20 to ensure that, 
where appropriate, trading in standardised OT C derivatives moves to exchanges or electronic 
trading platforms.32  
3.4. Problem 2: Difficulties for SMEs to access financial markets 
Small and medium-sized enterprises face greater difficulties and costs to  raise capital from 
equity markets than larger issuers. These difficulties are related to the lack of visibility of SME markets, the lack of market  liquidity for SME shares and the high costs of an initial 
public offering. Although some "SME markets", re gulated as MTFs, have emerged at national 
level to try to address these difficulties by offering a tailored regul atory regime to SME 
issuers, different requirements apply and uncerta inty in this regard may put off investors.The 
listing as well as the transparency requirements might differ from one SME platform to the 
other. Further, these SME markets are not interc onnected as MiFID currently does not foresee 
that SME shares listed on one MTF can automati cally be traded on another. Finally the costs 
of listing for an SME are disproportionate give n the limited access to cap ital that it currently 
provides. 
 
 12    3.5. Problem 3: Lack of sufficient transp arency for market participants  
The key rationale for transparen cy is to provide investors with access to information about 
current trading opportunities, to facilitate price formation and a ssist firms to provide best 
execution to their clients. It is also intende d to address the potential adverse effect of 
fragmentation of markets and liquidity by pr oviding information that enables users to 
compare trading opportunities and results across trading venues. Post tr ade transparency is 
also used for portfolio valuation purposes. Transp arency is crucial for market participants to 
be able to identify a more accurate market pr ice and to make trading decisions about when 
and where to trade. However a number of concerns have emerged that the transparency regime set out in the MiFID is insufficient for ma rket participants in both the equities and non 
equities markets. 
With respect to equity markets, the growth of  electronic trading has facilitated the generation 
of dark liquidity and the use of dark orders
33 which market participants rely upon to minimise 
market impact costs. However, an  increased use of dark  pools raises regulato ry concerns as it 
may ultimately affect the quality of the pr ice discovery mechanism on the "lit" markets34. In 
terms of overall EEA trading, dark pools (i.e . platforms operated by a RM or a MTF and 
benefiting from pre-trade transparency waiv ers) and broker crossing networks account for 
approximately 7%. If we add up the OTC tradin g share which usually estimated to be around 
38%3536, 45% of the EEA trad ing is "dark" or not subject to  pre-trade transparency (see 
Annex 2.3.1). The issue at stake is to balance the interest  of the wider market  with the interest 
of individual parties by allowing for waivers fr om transparency in specific circumstances37.  
Market participants require information about trading activity that is  reliable, timely and 
available at a reasonable cost. They have expressed concerns about time delays in the publication
38 of trade reports in the equities market s. Many supervisors as well as market 
participants seem to agree that the maximu m permitted delays for publishing trade details 
should be reduced39. This would help to make post trad e information available sooner to the 
market. 
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 shares40 are 
therefore outside the scope of MiFID transparency requirements. Since the requirements only apply to shares admitted to trading on a regulat ed market, there is also a potential difference 
in the level of transparency for shares that are only admitted to trading on a MTF or another organised trading facility.  
For non-equity markets, transparency require ments are not covered by the MiFID and are 
only regulated at national level; these are not always considered sufficient
41. Efforts by trade 
associations of investment banks  to make these markets transpar ent have not been successful. 
Especially during the financial crisis, market pa rticipants have faced difficulties in accessing 
price information and valuing their positions in  different instruments, especially the bonds 
markets. Access to information on these market s is uneven and often depends on the size and 
type of investors and market context. On th e other hand, the issue is made more complex by 
the fact that non equity markets are currently mostly dealer s' market i.e. markets in which 
market makers are playing a key role. In these markets, the leve l of activity on the secondary 
market is much lower than on equity markets. Transactions are very of ten done on a bilateral 
basis in which a counterparty asks a dealer for a price on a specific inst rument. In quoting the 
price for the specific instrument, the dealer is  taking a position and put ting its own capital at 
risk. If there is too much trade transparency, th e dealer may have to re veal its positions, which 
would put him at a higher risk versus other ma rket participants that could benefit from the 
 
 13    information they have on his position to gain a profit. This negative pos sible effect could be 
mitigated by proper calibration of a future transp arency regime such as it is already the case 
for the equities markets where a balance has been struck between the wider market interests in 
terms of transparency and market efficiency by foreseeing pre-trade transparency waivers and 
deferred post-trade publication for large transactions.  
Besides requiring market data to be reliab le, timely and available at a reasonable cost, 
investors also require the information to be br ought together in a way that allows comparison 
of prices across different venue s. Experience since the implem entation of MiFID shows that 
the reporting and publicati on of trade data in shares is not living up to th is expectation.42 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 consolid ating the information. If  these issues are not 
fully addressed, they could undermine the ove rarching objectives of MiFID as regards 
transparency, competition between financial serv ices providers, trading venues 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 facilitate the consolidation and di ssemination of post trade information.  
Similar issues are likely to arise for non equity  instruments if these are brought within the 
scope of a pre and post-trade transparency regime.  
3.6. Problem 4: Lack of transparency for regulators and insufficient supervisory 
powers in key areas and inconsistent supervisory practice 
In several areas, regulators are lacking the neces sary information or powers to properly fulfil 
their role. 
Commodities markets 
Recent developments in commodity markets have highlighted a number of issues.  
The G20 agreed "to improve the regulation, f unctioning, and transparency of financial and 
commodity markets to address excessive comm odity price volatility." In its Communication 
of 2 June 2010 on "Regulating Financial Servic es For Sustainable Growth", the Commission 
announced it is preparing a comprehensive, bala nced and ambitious set of policy initiatives 
which will touch upon commodity derivatives ma rkets. More recently, the Communication of 
2 February 2011 on commodity markets and ra w materials has called for further action 
Many commentators
43 have raised concerns that the increased presence of non-commercial 
investors, especially in some key benchmar k commodity derivative markets (e.g. oil and 
agricultural markets) have led to ex cessive price increases and volatility.44 Physical 
commodity and commodity derivatives markets are increasingly intert wined and influence 
each other. This stronger inte raction requires reinforcing th e cooperation between financial 
and physical regulators as well as between  regulators at international level.  
The second group of issues lies in the lack of transparency faced by both market participants 
and regulators in both financial and physical commodities markets as well as the lack of 
intervention powers for regulators. There is no  position reporting requirements for derivatives 
and especially commodities derivatives and no harmonised and effective position management oversight powers to prevent disord erly markets and developments detrimental to 
commodity derivatives users. This lack of transparency has undermined the ability of 
regulators as well as market participants to understand the impact of the increasing flow of 
 
 14    financial investments in the commodity deri vatives markets. In addition although position 
reporting or oversight are recognised as effectiv e tools to ensure fair and orderly trading and 
prevent market abuse especially in commodity derivatives markets as highlighted by existing 
practices of trading venues, the powers given to trading venues and/ or regulators vary 
significantly between Member States.   
A third issue relates to the scope of the ex emption from MiFID rules for commodity firms 
trading on own account in financ ial instruments, or providi ng investment services in 
commodity derivatives on an ancill ary basis as part of their ma in business and when they are 
not subsidiaries of financial groups.45 These exemptions intend to cover commercial users and 
producers of commodities, under the assumpti on that commercial firms and specialist 
commodity firms do not pose systemic risks compar able to traditional financial institutions or 
interact with investors. The size and level of  activity of the exempted commodity firms has 
developed over the years and th e assumption of their limited effect in terms of market 
disorder or systemic risk ma y not be as valid as before. 
In addition, it has been suggested that comm ercial companies benefiting from the MiFID 
exemptions active in the oil market should no t provide investment se rvices in commodity 
derivatives even as an ancillary activity46. As these MiFID exempt firms are not subject to any 
MiFID provisions – including the conduct of bus iness rules – some national regulators and 
market participants have argued that unsoph isticated clients would not be adequately 
protected. On the other hand, this  notion of ancillary activity appears to be an essential 
provision for agricultural cooperatives, enab ling 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.  
Fourth, emission allowances47 are an instrument created by the EU Emissions Trading 
Scheme Directive (the EU ETS Directive)48, in force since 2005. Emission allowances are a 
new type of legal instrument whic h could lend itself to be classi fied as a financial instrument 
or as a physical commodity. At present, not a ll segments of the European carbon market are 
consistently covered by financia l markets legislation or afforded equivalent regulatory and 
supervisory treatment by other European legi slative instruments. Notably, MiFID does not 
apply to the secondary trading of spot emission allowances. This stands in contrast with the 
situation in the allowances derivatives market and the regulatory arrangements for the future 
primary spot market (i.e. instead of free allo cation, emission allowances will be auctioned to 
market participants) in those instruments: in t hose two market segments, to a greater or lesser 
extent the provisions of the MiFID would apply49. This perceived distorti on has only partially 
been covered by individual init iatives of a few Member States to bring the secondary spot 
activity in the carbon market under the national regimes im plementing the MiFID or Market 
Abuse Directive50. The lack of consistency in the re gulatory framework may eventually be 
detrimental to the spot segment' s prospects. This makes it vul nerable to a risk of market 
abuse, for example through potential manipula tion of spot price indices against which 
derivative positions are priced, as well as othe r forms of market misconducts, such as fraud 
due to insufficient checks on the integrity of market participants. 
Transaction reporting  
The second issue for regulators is the acces s to information. Transaction reporting under 
MiFID enables supervisors to monitor the activi ties of investment firms, the functioning of 
markets and ensure compliance with MiFID, a nd to monitor 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 
 
 15    the trade takes place on that market or not51. Transaction reporting is also useful for general 
market monitoring, as it provides insight  into how firms and markets behave. 
The existing reporting requirements fail to provid e competent authorities with a full view of 
the market because their scope is too narrow (e .g. financial instruments only traded OTC are 
currently not reportable) and because they allo w for too much divergence. First, since it has 
an important function in monitoring the functio ning of the market, incl uding its integrity in 
the perspective of MAD, the requirements under the two directives need to remain aligned, 
taking also into account the ongoing re view of the MAD52. Second, reporting requirements 
today diverge between Member St ates, which adds costs for firms and limits the use of trade 
reports for competent authorities. Third, third party firms that investment firms can use to 
report their transactions are not subject to on going monitori ng by the supervisor. Last, for 
cost and efficiency purposes, double reportin g of trades under MiFID and the recently 
proposed reporting requirements to tr ade repositories s hould be avoided53 while at the same 
time, non-investment firms who may have direct  access to markets do not need to report, 
which creates gaps between the trading ac tivity actually done a nd the one reported.  
Powers of competent authorities 
Experience, especially during the financial crisis has show n that the powers granted to 
competent authorities54 need to be strengthened in key areas, including in terms of 
investigatory powers55.  
There have recently been various calls to subj ect complex products such as certain types of 
structured products, to strict er regulatory scrutiny as rega rds the provision of certain 
investment services and activities.56 The fact that national regulators do not have the power to 
ban or restrict the trading or distribution of a product or  service in case of adverse 
developments, has appeared as a major lacking point, similarly to the absence of provisions 
that would ensure cooperation w ith regard to general market oversight. On the other hand, the 
access of third country firms to EU markets is not harmonised under MiFID and this gives 
rise to a patchwork of nationa l third country regimes. Conse quently, there is considerable 
divergence as to how third coun try regimes are applied across the Union. This is damaging 
the functioning of the single market as well as creating additional costs for these firms. 
On sanctions, MiFID requires Member States to ensure that it is possible to impose 
administrative measures or sanctions that are e ffective, proportionate and dissuasive. In this 
context, evidence by CESR57 shows that there are significant differences and lack of 
convergence across the EU in terms of the ad ministrative measures available for MiFID 
infringements as well as the a pplication of those sanctions.  
3.7. Problem 5: Existence of areas in which investor protection has revealed 
deficiencies  
There are a number of provisions in the cu rrent MiFID which result in investors not 
benefiting from sufficient or appropriate leve ls of protection. The consequences are that 
investors may be mis-sold financial products wh ich are not appropriate for them, or may make 
investment choices which are sub-optimal. Th ere are several driver s to these problems. 
Uneven coverage of service providers 
Member States may exempt from MiFID invest ment firms providing cert ain services only at 
national level, provided that they are subject to national rules58. This exemption means that an 
 
 16    investor buying a financial product from a MiFID exempt firm may be less protected than if 
he buys the same product from a MiFID regulated  firm. Investors may not even be aware of 
the differences in the levels of protection.  
Second, in the context of the Communication on packaged retail investment products 
(PRIPs)59, the Commission has underlined the importa nce of ensuring a more consistent 
regulatory approach concerning the distribution of different financial products to retail 
investors, which however satisfy similar inve stor needs and raise comparable investor 
protection challenges60. Specifically, the sale of structur ed deposits, an activity almost 
exclusively carried out by credit instituti ons, is outside the scope of EU regulation 
Third, national regulators61 have raised concerns with respect to the applicability of MiFID 
when investment firms or credit institutions is sue and sell their own securities. As a primary 
market activity, issuance of financia l instruments is not covered by MiFID 
Uncertainty around execution only services 
MiFID allows investment firms to provide in vestors with a means to buy and sell so-called 
non-complex financial instruments in the ma rket, mostly via online channels, without 
undergoing any assessment of the appropriateness of the given product - that is, the 
assessment against knowledge and experience of the investor.62 This possibility is offered for 
products which are considered as non-complex which mostly include shares, money market 
instruments, bonds and some securitised debt and UCITS instruments. Individual investors 
greatly value the possibility to buy and se ll (essentially) shares based on their own 
assessments and understanding.63 Nonetheless, there are thr ee potential problems with the 
status quo which should be addressed on precau tionary grounds. First, the financial crisis 
clearly underlines that access to more complex instruments needs to be strictly conditional on 
a proven understanding of the risks involved. Se cond, the ability of inve stors to borrow funds 
solely for investment purposes even in non -complex instruments, thereby magnifying 
potential losses, needs to be tightly controlle d. Third the classificati on of all UCITS as non-
complex instruments needs to be reviewed in  light of the evolution of the regulatory 
framework for UCITS, notably when assets they  can invest in are themselves considered 
complex under MiFID, fo r instance derivatives. 
Quality of investment advice 
In the context of the financial crisis and recen t debates on the quality of investment advice, 
including the debate on  PRIPs, several possible areas fo r improvement have emerged. Under 
MiFID intermediaries providing investment advi ce are not expressly re quired to explain the 
basis on which they provide ad vice (e.g. the range of  products they consid er and assess) and 
more clarity is thus needed as to the kind of service provided by the intermediary. One study 
indicates that, at present, investment advice is unsuitabl e roughly half of the time64. 
Framework for inducements 
MiFID regulated for the first time the payment of  various types of incentives to investment 
firms which can influence the choice and the promotion of products when firms provide 
services to clients (inducements). The MiFID ru les for incentives from third parties require 
inducements to be disclosed and to be designed to enhance the quality of the service to the 
client65. These requirements have not always proven  to be very clear or well articulated for 
investors66 and their application has created some practical difficulties and some concerns. 
Further, the treatment of inducements with re spect to portfolio management and investment 
 
 17    advice67 may require further tightening due to the characteristics of these services . Although 
the firm should always act in the best intere sts of the client, yet the possibility to accept 
inducements when providing advice, especially  on an independent basis, and portfolio 
management can decisively compromise this principle and lead to sub-optimal choices on behalf of the investor. 
Provision of services to non retail clients and classification of clients 
In the current MiFID framework, clients are clas sified in three categories: retail clients, 
professional clients and eligible counterparties
68. The level of protection and the level of 
requirements for investment firm s in serving these clients decreases from retail clients to 
professional and eligible counterparties, the un derlying principle being that larger entities 
have access to more information, benefit from  higher expertise and more able to protect 
themselves.  
The financial crisis showed that in practice a number of non-retail in vestors, notably local 
authorities, municipalitie s and corporate clients69, suffered losses due to being mis-sold 
complex financial instruments th e risks of which they did not fully understand. Further, the 
provision of services to certain investors (so call ed, eligible counterpartie s) is not subject to 
the general MiFID principles that these servic es should be fair and not misleading, whereas 
services to retail investors are.  
Execution quality and best execution 
Finally, although trad ing venues have to provide post-trad e transparency on the prices of 
executed trades, they are not cu rrently required to publish data on execution quality (such as 
the speed of trade execution or the number  of trades cancelled prior to execution)70. Since 
both of these factors can affect the price at which shares are traded, the absence of published 
data on these aspects could impair the ability of  investment firms to select the best possible 
venue for executing a trade for a client. 
3.8. Problem 6: Weaknesses in so me areas of the organisation, processes, risk controls 
and assessment of some market participants  
The problem presents several dimensions. 
Insufficient role of direct ors and insufficient or ganizational arrangements for the launch of 
new products, operations and services and weak nesses in internal control functions 
The MiFID defines a high-level fr amework for fit and proper re quirements regarding persons 
who direct the business of i nvestment firms and a general framework for organizational 
requirement71 and the establishment and the operati on of internal control functions 
(compliance function72, risk management function73, internal audit function74). Recent events 
during the financial crisis such the insufficien t assessment and control of risks have shown 
that the involvement of directors and the role of internal control f unctions are not always 
strong enough75. The issues generated during the recent financial crisis by some new products, 
such as complex credit related structured pro ducts have revealed the way investment firms 
design and launch new products and services76 can be improved. The role and the 
involvement of directors and the internal control functions in de veloping firms' policies needs 
to be better defined in order to strengthen investment firms and avoi d detrimental practices 
toward clients.  
 
 18    Lack of specific organisational requiremen ts for portfolio management, underwriting and 
placing of securities 
Regarding portfolio management, the actual mana gement of these portfo lios is not covered in 
MiFID by any specific provision and Member Stat es have recorded numerous complaints 
where clients have challenged the way in which their portfolio has been managed77. For 
underwriting and placing, despite the fact that  corporate business is covered under different 
investment and ancillary services in MiFID,  some specific practices contrary to firms 
obligations to take all reasonable steps to prev ent conflict of in terest such as underpricing or 
overmarketing of securities to be issued have recently been noted.   
Uneven regime for telephone and electronic recording  
MiFID leaves to Member States the possibilit y to require firms to record telephone and 
electronic communications involvi ng client orders. Most Member  States have used this 
option. However, the wide discretion introduce d by MiFID has led to different approaches 
being adopted by Member States, ranging from th e lack of any obligations to the imposition 
of very detailed rules in this area78. There is therefore a lack of  consistent framework across 
Europe on this question that crea tes differences in the supervisor y tools availabl e to regulators 
and disparities between firms providing the same services in different Member States. Indeed 
evidence collected through tele phone and electronic recordi ng is key in detecting and 
investigating cases of market abuses as acknowledged by CESR79. In case of cross market 
abuses it is also important that the level of information available to competent authorities is 
harmonised up to the most stringent level.  
3.9. How would the problem evolve without EU action? The base line scenario  
If no action is taken to revise the MiFID, it is  very likely that the pr oblems that have been 
identified will persist and could be aggravated  by future market deve lopments as very few 
countervailing forces are likely to exert themselves.  
The lack of clarity as to the rules applicable to different tr ading venues and investment firms 
in the execution of orders would continue , and the share of OTC trading without an 
appropriate regulatory framework and with no pre- trade transparency would continue to feed 
uncertainty. There would be no  upgrades to the framework of  safeguards around trading in 
today's low latency, high-speed environment. If  no action is taken, the regulatory framework  
governing trading venues and market partcipants'  risk management tools will probably fall 
even further behind market changes as tradin g in a dark environm ent and new electronic 
means of trading seem likely to continue to grow. SME markets would remain an indistinct 
venue with a different level of transparency towards investors between the different junior 
markets, hindering the cross-tr ading of SME shares and the build up of a pan-European 
network of SME markets. Deficiencies in equity  market transparency and data consolidation 
would persist, as would the deli cate but ultimately unsustainable transparency environment in 
non-equities. Without any regulatory action, the de ficiencies in the equities markets would 
likely persist. Opacity in the non-equity market s would also likely remain the general rule. 
Uncertainty would also continue in relation to the effectiveness of regulation applicable to 
commodity derivative markets. The increasing fl ow of financial investments has changed the 
way these markets function. In the absence of an y regulatory action, the lack of transparency 
and regulatory tools would undermine regulat ors' ability to properly understand these 
developments and ensure the integrity and pr oper functioning of these markets. Failure to 
address the deficiencies in transaction reporting and access to telephone and electronic 
records would entail that the tools available to regulators for example for detecting market 
 
 19    abuse or checking the compliance of firms with  their obligations under MiFID would remain 
sub-optimal. As for investor protection, the lack of action at EU level wi ll likely result in an 
increase in the number of cases of mis-selling of financial services products and cases where 
gaps in the regulation, absence of  information, or intern al conflicts of inte rest at firms lead 
investors to take undue risks. A rise in the number of such cases could have a serious impact on investor confidence leading to strong consumer reactions and negative socio-economic impacts which could create further ma rket disorder and systemic risk. 
Other legislative proposals alrea dy, or shortly to be, adopted  by the Commission complement 
the MiFID review in terms of increasing transpar ency towards regulators and market integrity.  
The review of the Mark et Abuse Directive (MAD)
80 will ensure all trading venues and 
practices are appropriately ca ught under the market abuse prohi bitions. The objective is to 
adapt the MAD framework to market and technological developments, building upon the 
existing and future MiFID framework relati ng to rules for trading venues and market 
participants. The proposal for a regulation on OTC derivatives, central counterparties and 
trade repositories81 will increase transparency of significant positions in OTC derivatives 
which will assist regulat ors to monitor for market abuse an d help to detect any build up of 
systemic risks through the use of derivatives . There are currently no transaction reporting 
obligations for OTC derivatives  under MiFID which is the main instrument available to 
regulators to detect market abuse cases. The ex istence of trade repositories might facilitate 
such reporting under certain conditions. The proposal for a Regulation on short selling and certain aspects of Credit Default Swaps
82 includes a short selling disclosure regime which 
would make it easier for regula tors to detect possible cases  of market manipulation. The 
issues of transparency requirements and manipu lative behaviours specific to physical energy 
markets, as well as transaction reporting to en sure the integrity of energy markets, are the 
subject of the Commission proposal for a Regulation on energy market integrity and 
transparency83. This initiative covering the udnerlyi ng phyiscal markets will complement the 
MiFID and MAD frameworks governing trading in  derivatives on energy products as physical 
and financial markets are inter linked and influence each other. Overall these initiatives will 
significantly improve the transparency towards and the tools available to regulators to fulfill their supervisory duties. However it should be noted that these initiatives do not increase 
transparency of trading (pre-and post-trade tran sparency towards market participants (or only 
in a very limited way by the public disclosure of aggregated positions in OTC derivatives by 
trade repositories) 
 
3.10.  Subsidiarity and proportionality  
According to the principle of subsidiarity (Article 5.3 of the TFEU), action on EU level 
should be taken only when the aims envisaged cannot be achie ved sufficiently by Member 
States alone and can therefore, by reason of th e scale or effects of the proposed action, be 
better achieved by the EU.  
Most of the issues covered by the revision are already covered by the acquis and MiFID 
today. Further, financial markets are inherently  cross-border in nature and are becoming more 
so. International markets require international rules to the furthest extent possible. The 
conditions according to which firms and operators  can compete in this context, whether it 
concerns rules on pre and post-trade transparenc y, investor protection or  the assessment and 
control of risks by market participants need to be common across borders and are all at the 
core of MiFID today. Action is now required at European level in order to update and modify 
the regulatory framework laid out by MiFID in order to take into account developments in 
 
 20    financial markets since its implementation. The improvements that the directive has already 
brought to the integration and e fficiency of financial markets and services in  Europe would 
thus be bolstered with appropriate adjustments to ensure the objectives of a robust regulatory 
framework for the single market are achiev ed. Because of this integration, national 
intervention would be far less efficient and woul d lead to the fragment ation of the markets, 
resulting in regulatory arbitrage and distortion of  competition. For instance, different levels of 
market transparency or investor protection ac ross Member States would fragment markets, 
compromise liquidity and efficiency, and l ead to harmful regulatory arbitrage.  
The European Securities and Mark ets Authority (ESMA) should al so play a key role in the 
implementation of the new legal proposals. One of the aims of the creation of the European 
Authority is to enhance further the functioning of the single market for security markets; new 
rules at Union level are n ecessary to give all appr opriate powers to ESMA.  
The options analysed below will  take full account of the prin ciple of proportionality, being 
adequate to reach the objectives and not goi ng beyond what is necessary in doing so. Given 
the need for implementing legislation, the propor tionality of individual options cannot always 
be fully assessed at this stage. For instance, re garding the new transparency rules that could be 
applied to bonds and derivatives markets, th e revision advocates for a carefully calibrated 
regime that will take into consideration the sp ecificities of each asset class and possibly each 
type of instrument. Whenever possible we have ensured that the preferred policy options are 
compatible with the proportionali ty principle, taking into acc ount the right balance of public 
interest at stake and the cost -efficiency of the measure. The requirements imposed on the 
different parties have been caref ully calibrated. In particular, the need to balance investor 
protection, efficiency of the markets and costs for the industry has been  transversal in laying 
out these requirements.  
4. OBJECTIVES  
4.1. General, specific and operational objectives 
In light of the analysis of the risks and problems above, the general objectives  of the revision 
of MiFID are to:  
(1) strengthen investor confidence,  
(2) reduce the risks of market disorder;  
(3) reduce systemic risks; and  
(4) increase efficiency of financial ma rkets and reduce unnecessary costs for 
participants 
Reaching these general objectives requires the realisation of the following more specific 
policy objectives : 
(1) Ensure a level playing field between market participants; 
(2) Increase market transparency  for market participants; 
(3) Reinforce transparency towards and pow ers of regulators in key areas and 
increase coordination at European level;  
 
 21    (4) Raise investor protection 
(5) Address organisational deficiencies and ex cessive risk taking or  lack of control 
by investment firms and other market participants 
The specific objectives listed above requi re the attainment of the following operational 
objectives : 
(1) Regulate appropriately all market and trading structures taking into account 
the needs of smaller participants, especially SMEs 
(2) Set up relevant framework around new trading practices 
(3) Improve trade transparency for market pa rticipants on equities and increase it 
for non equities market 
(4) Reinforce transparency towards and powers of regulators 
(5) Improve consistency in the implementation of rules and coordination in 
supervision by national regulators 
(6) Improve transparency and oversight of commodities derivatives markets 
(7) Reinforce regulation on products, services and services providers when needed 
(8) Strengthen the rules of business conducts of investment firms 
(9) Make organizational requirements fo r investment firms more strict 
An overview of the various objectives and their interrelationships is depicted in the figure 
below: 
 
 
 22    General 
objectivesSpecific
objectivesOperational
objectives
Increase efficiency of  financial
markets and reduce
unecessary costs for 
participantsReduce risks of market
disorder and market abuse
Reduce systemic risksIncrease transparency
for market participants
Raise investors protectionEnsure a level playing field
between market participants
Address organisational deficiencies
and excessive risk taking by 
investment firms and market
operatorsReinforce regulation on products, services 
and services providers  when neededIncrease trade transparency
for market participants on equities and 
establish it for non equities marketRegulate appropriately
all market structures and trading places 
taking into account the needs of smaller
participants
Improve transparency and oversight
of commodities marketsReinforce transparency for 
regulators
Reinforce transparency towars and 
powers of regulators and increase
coordination at European level
Strenghten the conduct of business 
rules for investment firms
Make organisational requirements for 
investment firms more strictEstablish relevant framework around
new trading practices
Reinforce powers and consistency of 
supervisory practiceReinforce investors’
confidence
 
4.2. Consistency of the objectiv es with other EU policies 
The identified objectives are coherent with the EU's fundamental goals of promoting a 
harmonised and sustainable development of  economic activities, a high degree of 
competitiveness, and a high level of consum er protection, which includes safety and 
economic interests of citizens (Article 169 TFEU). 
These objectives are also cons istent with the reform progr amme proposed by the European 
Commission in its Communication Driving European Recovery .84 More recently in the 
Commission Communication of 2 June 2010 on "Regulating Financial Services for 
Sustainable Growth" the Commi ssion indicated that it would propose appropriate revision of 
the MiFID85.  
In addition, other legislative proposals already or shortly to  be, adopted by the Commission 
complement the revision of MiFID in terms of increasing market transparency and integrity as 
well as containing market disorder and reinforc e investor protection (for further details, see 
Annex 19). The proposal for a Regulation on s hort selling and certain aspects of Credit 
Default Swaps86 includes a short selling disclosure regime which would make it easier for 
regulators to detect possible cases of market  manipulation. The propos al for a regulation on 
derivatives, central counterparties and trade repositories87 will also increase transparency of 
significant positions in derivatives for regulators as well as reducing systemic risks for market 
participants. The revision of the MAD88 that should be presented t ogether with the revision of 
MiFID will aim at enlarging the scope and incr easing the efficiency of the directive and 
contribute to better and sounder financial market s. The issues of transparency requirements 
 
 23    specific to physical energy markets, as well as transaction reporting to en sure the integrity of 
energy markets, are the subject of the Com mission proposal for a Regulation on energy 
market integrity and transparency89. 
4.3. Consistency of the objectives with fundamental rights 
The legislative measures setting out rules fo r the provision of investment services and 
activities in financial instruments, including sanc tions need to be in compliance with relevant 
fundamental rights embodied in the EU Char ter of Fundamental Rights ("EU CFR"), and 
particular attention should be given to the ne cessity and proportionality of the legislative 
measures. 
The following fundamental rights of the EU Char ter of Fundamental Rights are of particular 
relevance: 
• Respect for private and family life (Art.7) 
• Protection of personal data (Art.8) 
• Freedom to conduct a business (Art. 16) 
• Consumer protection (Art. 38) 
• The fundamental rights pr ovided for in Title VI Justice: ri ght to an effec tive remedy and to 
a fair trial (Art. 47); presumption of innocence and right of defence (Art.48) 
Limitations on these rights and freedoms are allowed under Article 52 of the Charter. The 
objectives as defined above are consistent with  the EU's obligations to respect fundamental 
rights. However, any limitation on the exercise of these rights and freedoms must be provided 
for by the law and respect the essence of these ri ghts and freedoms. Subject to the principle of 
proportionality, limitations may be made only if they are necessary and genuinely meet the 
objectives of general interest re cognised by the Union or the n eed to protect the rights and 
freedoms of others90. In the case of MiFID, the general interest objective which justifies 
certain limitations of fundamental rights is the objective of ensuring market integrity and 
compliance with MiFID rules such as conduct of business rules. On the other hand the MiFID review will overall reinforce the right to cons umer protection (Art. 38) and the freedom to 
conduct business in line with the following specific objectives: to ensure a level playing field 
between market participants, to increase market transparency for market participants, and to 
enhance investor protection. As most of the op tions considered as pa rt of this impact 
assessment do not interfere in any way with any of the fundamental rights identified above or 
reinforce the right to consumer  protection and/or the freedom to conduct business, we have 
focused our assessment on the options whic h might limit these rights and freedoms. A 
summary of the impacts of the relevant policy options is set out for each option in the summary tables in section 6, a nd the full assessment for these options can be found in Annex 
3.  
5. P
OLICY OPTIONS  
In order to meet the objectives set out in the previous section, the Commission services have 
analysed different policy options.  
 
 24    The range of policy initiatives included in th e revision of MiFID being considerable, the 
different policy options have only been considered  for the initiatives which are most critical 
and likely to have significant impacts. 
A summary discussion of the secondary policy options can be found in Annex 9 . We have 
chosen not to analyze these in the core of the text and limit our costs-benefits analysis in the 
annex to the preferred options envisaged (i .e. no alternative op tions considered). 
Policy options Summary of policy options 
1 Regulate appropriately all market structures and trading places taking into account the needs of smaller participants, especi ally 
SMEs 
1.1 No action Take no action at the EU level 
Trading platforms 
1.2 Introduce a new category of 
Organised Trading Facilities (OTF), 
besides Regulated Markets (RM) and MTFs to capture current (including 
broker crossing systems - BCS) as well 
as possible new trading practices while further align and reinforce the 
organisational and surveillance 
requirements of regulated markets and MTFs  Under this option a new category called org anised trading facility would be established 
capturing previously not regulated as a specific MiFID trading venu e organised facilities such as 
broker crossing systems, "swap execution facilit y" type platforms, hybrid electronic/voice 
broking facilities and any other type of organise d execution system operated by a firm that 
brings together third party buying and selling inte rests. This new category would ensure that all 
organised trading is conducted on regulated venues that are transparent and subject to similar 
organisational requirements. The different types of trading venues will be clearly distinguished 
based on their characteristics. Regulated ma rkets and MTFs are characterised by non-
discretionary execution of trans actions and non-discriminatory access to their systems. This 
means that a transaction will be executed accord ing to a predetermined set of rules. It also 
means that they offer access to everyone willing to trade on their systems when they meet an 
objective set of criteria. By contrast, the ope rator of an organised trading facility has discretion 
over how a transaction will be executed. He has a best execution obligation towards the clients 
trading on his platform. He may therefore choose to route a transaction to another firm or 
platform for execution. An organised trading facility may also refuse access to clients he does 
not want to trade with. An important constrai nt on OTFs is that the operator may not trade 
against his own proprietary capital. This would m ean that firms operating internal systems that 
try to match client orders or that enable clients to execute orders with the firm will have to be 
authorised and supervised under the re spective provisions of a MTF or OTF or Systematic 
Internaliser. The OTF category would not in clude ad hoc OTC transacti ons. It would also not 
include systems which do not match trading interests such as: systems or facilities used to route 
an order to an external trading venue, systems used to disseminate and/or advertise buying and 
selling trading interests, post-trade confirmation systems, etc.   
The organisational requirements applying to r egulated markets and MTFs, as well as OTFs 
would be further aligned where businesses are of a similar nature especially those requirements 
concerning conflicts of interest  and risk mitigation systems. Operators of the various trading 
venues trading identical instruments would be required to cooperate and inform each other of 
suspicious trading activity and various other trading events. 
1.3 Expand the definition of MTF so it 
would capture trading on all broker 
crossing systems (BCS) This option would expand the current definition of  MTF so that all broker crossing systems 
(BCS) would be expressly captured and or ganisational and transparency requirements 
applicable to trading venues would apply.  
Trading of derivative instruments 
1.4 Mandate trading of standardised 
OTC derivatives (i.e. all clearing eligible 
and sufficiently liquid derivatives) on 
RM, MTFs or OTFs  This option picks up on the G20 commitment to move trading in standardised derivatives to 
exchanges or electronic trading pla tforms where appropriate. All derivatives which are eligible 
for clearing and are sufficiently liquid (the criterio n of sufficient liquidity would be determined via 
implementing measures) would be required to be traded on regulated markets, MTFs or OTFs. 
These venues would be required to fulfil specif ically designed criteria and fulfil similar 
transparency requirements towards the regulators and the public.  
1.5 Set targets for trading in 
standardised OTC derivatives to move to organised venues This option would entail setting targets in t he Directive for industry – i.e. suitably high 
percentages of transactions per asset clas s – for moving trading in standardised OTC 
derivatives onto organised venues within a gi ven timeframe. The venues selected could be 
regulated markets, MTFs and OTFs, or only the fi rst two. The Directive would provide for the 
setting of targets in the implementing legislation. 
SME markets 
 
 25    1.6 Introduce a tailored regime for SME 
markets under the existing regulatory framework of MTF  Under this option a special category of SME market would be established in MiFID, under the 
existing regulatory framework MTF, specifically  designed to meet the needs of SME issuers. 
Such a regime would entail more calibrated element s in relation to the eligibility of SME issuers 
facilitating access of SMEs to MTFs while still creating a unified European quality label for 
SMEs providing for more visibility and therefore more liquidity in SME stocks. 
1.7 Promote an industry-led initiative to 
enhance the visibility of SMEs markets. In this option, instead of setting up an EU harmo nized regulatory framework for SME markets, 
an industry-led initiative could be promot ed developing market standards leading to a 
harmonized appearance of SME markets and finally networks between SME markets across the 
EU. The industry may, according to SMEs' and investors' demand and needs, create a self-regulated standard model taking into account exis ting market models and practises. This would 
entail to give some incentives to SME markets at EU level (e.g. communication, financing) to 
enhance their visibility and promote a Eur opean network of SME trading venues. 
Options 1.2 and 1.3 are mutually excl usive, as are options 1.4 and 1.5,  as well as options 1.6 and 1.7. 
2 Regulate appropriately new trading technologies and address any related risks of disorderly trading 
2.1 No action Take no action at the EU level 
Organisational requirements 
2.2 Narrow the exemptions granted to 
dealers on own account to ensure that High Frequency Traders (HFT) that are 
a direct member or direct participant of a 
RM or MTF are authorised  Under this option, all entities that are a direct member or a direct participant of a RM or MTF, 
including those engaging in high-frequency trading , would be required to be authorised as an 
investment firm under MiFID so that they would all be supervised by a competent authority and 
required to comply with systems, risk and co mpliance requirements applicable to investment 
firms.  
2.3  Reinforce organisational 
requirements for firms involved in 
automated trading and/or high-frequency 
trading and firms providing sponsored or direct market access  Under this option specific obli gations would be imposed targeted s pecifically at algorithmic and 
HFT trading ensuring that firms have robust risk c ontrols in place to prevent potential trading 
system errors or rogue algorithms. Informati on about algorithms would also be required to be 
made available to regulators upon request. In addi tion, firms granting other traders direct or 
sponsored access to their systems would need to hav e stringent risk controls in place as well as 
filters which can detect errors or atte mpts to misuse their facilities.  
2.4  Reinforce organisational 
requirements (e.g. circuit breakers, 
stress testing of their trading systems) 
for market operators  This option would address automated trading from the perspective of the market operators. 
Operators of organised trading venues would be ob liged to put in place adequate risk controls to 
prevent a breakdown of trading systems or against potentially destabilising market 
developments. These operators would be required to stress test and encode so-called circuit 
breakers into their systems which can stop trading in an instrument or the market as a whole in 
adverse conditions when orderly trading is in  danger and investors need to be protected. 
Operators would also be obliged to put in place rules clearly defining circumstances in which 
trades can be broken following trading errors and procedures to be followed if trades can be 
broken. 
Activity of HFT 
2.5 Submit HFT to requirements to 
provide liquidity on an ongoing basis  While the previous options entailed measur es regarding the organi sational aspects of 
automated and high-frequency trading the now following options focus on the way high-
frequency traders conduct their business. Option 2.5 would primarily impose a requirement on 
market operators, however with a direct impac t on how high-frequency traders operating on the 
respective platforms. Operators would need to en sure in their rules that high frequency traders 
executing a significant volume of trades in an instrument would be obliged to continuously 
provide liquidity on the trading v enue for the instrument (in a similar but not identical way to 
market makers). That is they would not be abl e to intermittently withdraw from trading in 
instruments.  
2.6 Impose minimum latency period of 
orders in the order book Under this option an obligation would be implem ented according to which orders on electronic 
platforms would need to rest on an order book for a minimum period of time before they can be 
withdrawn. This would prevent the use of ma ny algorithmic and high frequency trading systems 
that involve submitting and withdrawing large number  of orders in very short periods (which is 
an essential element of many forms of automated trading).  
2.7 Impose an order to executed 
transaction ratio by imposing incremental penalties on cancelled 
orders and setting up minimum tick size Under this option market operators would need to ensure that their market participants maintain 
an adequate order to transaction executed ratio. It  would impose that market operators impose 
a system of incremental penalties for cancelled orders. This would limit the number of orders 
that can be placed and then cancelled by high frequency traders. This would reduce stress on 
trading systems as it would prevent excessively large numbers of orders from being sent and then withdrawn and updated. It would also prev ent behaviour where participants submit a 
multitude of orders withdrawing them almost immediately just to gauge the depth of the order 
book. In addition, the obligation for market operator s to set up minimum tick size (i.e. a tick size 
is the smallest increment (tick) by which the price of exchange-traded instrument can move) on 
 
 26    their trading venues would prevent excessive arbitrage by HFT as well as unsound competition 
between trading venues that could lead to disorderly trading. 
Policy options 2.2, 2.3 and 2.4 are not mutually exclusive and c an complement each other. Options 2.5, 2.6 and 2.7 are also not  mutually 
exclusive.  
3 Increase trade transparency for market participants 
3.1 No action Take no action at the EU level 
Trade transparency for equities markets 
3.2 Adjust the pre and post trade 
transparency regime for equities by 
ensuring consistent application and monitoring of the utilisation of the pre-
trade transparency waivers, by reducing 
delays for post trade publication and by extending the transparency regime 
applicable to shares admitted to trading 
on RMs to shares only traded on MTFs or  OTFs  This option would focus on strengthening a num ber of features of the existing trade 
transparency regime for equities. The current waiv ers from pre-trade transparency obligations 
would be further harmonised as to their applic ation and their monitoring would be improved 
giving ESMA an enhanced role in the process. In  the post-trade section the maximum deadline 
for real-time reporting would be reduced down to one minute (from three) and the permissible 
delays for publishing large transactions would be si gnificantly reduced. Furthermore, the scope 
of the transparency regime would be extended to instruments only traded on MTFs and 
organised trading facilities.  
3.3 Abolish pre trade waivers and 
deferred post trade publication regime 
for large transactions This option would go one step further than option 3.2 providing for total transparency in 
European equities trading. Each order regardless of its type or size would be required to be pre-
trade transparent. Every conclude d transaction would be required to be published to the market 
immediately.  
Trade transparency for non-equities markets 
3.4 Introduce a calibrated pre and post 
trade transparency regime for certain types of bonds and derivatives  This option would entail extending the MiFID trade transparency rules (both pre- and post-trade) 
from equities to certain types of other financia l instruments such as bonds, structured products 
and derivatives eligible for central clearing and submitted to trade repositories. As non-equity 
products are very different from equity produc ts and very different one from another, the 
detailed transparency provisions would need to be  defined for each asset class and in some 
cases for each type of instrument within that asse t class. This calibration will need to take into 
account several factors including: (i) the make -up of market participants in different asset 
classes, (ii) the different uses investors hav e for the instruments, and (iii) the liquidity and 
average trade sizes in different instruments. The detailed provisions will be laid down in 
delegated acts.    
3.5 Introduce a calibrated post trade 
only transparency regime for certain types of bonds and derivatives This option would take a similar approach to th e previous option the difference being that the 
new transparency regime for non-equity asset cla sses would only cover post-trade information.  
Costs and consolidation of trade data 
3.6 Reduce data costs notably by 
requiring unbundling of pre and post 
trade data and providing guidance on 
reasonable costs of data, and improve the quality of and consistency of post 
trade data by the set up of a system of 
Approved Publication Arrangements (APAs)  Under this option, measures would be implem ented reducing the costs of data for market 
participants: 
- organised trading venues would be required to  unbundle pre- and post-trade data so that 
users would not be required to purchase a whole da ta package if they are only interested in, for 
example, post-trade data; 
- Standards by ESMA determining criteria for ca lculating what constitutes a reasonable cost 
charged for data would be envisaged; - Introduce further standards regarding the content and format of post trade data; 
- Investment firms would be required to publish all post-trade transparency information via so-
called Approved Publication Arrangements (APAs).  These APAs would need to adhere to strict 
quality standards to be approved ; and 
- Trade data would be required to be provided free of cost 15 minutes after the trade. 
3.7 Reduce data costs by establishing a 
system for regulating the prices of data This option would entail setting up maximum pric es that can be charged for market data with a 
view to reduce the cost significantly 
 
 27    3.8 Improve the consolidation of post 
trade data for the equities markets by the set-up of a consolidated tape system 
operated by one or several commercial 
providers. Introduce a consolidated tape for non-equities markets after a period of 
2 years under the same set-up as for 
equities markets This option would be complementary to option 3.6 as the data pre-managed by the APAs would 
then be submitted to dedicated consolidators (i.e . one or several commercial providers) that 
would need a separate approval. The function of these consolidators would be to collect all 
information that is published per share at any given time and make it available to market 
participants by means of one consolidated data st ream at a reasonable cost. The set-up of a 
consolidated tape by one or several commerc ial providers would be required for non-equities 
markets after a transitional period of 2 years depen ding on the type of financial instrument. This 
differed application would ensure that the consoli dation of trade data would take place after the 
implementation of the new trade transparency re quirements for non-equities markets by market 
participants.  
3.9 Improve the consolidation of post 
trade data for the equities markets by 
the set-up of a consolidated tape system 
organised as a public utility industry body. Introduce a consolidated tape for 
non-equities markets after a period of 2 
years under the same set-up as for equities markets This option would also be complementary to option 3.6. However, instead of having one or 
several commercial providers of consolidation a single public entity would be established to 
operate the consolidated tape system on a not for pr ofit basis. The set-up of a consolidated tape 
by a public utility body would be required for non-e quities markets after a transitional period of 2 
years depending on the type of financial instrumen t. This differed application would ensure that 
the consolidation of trade data would take pl ace after the implementation of the new trade 
transparency requirements for non-equities  markets by market participants.   
Policy options 3.2 and 3.3 are mutually exclusive, as well as opt ions 3.4 and 3.5. Options 3.6 and 3.7, as well as options 3.8 and 3.9 are 
mutually exclusive, but these two sets of  options are complementary to each other.  
4 Reinforce regulators powers and consistency of supervisory practice at European and International level 
4.1 No action Take no action at the EU level 
Powers of regulators 
4.2 Introduce the possibility for national 
regulators to ban for an indefinite period 
specific activities, products or services 
under the coordination of ESMA. Give the possibility to ESMA under specific 
circumstances to introduce a temporary 
ban in accordance with Article 9(5) of the ESMA regulation N°1095/2010
91 This option would consist in gi ving national regulators the power to ban or restrict for an 
indefinite period the trading or distribution of a pr oduct or the provision of a service in case of 
exceptional adverse developments which gives to significant investor pr otection concerns or 
poses a serious threat to the fina ncial stability of whole or part of the financial system or the 
orderly functioning and integrity of financial mark ets. The action taken by any Member State 
should be proportionate to the risks involved an d should not have a discriminatory effect on 
services or activities provi ded by other Member Sates. ESMA would perform a facilitation and 
coordination role in relation to any action taken by Member States to ensure that any national 
action is justified and proportionate and where appropriate a consistent approach is taken. 
ESMA would have to adopt and publish an opinion on the proposed national ban or restriction. If 
the national Competent Authority disagrees with ESMA's opinion, it should make public why. In 
addition to the powers granted to national com petent authorities under the coordination of 
ESMA, ESMA would have the power to temporarily ban products and services in line with the ESMA regulation. The ban could consis t in a prohibition or restriction on the marketing or sale of 
financial instrument or on the persons engaged in t he specific activity. Th e provisions would set 
specific conditions for both of  these bans on their activati on, which can notably ha ppen when 
there are concerns on investor protection, threat  to the orderly functioning of financial markets 
or stability of the financial system. Such a power would be complementary to the national 
powers in the sense that a ban by ESMA coul d only be triggered in the absence of national 
measures or in case the national measures ta ken would be inappropriate to address the threats 
identified. 
 
4.3 Introduce an authorisation regime for 
new activities, produc ts or services This option would consist in requiring that befor e being distributed all new  products and services 
are to be properly authorised by a dedicated mechanism at EU level. 
4.4 Reinforce the oversight of positions 
in derivatives in particular commodity 
derivatives, including by granting 
regulators the power coordinated via ESMA to introduce positions limits  This option has several layers. First trading v enues on which commodity derivatives trade would 
be required to adopt app ropriate arrangements to support li quidity, prevent market abuse, and 
ensure orderly pricing and settlement. Position limits are a possible measure to this effect, i.e. 
hard position limits are fixed caps on the size of  individual positions that apply to all market 
participants at all times. Position management is  another, i.e. the possibility for the venue 
operator to intervene ad hoc and ask a participant  to reduce its position. Second, national 
competent authorities would also be given broad powers to carry out position management with 
regard to market participants' positions in any type of derivatives and require a position to be 
reduced. They would also be given explicit powers to impose both temporary (i.e. position 
management approach) and permanent limits (i.e. pos ition limits) on the ability of persons to 
enter into positions in relation to commodity  derivatives. The limits should be tran sparent and 
non-discriminatory. ESMA would perform a facilitat ion and coordination role in relation to any 
measure taken by national competent authoriti es. Finally, ESMA would have temporary powers 
to intervene in positions and to limit them in a temporary fashion consistent with the emergency 
powers granted in the ESMA regulation. In other words, ESMA would be equipped with position 
management powers in case a national competent authority fails to intervene or does so to an 
insufficient degree, but no position limit powers.  
 
 28    4.5 Reinforce the oversight of financial 
markets which are increasingly global by strengthening the cooperation between 
EU and third country securities 
regulators. In addition reinforce monitoring and investigation of 
commodity derivatives markets by 
promoting international cooperation among regulators of financial and 
physical markets This option would consist in strengthening coop eration between competent authorities with 
other market supervisors around the world, po ssibly through ESMA. In the specific case of 
commodity derivatives markets this option woul d in addition reinforce the cooperation between 
financial and physical regulators both within the EU and at international level. This entails 
establishing new memoranda of understanding and cooperation agreements. In addition, there 
will also be ongoing information sharing, assi stance in information requests, and cooperation in 
cross-border investigations. This option is comp lementary to a similar option proposed in the 
review of the Market Abuse Directive. While MA D is limited to market abuse, this option seeks 
to promote cooperation in supervising fa ir and orderly working of markets.  
Conditions of access of third country firms 
 4.6 Harmonise conditions for the access 
to the EU of third country investment 
firms, by introducing a third country regime (based on a common set of 
criteria and memoranda of 
understanding (MoU) between the Member States regulators and the third 
country regulators under the 
coordination of ESMA) This option would create a harmonised framework for granting access to EU markets for firms 
based in third countries. The prov ision of services to retail clients would always require the 
establishment of a branch in the EU territory; th e provision of services  without a branch would 
be limited to non-retail clients. The national com petent authority would have to register (and 
thus grant access to the EU internal market) and supervise third country investment firms 
intending to establish a branch in its territory . Based on a decision of the national competent 
authority that the third country firm is subject to and complies with legal requirements in a 
number of relevant areas (authorisation, crit eria for appointment of managers, capital, 
organisational requirements), access to the EU  could be granted subject to appropriate 
cooperation agreements between the relevant third country authority and the EU competent 
authority (i.e. Memoranda of understanding would have to be established between the third 
country authorities and the Member States regulators under the coordination of ESMA) and compliance by the firm with key MiFID operati ng and investor protection conditions. To ensure 
consistency of approach across the EU, ESMA woul d be able to resolve any disputes arising 
between Member State authorities  regarding the authorisations. 
4.7 Introduce an equivalence and 
reciprocity regime by which after 
assessment by the Commission of the 
third country regulatory and supervisory framework access to the EU would be 
granted to investment firms based in that 
third country. This option would entail the assessment of equivalence and reciprocal access of the third 
country regulatory and supervisory regime in relation to the EU regime and to EU-based 
operators. This assessment would be formalised by a decision of the Commission. Memoranda 
of understanding (MoU) between the Member States regulators and the third-country regulators should be concluded based on a standard MoU that could be drafted by ESMA. Investment 
firms established in third countries for whic h equivalence has been granted would have access 
to the EU market, with the provision of servic es to retail clients would always requiring the 
establishment of a branch in the EU territory  and compliance by the firm with key MiFID 
operating and investor protection conditions. 
Sanctions 
4.8 Ensure effective and deterrent 
sanctions by introducing common 
minimum rules for administrative measures and sanctions  This option would require Member States to pr ovide for administrative sanctions and measures 
which are effective, proportionate and dissuasiv e byintroducing minimum rules on type and level 
of administrative measures and administrativ e sanctions. Administrative sanctions and 
measures set out by Member States would have to satisfy certain essential requirements in 
relation to addressees, criteria to be taken into  account when applying a sanction or measure, 
publication of sanctions or meas ures, key sanctioning powers and mi nimum levels of fines. This 
option would also entail establis hing whistleblowing mechanisms.  
4.9 Ensure effective and deterrent 
sanctions by harmoni sing administrative 
measures and sanctions  This option would introduce uniform types a nd level of administrative measures and 
administrative sanctions across the EU. This  option would also entail establishing 
whistleblowing mechanisms. 
Policy options 4.2, 4.3, 4.4 and 4.5 can complement each other. Policy options 4.6 and 4.7 are mutually exclusive as well as op tions 4.8 and 
4.9. 
5 Reinforce transparency to regulators 
5.1 No action Take no action at the EU level 
Scope of transaction reporting 
5.2 Extend the scope of transaction 
reporting to regulators to all financial 
instruments (i.e. all financial instruments admitted to trading and all financial instruments only traded OTC). Exempt 
those only traded OTC which are neither 
dependent on nor may influence the value of a financial instrument admitted 
to trading. This will result in a full 
alignment with the scope of the revised This option entails that investment firms report the details of transactions in all instruments 
which are traded in an organised way, either on a RM, a MTF or an organi sed trading facility to 
regulators. Notably the extension to OTFs would bring a whole set of derivatives products into 
scope (e.g. part of equity derivatives, credit deriv atives, currency derivatives, and interest rate 
swaps). All transactions in OTC instruments which are not themselves traded in an organised 
way  will also have to be reported, except when the value of those does not depend to some 
extent on or may not influence that of instrum ents which are admitted to trading. Extending the 
scope of transaction reporting to such instrument s will bring the reporting requirements in line 
with the existing provisions of MAD, as well as  with those of the revised MAD, and corresponds 
to existing practice in some Member States (e.g. UK, Ireland, Austria, and Spain). Commodity 
 
 29    Market Abuse Directiv e. Lastly regarding 
derivatives, harmonise the transaction reporting requirements with the reporting 
requirements under EMIR derivatives may be used for market abuse purpos es, notably to distort the underlying market. 
Commodity derivatives will  need to be brought in to scope separately. This  extension overlaps 
considerably with the scope of reporting r equirements to trade repositories under EMIR. 
5.3 Extend the scope of transaction 
reporting to all financial instruments that are admitted to trading and all OTC 
financial instruments. Extend reporting 
obligations also to orders This option entails that trading in all financial instruments will need to be reported, regardless of 
whether an instrument is admitted to trading or not, and whether its value depends to some extent on or may influence that of instrument s which are admitted to trading. In addition, 
reporting parties will have to transmi t to their competent authorities not only the transactions that 
they have done but also the orders that they have received or initiated 
5.4 Require market operators to store 
order data in an harmonised way  This option entails that all market operators keep records of all orders submitted to their 
platforms, regardless of whether these order s are executed or not. Such records need to be 
comparable across platforms, notably with regard to  the time at which they were submitted. The 
information stored should include a unique identific ation of the trader or algorithm that has 
initiated the order. ESMA will set the appropriate standards. 
Reporting channels 
5.5 Increase the efficiency of reporting 
channels by the set up of Approved 
Reporting Mechanisms ("ARMs") and 
allow for trade repositories under EMIR to be approved as an ARM under MiFID  This option entails that all entities involved in reporting transactions on behalf of investment 
firms are adequately supervised. Under this option,  competent authorities' powers to monitor 
ARM's functioning on an ongoing basis will be clarif ied. Also, the standards that ARM's need to 
comply with will be harmonised. 
5.6 Require trade repositories 
authorised under EMIR to be approved 
as an ARM under MiFID This option entails that financial firms would be required to use trade repositories to report 
derivatives transactions on thei r behalf, and that all trade repositories are required to report the 
transactions they receive under EMIR on behalf of market participants under MiFID. If data 
requirements are not the same under MiFID and EM IR, firms would have to send additional data 
fields to enable trade repositor ies to report on their behalf 
Policy options 5.2 and 5.3 are mutually exclusive, while option 5. 4 is complementary. Policy options 5.5 and 5.6 are mutually e xclusive. 
6 Improve transparency and oversight of commodities markets 
6.1 No action Take no action at the EU level 
Evolution of commodity derivatives markets  
6.2 Set up a system of position reporting 
by categories of traders for organised 
trading venues trading commodities derivatives contracts  Under this option organised tradi ng venues which admit commodity derivatives to trading would 
have to make available to regulators (in detail) and the public (in aggregate) harmonised 
position information by type of regulated entity. A trader's position is the open interest (the total 
of all futures and option contracts) that he holds . The trader would have to report to the trading 
venue whether he trades on own account or on whose behalf he is trading including the 
regulatory classification of their end-customer s in EU financial markets legislation (e.g. 
investment firms, credit institutions, alte rnative investment fund managers, UCITS, pension 
funds, insurance companies). If the end beneficiary of  the position is not a financial entity, this 
position would by deduction be classified as non-fi nancial. The focus of this obligation will be 
commodity derivatives contracts traded on organis ed trading venues (contracts traded either on 
regulated markets, MTFs or organised trading fa cilities) which serve a benchmark price setting 
function. The objective of this position reporti ng would be to improve the transparency of the 
price formation mechanism and improve understandi ng by regulators of the role played by 
financial firms in these markets.  
6.3 Control excessive volatility by 
banning non hedging transactions in commodity derivatives markets Under this option, any entity willing to take posit ions in the commodity derivatives markets for 
other purposes than hedging an underlying physical  commercial risk would be banned to do so. 
As a result this would prohibit financial entities to invest in these markets and offer investment 
products like commodity exchange traded funds to their clients 
Exemptions for commodity firms  
6.4 Review exemptions for commodity 
firms to exclude dealing on own a/c with 
clients and delete the exemption for specialist commodity derivatives  Specialist commodity firms whose main business is to trade on own account in commodities 
and/or commodity derivatives would not be exempt  any more. Commercial entities would not be 
allowed any more to trade on own account with clients and the possibility to provide investment services to the clients of their main busine ss on an ancillary basis would be applied in a very 
precise and narrow way. This option would not by itself affect capital requirements imposed on 
firms. 
6.5 Delete all exemptions for commodity The current exemptions  for commodity firms would be del eted. This would considerably re duce 
 
 30    firms the scope of the exemptions for these firms as they would only be able to rely on the general 
exemption for trading on own account. There would no longer be a separate exemption for 
specific instruments. 
 
Secondary spot trading of emission allowances  
6.6 Extend the application of MiFID to 
secondary spot trading of emission 
allowances This option would involve coverage under t he MiFID of emission allowances and other 
compliance units under the EU Emissions Tradi ng Scheme. As a result, MiFID requirements 
would apply to all trading venues and intermediarie s operating in the secondary spot market for 
emission allowances. Venues would need to bec ome regulated markets, MTFs, or OTFs. 
Financial market rules would apply to both spot and derivative markets for emissions trading, 
establishing a coherent regime with overarching rules. This would replace the need to devise a 
tailor made regime for secondary spot emission allowances markets.  
6.7 Develop a tailor-made regime for 
secondary spot trading of emission allowances Under this option, a dedicated, stand-alone framework would be developed to cater for the 
needs of the secondary spot trading in emissi on allowances. Any such framework would 
complement the existing rules applicable to tr ading in derivatives on emission allowances and 
those envisaged for the auctioning of emission allowances in the ETS third trading period 
starting in 2013. This means that whatever solution would emerge, it would need to be 
consistent with the regulatory approach of t he MiFID which applies directly to trading in 
derivatives on emission allowanc es and is extended to the acti vity of auction platforms, 
investment firms and credit institutions in t he primary (auction) market via the Auctioning 
Regulation
92. 
Policy options 6.2 and 6.3 can complement each other, whereas opti ons 6.4 and 6.5, as well as options 6.6 and 6.7 are mutually exclusive.  
7 Broaden the scope of regulation on products, services and service providers when needed 
7.1 No action Take no action at the EU level 
Optional exemptions for certain investment service providers  
7.2 Allow Member States to continue 
exempting certain investment service providers from MiFID but introduce 
requirements to tighten national 
requirements applicable to them (particularly conduct of business and 
conflict of interest rules) This option leaves Member Stat es the possibility to exempt certain entities providing advice 
from the Directive but requires that national legi slation includes requirement s similar to MiFID in 
a number of areas (notably proper authorization process including fit and proper criteria and 
conduct of business rules). Member States woul d maintain discretion in adapting organizational 
requirements to the exempted entit ies based on national specificities 
7.3 Delete the possibility for Member 
States to exempt certain service 
providers from MIFID (Article 3) This option is an extension of the previous one. By deleting t he optional exemptions, all these 
firms, often small service provi ders or even individuals, would be subject to all MiFID obligations 
(including, for instance, or ganizational requirements).  
Conduct of business rules for unregulated investment products  
7.4 Extend the scope of MiFID conduct 
of business and conflict of interest rules 
to structured deposits and deposit based products with similar economic effect This option would aim at extending MiFID conflic ts of interest and conduct of business rules 
(particularly information to and from clients,  assessment of suitability and appropriateness, 
inducements) to structured deposits, products wh ich currently are not regulated at EU level 
7.5 Apply MIFID conduct of business 
rules and conflict of interest rules to insurance products This option would be to broaden the scope of MiFID in order to apply directly MiFID conduct of 
business and conflict of interest rules to invest ment products marketed by insurance companies 
(instead of modifying the sectoral legislation, the Insurance Mediation Directive, in line with 
MiFID principles) 
Policy options 7.2 and 7.3 are mutually exclusive, as well as options 7.4 and 7.5.  
8 Strengthen rules of business conduct for investment firms 
8.1 No action Take no action at the EU level 
Execution only services and Investment advice 
 
 31    8.2 Reinforce investor protection by 
narrowing the list of non-complex products for which execution only 
services are possible and strengthening 
provisions on investment advice  This policy option combines two measures whic h will have complementary effects. The first 
measure consists in the limitation of the def inition of non-complex products which allows 
investment firms to provide execution only serv ices i.e. without undergoing any assessment of 
the appropriateness of a given product. The second measure consists in reinforcing the conduct 
of business rules for investment firms when prov iding investment advice, mainly by specifying 
the conditions for the provision of independent advice (for instance, obligation to offer products 
from a broad range of product providers). Furt her requirements concer ning the provision of 
investment advice (reporting requirement s and annual assessment of recommendations 
provided) would be mainly introduced via impl ementing measures to complement these 
changes in the framework directive. 
8.3 Abolition of the execution only 
regime This option consists in abolishi ng the execution only regime. As a consequence, except in the 
case of investment advice, investment firms w ould be always required to ask client information 
about their knowledge and experience in order to assess the appropriateness of any investment. Clients would retain the possibility to refuse to give information or to proceed with 
any transaction indicated as inappropriate by the firm. 
Customers' classification  
8.4 Apply general principles to act 
honestly, fairly and professionally to 
eligible counterparties resulting in their application to all categories of clients 
and exclude municipalities and local 
public authorities from list of eligible counterparties and pr ofessional clients 
per se This options aims at reinforci ng the MiFID regime for non-retail clients by narrowing the list of 
type of entities that are de facto eligible co unterparties or professional clients. Further 
requirements would be modified in the implementing measures (deletion of the presumption that 
professional clients have the necessary level of experience and knowledge). 
8.5 Reshape customers' classification by 
introducing new sub categories This option is the extension of  the previous one. It would cons ist in reviewing the overall 
customers' classification of MiFID by sub dividi ng them into more refined categories in order to 
match more closely the diversity of existing market participants. 
Complex products and inducements  
8.6 Reinforce information obligations 
when providing investment services in 
complex products and strengthen periodic reporting obligations for 
different categories of products, 
including when eligible counterparties are involved This option aims at increasing the informat ion and reporting requirements to clients of 
investment firms, including eligible counterparties. In the case of more complex products, 
investment firms should provide c lients with a risk/gain and valuation profile of the instrument 
prior to the transaction, quarterly valuation dur ing the life of the product as well as quarterly 
reporting on the evolution of the underlying asse ts during the lifetime of the product. Firms 
holding client financial instruments should report to clients about material modifications in the 
situation of financial instruments concerned. Most of these detailed obligations would be 
introduced in implementing measures and should be calibrated according to the level of risk of 
the relevant product.  
8.7 Ban inducements in the case of 
investment advice provided on an 
independent basis and in the case of 
portfolio management The objective of this option is to strengthen the existing MiFID inducement rules by banning 
third party inducements in case of portfolio management and independent advice. These 
measures that would affect the Level 1 Directive would be complemented by changes in the 
Level 2 implementing acts where inducements ar e currently regulated; this will include the 
improvement of the quality of informat ion given to clients about inducements. 
8.8 Ban inducements for all investment 
services  This option would take the previous option one step further by introducing a formal ban on all 
inducements for investment firms when th ey provide any investment services. 
Best execution  
8.9 Require trading venues to publish 
information on execution quality and 
improve information provided by firms on 
best execution This option consists in improvi ng the framework for best execution by inserting in the MiFID an 
obligation for trading venues to provide data on execution quality. Data would be used by firms 
when selecting venues for the purpose of best ex ecution. The implementing directive would 
clarify technical details of data to be published an d would reinforce the requirements relating to 
information provided by investment firms on  execution venues selected by them and best 
execution. 
8.10 Review the best execution 
framework by considering price as the only factor to comply with best execution 
obligations  This option aims at narrowing the current factors to consider for the purpose of best execution. 
In particular, price would be the only factor to  assess best execution; it would replace the 
current multifactor approach (price and costs for re tail clients; further factors such as speed and 
likelihood of execution for professional clients).  
Policy options 8.2 and 8.3, as well as 8.4 and 8.5 are mutually exclusive. Options 8.7 and 8.8 ar e mutually exclusive, with opt ion 8.6 being 
complementary to either 8.7 or 8.8. Options  8.9 and 8.10 are also mutually exclusive.  
5.9 Strengthen organisational requirements for investment firms 
 
 32    9.1 No action Take no action at the EU level 
Corporate governance  
9.2 Reinforce the corporate governance 
framework by strengthening the role of 
directors especially in the functioning of internal control functions and when 
defining strategies of firms and 
launching new produc ts and services. 
Require firms to establish clear 
procedures to handle clients' complaints 
in the context of the compliance function. This option strengthens and specifies the over all framework for corporate governance in the 
design of firms' policies, including the decision on products and services to be offered to clients 
(clear involvement of executive and non-executiv e directors), in the framework for internal 
control functions (reinforced independence, further def inition of role of the compliance function 
including handling with clients' complaints) and in the supervision by competent authorities 
(involvement in the assessment of the adequacy of members of the board of directors at any time and in the removal of persons responsible for internal control functions). In addition it will 
explicitly require that within the compli ance function clear proc edures have been developed to 
deal with clients' complaints. 
9.3 Introducing a new separate internal 
function for the handling of clients' complaints This option aims at creating a detailed framework,  including a separate organisational function, 
for the handling of complaints. The detailed fr amework could include spec ific procedures from 
the reception of complaints to the final answer provided to the client. 
Organisational requirements for portfolio management and underwriting  
9.4 Require specific organisational 
requirements and procedures for the 
provision of portfolio management 
services and underwriting services This option introduces a more detailed, while still general framework for the provision of the 
services of portfolio management (formalization of investment strategies in managing clients' 
portfolios) and underwriting (information require ments concerning allotment of financial 
instruments, management of conflicts of interest situations). 
Telephone and electronic recording  
9.5 Introduce a fully harmonised regime 
for telephone and electronic recording of client orders This option implies the deletion of the current option for Member States to introduce 
requirements to record telephone conversations or electronic communications involving client 
orders and the introduction of a fully harmonized regime. 
9.6 Introduce a common regime for 
telephone and electronic recording but still leave a margin of discretion for Member States in requiring a longer 
retention period of the records and 
applying recording obligations to services not covered at EU level. This option aims at introducing a common r egime for telephone and electronic recording in 
terms of services covered (for instance, ex ecution and reception and transmission of orders, 
dealing on own account) and retention period (three years) while still leaving a margin of discretion to Member States in applying the same  obligation for other services (for instance 
portfolio management) and in requiring a longer re tention period (up to the ordinary 5 years 
period required for other records). This common regime would focus on the services which are 
the most sensitive from a supervisory point of view in terms of market abuse or investor 
protection and would be fully complaint in terms of retention period with the Charter of EU 
Fundamental Rights. 
Policy options 9.2 and 9.3 can complement each other, while options 9.5 and 9.6 are mutually exclusive.  
6. ANALYSIS OF IMPACTS AND CHOICE OF PREFERRED OPTIONS AND INSTRUMENTS  
This section sets out in the form of summary tables the advantages a nd disadvantages of the 
different policy options, measured  against the criteria of their effectiveness in achieving the 
related objectives (to be specified for each basket  of options), and their efficiency in terms of 
achieving these options for a give n level of resources or at le ast cost. Impacts on relevant 
stakeholders are also considered. 
The options are measured against the above-m entioned pre-defined cr iteria in the tables 
below. Each scenario is rated between "---" (very negative), 0 (neutral) and "+++" (very 
positive). Unlike compliance costs, the benefits ar e nearly impossible to quantify in monetary 
terms. This is why we have assessed the options  based on the respective ratio costs-benefits in 
relative terms. The assessment highlights the polic y option which is best placed to reach the 
related objectives outlined in section 5 and therefore the pref erred one. Should the preferred 
options significantly differ from those suggested  by CESR (now ESMA), this will be clearly 
specified. Lastly whenever our policy options draw s on the work carried out  at the level of the 
International Organization of Securities Committee (IOSCO), we  have clearly indicated it. 
 
 33    You will find in Annex 3 a table highlighting th e key initiatives under this review with their 
respective level of priority, their link with in ternational or other EU initiatives, the impact on 
the market structure and/ business models (i.e. level of transformational impact), the level of 
execution risks, and the level of costs. A more de tailed analysis of the impacts follows in that 
same Annex 3.  
6.1. Regulate appropriately all market struct ures and trading prac tices taking into 
account the needs of smaller pa rticipants, especially SMEs 
Comparison of options (the preferred options ar e highlighted in bold and underlined in grey): 
Policy option Impact on stakeholders Effectiveness  Efficiency 
1 Regulate appropriately all market structures and trading places taking into account the needs of smaller participants, 
especially SMEs 
1.1 No action 0 0 0 
Trading platforms 
1.2 Further align and reinforce the 
organisational and surveillance 
requirements of regulated markets and 
MTFs and introduce a new category of 
Organised Trading Facilities (OTF) to 
capture current and possible new trading 
practices, including BCS 
OR  (++) creation of a level 
playing field between market 
participants 
(++) improved prevention of 
market abuse  
(-) implementation costs for 
operators of MTFs  
(--) compliance costs for 
operators of systems that will 
have to register as OTFs  (+++) increased 
market transparency  
(++) strengthening 
market integrity 
 (++) strong 
convergence with the 
US regulation (++)compliance costs 
compensated by 
sustainable benefits 
through sounder and 
more transparent 
trading facilities 
benefiting to all 
participants  
1.3 Expand the definition of MTF so it would 
capture trading on all broker crossing systems (BCNs) (+) improvement of the level 
playing field between market participants (-) higher cost of execution of large orders for institutional investors (--) compliance costs for existing operators of BCS  (++) stricter 
framework for BCS (-) inflexibility of the framework that will not be future proof  (+) compliance costs  
compensated by benefits 
Trading of derivative instruments 
1.4 Mandate trading of standardised OTC 
derivatives (i.e. all clearing eligible and 
sufficiently liquid derivatives) on RM, 
MTFs or OTFs  
OR (++) increased transparency 
for end users of derivatives  
(++) increased transparency 
for market regulators  
(++) increased market 
surveillance  
(--) change in the business 
model of dealers with likely 
substantial drop of 
profitability of dealing 
activities 
(-) compliance costs for 
investment firms (++) increased 
transparency on the 
derivatives market for 
both market 
participants, 
especially smaller 
ones and regulators  
(+) increased 
competition between 
trading venues that 
could improve quality 
and reliability of prices  
(-) lack of 
customisation of 
derivatives traded 
electronically  
(--) potential drop in 
derivatives market 
liquidity as dealers 
shrink their activities, (++)compliance costs 
largely compensated by 
benefits for market 
participants and 
regulators in terms of 
more transparent and 
efficient trading  
 
 
 34    if no proper calibration 
1.5 Set targets for trading in standardised 
derivatives to move to organised venues (+) increased transparency 
for end users of derivatives  (+) increased transparency for market regulators  (+) increased market surveillance  (-) compliancecosts for investment firms (+) increased 
transparency on the derivatives market for both market participants and regulators (+) benefits  for market 
participants  compensating compliance costs  
SME markets 
1.6 Introduce a tailored regime for SME 
markets under the existing regulatory 
framework of MTF 
OR  (++) keeping the high level of 
investor protection as 
provided for in the regulated 
market 
(+) harmonized requirements 
will reduce issuer- 
administrative burden  
(+) quality label will attract 
more investments and 
provide for more liquidity 
(+) as the EU tailored regime 
is a non-mandatory one full 
flexibility is left to market 
operators to use different 
market models (++) easier access to 
financial markets for 
SMEs 
(+) more consistent 
and transparent 
framework for SME 
financing 
(+) possibility to build 
up pan-European 
market networks 
giving access to a 
broader capital pool (+) limited complaince 
costs more than 
compensated by 
benefits for SME in 
terms of easier access 
to financing sources 
1.7 Promote an industry-led initiative to 
enhance the visibility of SMEs markets. (+) enhanced source of 
financing for SMEs  (-) enlarged investment solutions for investors (+) increased source 
of capital for SMEs  (-) success depends on the willingness of industry (market operators)  (=) compliance costs in 
line with limited benefits for SMEs 
The creation of OTF has three different objectives: 
• The first one is to deal with the issue of the broker crossing systems present in the equities 
markets by setting up an appropriate framewor k for these activities. The OTF regime will 
bring increased transparency and control as well as limit the activities of these systems to the pure matching of orders. 
Regarding this first objective, the alternativ e option to deal with Broker Crossing Systems 
(BCS) could have been to use the existing MiFID market infrastructure of MTFs and 
change their definition so they  could encompass BCS. In orde r to do so, the MTFs regime 
would have required to be amended to allow for discretionary execution and discriminatory 
access which are the two key specificities of BCS  compared to MTFs.  This would fail to 
recognise the functional differe nces between a broker crossi ng its client orders (a 
traditional and legitimate activity carried on by brokers) and the operation of an exchange. Further it is doubtful that such an option woul d capture all existing tr ading models and any 
of those possibly to be inve nted in the future which w ould undermine our objective of 
having an all-encompassing and future proof regulatory framework in order to ensure a 
level playing field. It would have also generated large transformation costs for the 
operators of BCS. These transfor mations and risks appear dispr oportionate in regard to the 
size of the trading mode that it aims to address, only 1.5 % of total equity trading
93 is on 
broker crossing systems . 
 
 35    • The second objective of OTFs is to set up an appropriate framework fo r different types of 
trading systems besides BCS and irrespective of the traded financial instruments. Mostly 
used in the trading of derivatives, these syst ems are currently not au thorised as trading 
venues in MiFID but the firms operating them ar e authorised as an investment firm under 
MiFID and not as trading venue.Under the OTF category very different  set-ups such as 
multi dealer platforms (when they are not registered as MTFs), interdealer broker platforms, and hybrid voice/electronic trading systems will be captured. The establishment of this framework will be combined with the obligation to trade on these OTFs all standardised derivatives which are not traded on regulated markets or MTFs. This will 
contribute to reduce the share of derivativ es which are currently dealt OTC (89 %)
94. 
For the second objective, the alternative soluti on could have been to  use the MTF category 
but the MTF regime does not offer enough leeway to adapt the discretionary nature of execution and possibly the transparency rules to the specificities of derivatives and 
especially their intrinsic lowe r liquidity. Contrary to equitie s which are actively traded on a 
secondary market, derivatives are very often not traded on a secondary  market. A trade on 
a derivative is often a primary trade, meaning that a derivative contract is created for each 
new trade. This is why most derivative ma rkets operate under a request for quote model 
rather than under an exchange order book model.  The consequence is that the trading of 
derivatives is far less active than for equities and therefore the liquidity of these markets much lower. This liquidity is important as it conditions the ability of market participants, 
including non financial parties,  to hedge their risks. This  liquidity depends on market 
makers and broker dealers who are creating these derivatives and take capital risk to do so. 
The transparency and execution rules have to combine the needs to preserve liquidity and 
therefore ability for dealers to perform their function with the needs for the derivative markets to trade in an orderly fashion with a sufficient level of transparency which avoid 
dealers abusing their function. While allowi ng appropriate calibra tion depending on the 
specificities of the instrume nt (see 6.3 trade transparency for non-equities markets), the 
OTF regime should apply the same transparency  regime as other tr ading venues, the only 
different feature of OTFs being the discri minatory access and the discretionary execution. 
• The third objective of the OTF regime is to  have a framework which is dynamic enough to 
accommodate the future trading systems and solutions that could emerge in the future. 
Financial innovation is such that such emerge nce can be very fast. For example, while 
crossing of client orders is a traditional broker activity, increased automation of such 
activities was not foreseen when MiFID was adopted. 
Overall, the creation of the OT F category will ensure a level pl aying-field without imposing a 
one-size-fits-all regulation. The pr oposed approach is to allow for different business models 
but require all venues to play by  the same rules. Hence all trad ing venues would be subject to 
the same transparency and core organisational rules. Regarding transparency, the requirements would be calibrated by asset cla ss and if necessary by type of financial 
instrument within that asset class via de legated acts (see 6.3 trad e transparency for non-
equities). However these transparency require ments would be the same irrespective of the 
trading venue. Regarding the organisational requi rements, existing core organisational rules 
for trading venues covered by MiFID should be  extended to all types of trading venues 
offering competing services, in cluding OTFs. Most of the ca libration relating to these 
requirements is set in the framework direct ive and should therefore not require major 
additional fine-tuning in implementing acts. 
In addition, the creation of OT F and the obligation to trade on them standardised products 
should substantially decrease the weight of OT C trading in both equi ties and non-equities 
 
 36    markets. The risk of regulatory arbitrage be tween MTF and OTF should be low as on the one 
end,  MTFs are in most cases successful busines s models that their operators are unlikely to 
put into danger by switching to OTF, and on the other end, OTFs and MTFs will have very similar organisation and trading rules. Further excha nges or MTFs would be unlikely to wish 
to become OTFs as they would then become s ubject to onerous client facing obligations (that 
a traditional broker has).  
There are both overlaps and diffe rences between our approach and CESR recommendations in 
that field. CESR recommended to create a new regulatory regime for BCS and also 
acknowledged that the set up of a new cate gory of organised trading venue might be 
necessary to enact the G20 commitment of trad ing of standardised derivatives on organised 
trading venues when appropriate. We have  built further upon these recommendations by 
creating one additional categor y encompassing all types of unregulated trading venues. 
Regarding the alignment and reinforcement of the organisationa l and surveillance 
requirements of regulated markets and MTFs, we estimate the one off aggregated costs to be 
between €1 and €10 million. We expect the co mpliance with the requirements of the new 
OTF definition would lead to one-off aggreg ate costs of €4.2–€11.3 million and ongoing costs 
of €0.6-€3.2 million for the nine crossing system networks currently operating in Europe and 
the estimated 10 to 12 electronic platforms that  would have to register as an OTF.  
This option of mandating the trad ing of clearing eligible and su fficiently liquid instruments on 
OTFs would entail incremental costs to market  participants and give rise to estimated 
aggregated one-off costs of €4.7 to €9.3 million and ongoing costs €8.7 and €17.3 million. Mandating trading on transparent platforms s hould increase competition between dealers 
leading to reduced spreads. Spread s decrease represents a benefit to the market as a whole, but 
an opportunity cost to dealers. The revenue fr om OTC derivative tradi ng for the largest global 
dealers is estimated to be around $55 billio n, of which $33 billion are within the EU. 
Depending on the proportion of OTC derivatives that would be suitable for on on-exchange 
trading, a reduction of a few percentages in the dealers margins could bring benefits for the 
entire market beyond €100 million (see Annex 8.1). It should be noted that this loss of 
profitability for dealers could to  a certain extent be compensa ted by increased trading volumes 
and operational efficiencies.  
There is broad support from Member States (i ncluding the UK to a certain extent which 
would be the most impacted Member State beca use of its leading position in OTC derivatives 
trading) and operators  of exchanges for this approach, but limited support from market 
participants due to concerns ove r liquidity, possible costs, and th e ability to continue trading 
customised contracts. 
It should be noted that this option build  upon the CESR advice which has then been 
superseded by IOSCO recommendations
95 on how to enact the G20 commitment of moving 
trading in standardised deriva tives onto exchanges and electr onic trading platforms where 
appropriate.  
Regarding the important issue of SME markets, rather than an industry led initiative that 
could have limited impact (option 1.7), the in troduction of a tailored  regime (option 1.6) 
would enlarge the sources of fina ncing for this type of companies with relatively limited set-
up costs. Apart from Members States (i.e. Germany, France, and the UK are the Member 
States hosting the main SME-focused stock ex changes) who are broadly supportive of this 
option, most other categories of stakeholders are much more re served or negative about it. 
They have concerns about the efficiency of su ch system and even the potential detrimental 
 
 37    impact it could have on the existing SME markets. However the negative feedback from 
stakeholders may be due to the fact that the c onsultation on that specific  point may have been 
insufficiently clear. More fundamentally, this tailor made regime will aim at creating a 
specific quality label for SME markets which will be optional. The objective is neither to 
lower existing transparency standards neither to  restrict the existing range of SME markets. 
Hence we believe this tailor made regime will yield real benefits for SMEs while at the same time be flexible enough to accommodate the exis ting SME markets. Finally, this policy option 
is not in itself a panacea and is part of several complement ary initiatives that aims at 
improving the business conditions of SMEs in Europe. 
In conclusion all the above pref erred options would give rise to  one-off aggregated costs of 
€10 to €31 million and yearly ongoing costs of €9 to €21 million. These costs are proportionate as the above polic y options would bring signifi cant benefits in terms of 
increasing competition by helping create a level playing field and improved transparency for market participants, while not being disruptive of the existing business models and preserving 
the liquidity of the markets.   
6.2. Regulate appropriately new trading techno logies and address any related risks of 
disorderly trading 
Comparison of options (the preferred options ar e highlighted in bold and underlined in grey): 
2 Regulate appropriately new trading technologies and address any related 
risks of disorderly trading  
Policy option Impact on 
stakeholders Effectiveness  Efficiency 
2.1 No action 0 0 0 
Organisational requirements 
2.2 Narrow the exemptions 
granted to dealers on own 
account to ensure that all High 
Frequency Traders (HFT) that are 
direct member or a direct 
participant of a RM or MTF are 
authorised  (++) better monitoring 
by supervisors of HFT 
activity  
(--) marginal 
compliance costs for 
HFT which are not yet 
authorised  
 (+) improve the level 
playing field between 
non regulated and 
regulated entities 
 (++) improvement in 
the quality of 
supervision 
(++) application of 
relevant 
organisational 
requirements for an 
authorised firm (++) marginal compliance costs for 
entities affected by the new 
authorisation regime compensated 
for by benefits for all market 
participants in terms of level playing 
field and increased oversight by 
regulators 
2.3 Reinforce organisational 
requirements for firms involved 
in automated trading and/or high-
frequency trading and firms 
providing sponsored or direct 
market access  (++) better risk control 
at investment firm 
level  
(-) marginal 
compliance costs for 
investment firms (++) decrease in risks 
of market disorder 
and disruption 
(++) alignment with 
measures introduced 
in the US (++) marginal compliance costs for 
entities affected by the new 
requirements more than 
compensated by benefits for all 
market participants in terms of safer 
trading and operational environment 
2.4 Reinforce organisational 
requirements (e.g. circuit 
breakers, stress testing of their 
trading systems) for market 
operators  (++) better risk control 
at market operator 
level  
(-) marginal 
compliance costs for 
market operators (++) decrease in risks 
of market disorder 
and disruption  
(++) alignment with 
the measured being 
considered in the US (++) marginal costs for 
entitiesaffected by the new 
requirements more than 
compensated by benefits for all 
market participants in terms of safer 
trading and operational environment 
Activity of HFT 
2.5 Submit HFT to requirements 
to provide liquidity on an 
ongoing basis  (+) benefits of more 
liquid and less 
disorderly markets to 
all investors 
(-) opportunity costs 
for HFT (+) increased level 
playing field  
(-) possible backlash 
effects of the 
measure if HFT 
withdraw from the 
market (+) indirect costs (lower market 
efficiency) lower than benefits 
(stability) 
 
 38    2.6 Impose minimum latency period 
of orders in the order book (+) decrease in the 
tension of IT systems of market operators  
(-) opportunity costs 
for HFT that will need to have their orders 
resting longer in the 
market (+) reduced risks of 
disorderly markets  (+) increased market 
integrity  
(-) difficulty in defining the relevant 
minimum period 
(--) damage to market efficiency and 
liquidity (-) indirect costs (lower market 
efficiency)higher than benefits 
2.7 Impose an order to executed 
transaction ratio  (+) decrease in the 
tension of IT systems 
of market operators 
(-) opportunity costs 
for HFT that will need 
to have their orders 
resting longer in the 
market (+) decrease risks of 
disorderly markets  
(+) increased market 
integrity  
(-) damage to market 
efficiency and 
liquidity (+) costs in terms of trading 
constraints more than compensated 
by benefits for all market participants 
in terms of fewer chances of crashes 
of trading systems. 
In order to regulate appropriately the new trad ing technologies and contain any system risks 
or risks of disorderly trading, it  is first important to  regulate all the parties invo lved in these 
activities i.e. high frequency traders (HFT) themselves, firms conducting automated trading, including firms providing sponsored or direct market access, as well as market operators 
themselves. Options 2.2, 2.3 and 2.4 all aim at providing better monito ring and better risk 
control of these activities. The overall cost im pact of these preferred policy options will be 
marginal given that we will essentially enshri ne existing practice into legislation. However 
codifying existing practice is key to ensure a level playing field and making these players 
accountable for the risks the tec hnologies they use might pose to the financial markets. Most 
respondents to the consultation also  broadly support these options.  
Regarding firms providing sponsored or direct  market access, IOSCO has issued principles
96 
to give guidance on the controls to put in pl ace to frame these new practices. Our preferred 
policy option takes into account these recently de veloped principles, as well as CESR advice. 
The second group of options consider several ways  to impact on the activ ity of HFT in itself 
(options 2.5 to 2.7). These options have seve ral drawbacks from damaging liquidity, being 
difficult to implement or easy to circumvent  and potentially dist orting the market or 
indiscriminately affecting other forms of tr ading. Liquidity provision obligations would 
probably help prevent market stress and execu tion at extreme prices  even though affected 
participants could be reluctan t to buy under extreme stress circ umstances and even prefer to 
be fined for non-compliance. A minimum latenc y period would be a new measure which has 
not yet been tested and would impede market  participants to reac t to exogenous events 
exposing them to additional risk s and creating distortions with the ones not subject to these 
obligations.97 Another appropriate option would be to impose an order to executed transaction 
ratio (option 2.7) that would alleviate the stre ss on IT systems of mark et operators and would 
still have limited impact on market liquidity  and efficiency. Respondents' views are mixed 
with many preferring to leave a ny such controls up to the ve nues themselves. Although there 
is a lack of clear evidence of th e impact of this form of trading on the liquidity and efficiency 
of the markets, there is no doubt  that the increased share of HF T has dramatically contributed 
to increase the number of orders entering trad ing systems putting heavy load on them, and has 
aggravated the threat on orderl y trading. An order to transacti on ratio is already in place on 
some trading venues (see Annex 5.2.4).  Lastly there is a need  to harmonise these measures 
across trading venues as otherwis e there would be a significant risk of regulatory arbitrage 
among trading venues that could co mpete on the level of such a ra tio in order to  attract order 
flows from HFT traders.HFT trading is a key so urce of trading revenues for market operators 
(i.e. HFT traders are mainly active on orga nised trading venues offering high level of 
liquidity), and they are unlikely to take any measure which might lead to a migration of their 
HFT clients to other platforms. 
 
 39    Regarding the organisational requirements for pl ayers involved in automated trading as per 
above, CESR/ESMA recommendations are fully in line with our proposals. ESMA is 
currently working on future potential additional measures in the area of automated trading (see their recently publish ed consultation paper
98). 
In conclusion the preferred options highlighted  above would contribute  to reduce the risks 
posed by these new technologies and more resilient financial markets at very marginal costs.  
6.3. Increase trade transparency for market participants 
Comparison of options (the preferred options ar e highlighted in bold and underlined in grey): 
3 Increase trade transparency for market participants   
Policy option Impact on 
stakeholders Effectiveness  Efficiency 
3.1 No action 0 0 0 
Trade transparency for equities markets 
3.2 Adjust the pre and post trade 
transparency regime for equities by 
ensuring consistent application and 
monitoring of the utilisation of the pre-
trade transparency waivers, by 
reducing delays for post trade 
publication and by extending the 
transparency regime applicable to 
shares admitted to trading on RMs to 
shares only traded on MTFs or OTFs  (++) improvement in 
price discovery and 
market efficiency  
(-) less commitment 
of capital by dealers 
but this should be 
limited if proper 
calibration  
(-) opportunity costs 
for dealers (++) improvement in 
transparency  
(+) reduction in scope 
for regulatory arbitrage  
(-) reduction in market 
liquidity if less capital 
committed by dealers (++)compliance costs and 
possible side effects in terms 
of additional costs for trading 
firms and lower liquidity 
largely compensated by 
benefits in terms of more 
transparent and harmonised 
trading regime in Europe 
3.3 Abolish pre trade waivers and deferred 
post trade publication regime for large 
transactions (--) strong negative 
impact for larger 
equity investors and 
dealers (++) maximum 
transparency 
(+) large increase in 
level playing field  (--) substantial 
damage to market 
liquidity as larger investors and market 
makers could become 
far less active (--) collective damage in 
excess of collective benefits 
Trade transparency for non-equities markets 
3.4 Introduce a calibrated pre and post 
trade transparency regime for certain 
types of bonds and derivatives  (++) increased 
transparency for most 
investors especially 
smaller ones  
(--) negative impact 
on revenues of 
dealers which could 
decide to commit less 
capital to their market 
making activities (++) increased 
transparency on 
derivatives and bonds 
markets  
 (-) potential negative 
impact on market 
participants if liquidity 
of the markets drop 
but should be 
contained by proper 
calibration (++) compliance costs and 
possible indirect side effects 
on market liquidity more than 
compensated by benefits for 
all market participants in terms 
of increased transparency 
3.5 Introduce a calibrated post trade only transparency regime for certain types of bonds and derivatives (+) increased post-
trade transparency for most investors 
especially smaller 
ones  (-) negative impact on 
revenues of dealers 
which could decide to commit less capital to 
their market making 
activities (+) increased post-
trade transparency on derivatives and bonds 
markets  
(-) detrimental impact on market participants 
if liquidity of the 
markets drop but contained by proper 
calibration (+) costs slightly compensated 
by benefits 
Costs and consolidation of trade data 
3.6 Reduce data costs notably by 
requiring unbundling of pre and post 
trade data and providing guidance on 
reasonable costs of data, and improve 
the quality of and consistency of post (++) lowering of data 
costs for investors  
(++) improvements of 
data quality through 
the APAs  (++) better informed 
investors and issuers  
(++) more transparent 
markets 
(++) more efficient (++) costs of opportunity for 
regulated markets and 
compliance costs of the set up 
of APAs more than 
compensated by benefits for 
 
 40    trade data by the set up of a system of 
Approved Publication Arrangements 
(APAs) (-) opportunity cost for 
market operators who 
would generate less 
revenues from the 
sale of market data  
(-) opportunity costs 
for market data 
providers markets all market participants in terms 
of higher quality and more 
affordable market data 
3.7 Reduce data costs by establishing a 
system for regulating the prices of data (++) lowering of data 
costs for investors  
(-) opportunity cost for market operators who 
would generate less 
revenues from the sale of market data  
(-) opportunity costs 
for market data providers (++) better informed 
investors and issuers  
(++) more transparent markets  
(++) more efficient 
markets  (--) difficulty in setting 
price levels 
(-) interference with free competition  (+) collective damage 
exceeded by collective 
benefits 
3.8 Improve the consolidation of post 
trade data for the equities markets by 
the set-up of a consolidated tape 
system operated by one or several 
commercial providers. Introduce a 
consolidated tape for non-equities 
markets after a period of 2 years under 
the same set-up as for equities 
markets. (++) reduce 
information cost for 
market participants 
(++) better market 
transparency for 
participants  
(++) closer tracking of 
best execution by 
market participants (+) closer alignment 
with the US set up for 
equities markets 
(-) possible uneven 
market information 
because of 
competition between 
providers 
(-) possible conflict of 
interests if some APA 
are given preferential 
treatment (++) compliance costs more 
than compensated by benefits 
for all market participants in 
terms of increased 
transparency 
3.9 Improve the consolidation of post trade 
data for the equities markets by the set-up 
of a consolidated tape system organised a public utility industry body. Introduce a 
consolidated tape for non-equities markets 
after a period of 2 years under the same set-up as for equities markets. (++) reduce 
information cost for 
market participants  (++) better market 
transparency for 
participants  (++) closer tracking of 
best execution by 
market participants (+) strong alignment 
with the US set up for 
equities markets (--) creation of a 
situation of monopoly  
(-) risks of less innovative service (-) collective costs not 
compensated by benefits 
 
The options to increase trade transparency fo r market participants can be grouped in three 
large categories.  
The first group deals with equity markets (o ptions 3.2 and 3.3). Rather than deleting the 
existing pre transparency waivers and the defe rred post trade publicatio n regime (option 3.3) 
which would have substantial negative impact  on the liquidity of the markets and put 
European markets at a competitive disadvantag e to venues outside the EU, the preferred 
option consists of adjusting these waivers an d the post-trade deferral regime as well as 
extending them to shares only traded on MTFs or OTFs. This would increase transparency 
while preserving liquidity. A large majority of  respondents support the options for clarifying 
the regime of waivers, but views are more mi xed on reducing available delays in post-trade 
reporting. 
Neither the uniform application of the waivers nor the shortening of pu blication delays are 
expected to create significant incremental costs. The costs of extending the equities-
transparency regime to shares traded only on MT Fs or organised trading facilities would lead 
to an estimated one-off cost of around €2 m illion and about ongoing costs of €0.4 million for 
all the trading platforms concerne d. An order of magnitude of the benefits could be derived 
from the experience of the SME market AIM, which is regulated as a MTF and has applied 
the same transparency regime as its parent entity – the London Stock Exchange - since the introduction of MiFID. According to Europe Economics econometric model, spreads were on 
average 16% lower relative to the average bid-ask spread in the pre-MiFID period (See Annex 8.2). 
 
 41    The second group of options deals with market s other than equity markets i.e. bonds and 
derivatives markets (options 3.4 and 3.5). In or der to increase the transparency on these 
markets to market participants, the favourite op tion (option 3.5) is to conceive a tailor made 
regime of pre- and post-trade transparency obliga tions that will be calibrated to each type of 
financial instrument included. This regime is tailor made in the sense that this regime will not simply be a copy paste of the MiFID equity tr ansparency regime, but a regime which will be 
devised taking into account the specificities of e ach asset class (i.e. characteristics, liquidity 
and trading mode of non equities  markets are completely diffe rent from equities markets). 
Thanks to this calibration, it will preserve the liquidity of these markets much better, while 
ensuring a higher level of transparency than if  only a post trade transparency regime were 
implemented (option 3.5). While many respo ndents broadly agree w ith the notion of a 
calibrated regime, many signal that  poorly designed disclosure rules especially pre-trade will 
harm liquidity. Member Sates broadly agree with  post-trade transparency requirements, while 
being much more cautious in  terms of pre-trade tran sparency requirements.  
The advice from CESR in the field of transpar ency for non-equity markets is broadly in line 
with our preferred policy option. It recommen ded to develop harmonised tailor made post-
trade transparency requirements for non-e quity markets across the board, as well as 
harmonised tailor made pre-trade transparency requirements for non-equity instruments traded 
on organised trading platforms. However it has not at this stage proposed to cover the OTC 
space under these mandatory pre-trad e transparency requirements, bu t has left this possibility 
to the discretion of Member States. Nonetheless we believe that harmonisation is key in that 
regard as financial markets, especially deriva tives markets, are inherently cross-border. In 
addition transparency should become the genera l rule and any exemp tion to it should be 
provided for when justified by appropriate ca libration and/or in the form of pre-trade 
transparency waivers in th e implementing legislation. 
Concerning the introduction of a transparency regime for non-equities, the overall one-off 
costs would range from €5.5 million to €9.2 mill ion with yearly ongoing cots of €8.8 million 
to €12.7million. These costs are pure compliance co sts that are expected to be incurred by 
trading platforms and market participants active in these markets as they will have to upgrade 
their systems to receive and disseminate quotes and prices. It is not possib le at this stage to 
assess the impact of such a regime on the liquid ity of the markets as this will largely depend 
on the calibration of the transparency requirement s in terms of delays and content by type of 
instrument to be developed in the implementing legislation. However we have tried to assess 
what the potential benefits of a post-trade tr ansparency regime for bonds could be by looking 
at the US experiment of the Trade Reporting and Compliance Engine (TRACE) system (see Annex 8.3). Overall, a narrowing of spreads, more reliable pricing, as well as improved 
valuation is expected. Indirect costs in term s of market depth underm ining the ability of 
dealers who commit capital to easily unwind larg e trades could be ad dressed by a proper 
calibration of the disclosure regime for orders of large size.  
The last group of options (options  3.6 to 3.9) relate to market data in order to improve their 
quality and reduce their costs. Ra ther than establishing a system for regulating prices of data 
(option 3.7) that would be too intrusive, the ch osen solution is to combine the provision of 
costs guidance with a system of APAs that w ould contribute to the quality and ease of access 
to the data while also requiring the unbundling of  pre- and post-trade data and the obligation 
to release data free of charge once 15 minutes  have expired since the trade was executed. 
These improvements should facilitate the emergen ce of a consolidated ta pe as data quality 
issues, lack of data standardis ation and consistency, and costs were the main impediments to 
the emergence of a consolidated tape. Besides th ese improvements, there is a need to ensure 
that market data can be brought together in a way that allows efficient comparison of prices 
 
 42    and trades across venues. Consolidation of da ta should meet high quality standards while at 
the same time be provided at a reasonable co sts. The setting up of a consolidated tape, 
preferably through a system of one or seve ral commercial providers duly approved would 
meet these objectives and increase the access to market data information for market 
participants, in an optimised way in terms of cost and efficiency. In addition the commercial solution, as opposed to a re gulated public monopoly solution, would be more innovative and 
prone to cater for clients needs. Respondents, including Member States, largely agree with the 
approach regarding APAs, unbundling, and free da ta publication after 15 minutes. Views are 
more mixed on the need for a consolidated tape , with most support for a commercially lead 
model operating in accordance w ith mandatory standards.  
The one-off compliance costs for EU authoris ed firms and APAs of conforming with and 
providing a fully standardised reporting format a nd content for post-trade data are estimated at 
€30 million, with ongoing costs of €3 million to €4.5 million. Finally, compliance and operational costs for a commercial consolidator are considered to be entirely manageable (they already provide similar solutions for equitie s markets). In order to have an order of the 
magnitude of the possible benefits, one could look at the huge discrepancy in costs for market participants to get access to a consolidated set of trade data (€500 in the EU versus $70 in the 
US per user and per month). Requiring venues a nd vendors to sell pre-and post-trade data in 
unbundled form, provided that the format and cont ent of trade reports are fully standardised, 
may be expected to reduce the cost of a European consolidated post-trade data feed by 80%, i.e. from €500 to €100 a month per user. Another benefit would be that the availability of 
better quality and consolidated trade data should help investment firms to comply with their 
best execution obligations, which could for the equity markets only generate benefits of €12 
million (see par. 9.4).Taken together, these preferred options would give rise to one-off aggregated costs of €38 to €41 million and yearly ongoing costs of €12 to €18 million. These options would significantly improve transparency  towards markets participants, especially in 
the case of non-equities markets where th ere were no uniform trade transparency 
requirements before. Increasing transparency in  a properly calibrated wa y should contribute to 
a better price formation mechanism and improve  liquidity. These options would complement 
the options under 6.1 as this transparency regime  would apply to all types of trading venues 
further aligning the requirement s they are subject to.   
6.4. Reinforce regulators' powers and consis tency of supervisory practice at 
European and international levels 
Comparison of options (the preferred options ar e highlighted in bold and underlined in grey): 
4 Reinforce regulators powers and consistency of supervisory practice at European and International level 
Policy option Impact on stakeholders Effectiveness  Efficiency 
4.1 No action 0 0 0 
Powers of regulators 
4.2 Introduce the possibility for 
national regulators to ban for an 
indefinite period specific activities, 
products or services under the 
coordination of ESMA. Give the 
possibility to ESMA under specific 
circumstances to introduce a 
temporary ban in accordance with 
Article 9(5) of the ESMA regulation 
N°1095/2010 (++) safer environment 
for market participants 
and investors 
(-) opportunity costs for 
developers of product 
that are banned 
(-) opportunity costs for 
traders of and investors 
in banned products (++) no possibility for 
regulatory arbitrage 
(++) increased orderly 
markets  
(++) reduced systemic risks  
(-) reduction in investment or 
hedging opportunities 
(--) restriction to financial 
innovation (++) marginal costs in 
terms of opportunity 
costs for providers of 
banned products more 
than compensated by 
benefits for all 
investors in terms of 
safer environment 
 
 43    4.3 Introduce an authorisation regime for 
new activities, produc ts or services (++) safer environment 
for market participants and investors 
 (--) opportunity costs for 
developer of the product to be banned  
(---) huge costs and 
burden put on competent authorities (++) increased orderly 
markets (++) reduced systemic risks 
 (--) alleviation of 
responsibility (moral hazard) for product developers  
(--) possible reduction in 
investment or hedging opportunities  
(--) restriction to financial 
innovation (-) costs not 
compensated by benefits  
4.4 Reinforce the oversight of 
positions in derivatives out of which 
commodity derivatives, including by 
granting powers to regulators and 
coordinating via ESMA to introduce 
positions limits (-) opportunity costs for 
market participants 
(-) compliance costs for 
market participants 
 (+) better insight into 
market dynamics for 
regulators (++) improved understanding 
of the price formation 
process 
(+) greater market integrity 
 (+) greater market stability (++) marginal costs for 
persons involved in 
very speculative 
activities more than 
compensated by 
benefits for all market 
participants in terms of 
increased market 
integrity and more 
orderly market 
4.5 Reinforce the oversight of 
financial markets which are 
increasingly global by strengthening 
the cooperation between EU and third 
country securities regulators. In 
addition, reinforce monitoring and 
investigation of commodity 
derivatives markets by promoting 
international cooperation among 
regulators of financial and physical 
markets (+) gives supervisors a 
consolidated overview of 
the market 
(+) allows 
supervisors 
to combine 
their market 
experience  (++) increases market 
integrity by reducing risk of 
cross-market manipulation 
(+) promotes fair and orderly 
markets (+) no additional 
obligations on market 
participants 
(-) supervisors will 
incur costs for 
transmitting and 
processing data 
Conditions of access of third country firms 
 4.6 Harmonise conditions for the 
access to the EU of third country 
investment firms, by introducing a third 
country regime (a common set of criteria 
, registration at national level, 
memoranda of understanding (MoU) 
between the Member States regulators 
and the third country regulators under 
the coordination of ESMA) (+) widening of choice of 
providers for investors  
(-) increased competition 
for investment firms with 
no reciprocal access  
 (+) more harmonised and 
legally clear basis for 
granting third country 
investment firms pan-EU 
access to EU securities 
markets 
(-) different access 
mechanisms applicable to 
investors and dual 
application of rules (+) costs partially 
compensated by 
benefits for all market 
participants in terms of 
increased competition 
and product offering in 
a level playing field, 
and enhanced single 
market 
4.7 Introduce an equivalence and 
reciprocity regime by which after 
assessment by the Commission of 
the third country regulatory and 
supervisory framework access to the 
EU would be granted to investment 
firms based in that third country. (+) widening of choice of 
providers for investors  
(+) increased horizons for 
investment firms with 
reciprocal access  
 (+++) minimum duplication 
of rules for firms 
(-) risk of non operative 
scheme if political reticence (++) costs and time 
involved more than 
compensated by 
benefits for all market 
participants 
(-) difficulties in 
negotiating such an 
equivalence regime 
Sanctions 
(++) reinforced and 
harmonised powers for 
regulators  
(+) better protection for 
persons providing 
information on 
infringements 
(+) more information on 
infringements for 
regulators 
 
 (++) sounder financial 
markets thanks to more 
efficient fight against 
unauthorised practices 
detrimental to investors  
(+) limit regulatory arbitrage 
(+) step towards further 
harmonisation of sanction 
across EU 4.8 Introduce effective and deterrent 
sanctions by introducing common 
minimum rules for administrative 
measures and sanctions  
Impact on fundamental rights: 
Option interferes with Articles 7 and 8and potentially also 
with Articles 47 and 48 of the EU Charter.  
 Option provides for limitation of these rights in law while 
respecting the essence of t hese rights. Limiting these 
rights is necessary to meet the general interest objective of ensuring compliance with MiFID rules to ensure fair 
and orderly trading and investor protection. . In order to (++) costs more than 
compensated by 
benefits for all market 
participants in terms of 
safer environment 
resulting from 
improved enforcement 
 
 44    be lawful the administrati ve measures and sanctions 
which are imposed must be proportionate to the breach of the offence, respect the right not to be tried or 
punished twice for the same offence,   the presumption of 
innocence, the right of defence, and the right to an effective remedy and fair trial in all circumstances. 
 
Whistle blowing schemes interferes with Art 8 of the EU Charter and Art. 16 of the Treaty on the Functioning of 
the EU and Art. 48 of the EU Charter. Therefore, any 
implementation of whistl e blowing schemes should 
comply and integrate data protection principles and 
criteria indicated by EU data protection authorities and 
ensure safeguards in compliance with the Charter. 
(++) reinforced and harmonised powers for regulators  
(+) better protection for 
persons providing information on 
infringements 
(+) more information on infringements for 
regulators 
 (+) sounder financial 
markets thanks to more efficient fight against 
unauthorised practices 
detrimental to investors  (+) step towards further 
harmonisation of sanction 
across EU 4.9 Introduce effective and deterrent sanctions by harmoni sing administrative 
measures and sanctions  
Impact on fundamental rights: 
Option interferes with Articles 7, and 8, and potentially 
also with Articles 47 and 48 of the EU Charter.   
Option provides for limitation of these rights in law while 
respecting the essence of t hese rights. Limiting these 
rights is necessary to meet the general interest objective 
of ensuring compliance with MiFID rules to ensure fair 
and orderly trading and investor protection. In order to be lawful the administrative measures and sanctions which 
are imposed must be proportionate to the breach of the 
offence, respect the presumpt ion of innocence, the right 
of defence, and the right to an effective remedy and fair 
trial in all circumstances. 
 Whistle blowing schemes interferes with Art 8 of the EU 
Charter and Art. 16 of the Treaty on the Functioning of 
the EU and Art. 48 of the EU Charter. Therefore, any implementation of whistl e blowing schemes should 
comply and integrate data protection principles and 
criteria indicated by EU data protection authorities and ensure safeguards in compliance with the Charter. (+) costs compensated 
by benefits (-) distinct market 
situations and legal 
traditions 
The policy options selected in order to rein force the regulators powers and consistency of 
supervisory practice at European and internationa l levels can be divided into three categories. 
The first group (option 4.2 to 4.5) relates to th e powers of regulators on products and services, 
or markets. In order to addre ss situations of risks on investor  protection, market stability or 
systemic risk, the first of the preferred options (option 4.2) is to introduce the possibility for 
regulators to ban activities,  products or practices in specific circumstances.  
Currently most national regulat ors do not have any explicit power, stemming from EU or 
national legislation, to ban for an indefinite period of time financial products or activities. 
Where such powers are foreseen at national leve l, there is no coordination mechanism at EU 
level which could significantly undermine the si ngle market should one of the Member State 
decide unilaterally to introduce such a ban (e.g. such an example has already been seen with 
the German unilateral ban on short selling). Option 4.2 reinforces both national and ESMA 
powers and ensure a more streamlined regul atory procedure by specifying the conditions 
under which a ban could be activated.  
It should be borne in mind that the power of ba nning products or activitie s should be seen as a 
last resort measure which woul d be needed in the unlikely although plausible event that 
prevention measures such as reinforced orga nisational requirements and conduct of business 
 
 45    rules for investment firms have failed. Bearing in mind the last resort character of such a 
measure the costs of a full ex ante authorisatio n regime compared to the benefits would be 
disproportionate. In addition shou ld an authorisation regime be  introduced the scope and pace 
of financial innovation might be significan tly hindered due to a lengthy and costly 
authorisation process that woul d put an extraordinary strain  of resources of competent 
authorities. This could lead to "a reduction in investment opportunities". Such negative 
impacts would be rather limited under the pr oduct ban option as only toxic products or 
activities would a posteriori be  prohibited. Lastly the banning option is more efficient and 
fosters greater responsibility among investment se rvice providers than an  authorisation regime 
for new products and services. If there was an authorisation process for each financial product 
this could be taken as a seal of approval by th e investing public as to the quality of such 
product. However, the future development of a pr oduct and in particular whether it is going to 
create losses for the investor is  impossible to predict. Should the investor occur losses there is 
the very real and significant concern that he is  going to turn to the competent authorities for 
damages thus alleviating the respon sibility of the product developer. 
In addition, the reinforcement of oversight of  positions (including position limits) (option 4.4) 
and the strengthening of the cooperation be tween regulators of phys ical and financial 
commodities markets (option 4.5) would contribute to more orderly and stable markets. While 
Member State authorities broadly support such new powers (i.e. main commodity derivatives 
markets are located in France, Germany, and the UK), few market  participants are in favour. 
They say they could give rise to legal uncer tainties, and argue that limits on positions are 
arbitrary and misguided. Regard ing product bans, the financial cr isis has clearly demonstrated 
the needs to give more powers to regulators to avoid both toxic financial instruments, such as 
CDOs square that can put investors at risk , or practices such as cornering commodities 
markets, that threaten market stability. Th e views on these measures are very divided 
according the nature of stakeholders with strong support from national regulators and NGOs and, as one would expect, opposition from inve stments banks. Despite strong support from 
key stakeholders, the preferred options still insert the new regulator y powers into precise 
frameworks to avoid abuse or unintended side  effects. For instance, the powers to ban 
products or services will only be possible in case of serious thr eat to the orderly functioning 
and integrity of financial mark ets or significant and sustained investor protection concerns.  
The costs of stronger oversight of positions, including the setting up of position limits, for 
both trading platforms and market participants are estimated to be between €8.2 million and €12.9 million for one-off costs, and on-going costs to be between €9.5 million to €20.2 
million a year. 
The second group of options deals with the ha rmonisation of conditions of access of third 
country investment firms (options 4.6 and 4.7). The preferred route is to establish a third 
country regime based on an equivalence and r eciprocity approach (option 4.7) that would 
replace the current patchwork of  national third party regimes more efficiently albeit less 
quickly than a regime based on common criteria  (option 4.6). Respondent s' views are divided 
with many broadly in favour  but cautioning against either  overly strict equivalence 
requirements or granting access to third country operators with no reciprocity. Our preferred option takes due account of these concerns as the idea is to assess the equivalence of the 
regulatory regime based on clear criteria and insisting on eff ective reciprocal access.   
The last group of options refers to admini strative measures and sanctions. A maximum 
harmonisation of administrative measures (o ption 4.9) while being highly effective as 
measures and sanctions for similar offences across the EU would be more comparable and 
stricter, which should reduce the scope for re gulatory arbitrage. However such an option 
 
 46    would not be efficient as market  situations, legal systems and traditions differ across Europe. 
Therefore, to have exactly the same types and le vels of sanctions might not be reasonable and 
proportionate to ensure deterrent sanctions ac ross Europe. As a result the preferred policy 
option is to insert common minimum rules for administrative measures and sanctions at EU 
level, accompanied by necessary principles and safeguards to ensure the respect of fundamental rights. Respondents are larg ely in favour of this approach.  
6.5. Reinforce transparency towards regulators 
Comparison of options (the preferred options ar e highlighted in bold and underlined in grey): 
5 Reinforce transparency to regulators 
Policy option Impact on 
stakeholders Effectiveness  Efficiency 
5.1 No action 0 0 0 
Scope of transaction reporting 
5.2 Extend the scope of transaction 
reporting to regulators to all financial 
instruments (i.e. all financial 
instruments admitted to trading and all 
financial instruments only traded OTC). 
Exempt those only traded OTC which 
are neither dependent on nor may 
influence the value of a financial 
instrument admitted to trading. This will 
result in a full alignment with the scope 
of the revised Market Abuse Directive. 
Lastly regarding derivatives, harmonise 
the transaction reporting requirements 
with the reporting requirements under 
EMIR. (++) competent 
authorities see trading 
in all products 
susceptible to be used 
for abusive purposes 
(-) additional reporting 
cost for firms 
(-) additional market 
participants will need to 
start reporting (++) brings all 
potentially abusive 
trading in scope 
(+) level playing field 
for commodity and 
other derivatives 
(-) non-financial firm 
trading is not covered (++) higher compliance 
costs for firms but limited 
increase thanks to the 
harmonisation between 
EMIR and MiFID 
 
5.3 Extend the scope of transaction 
reporting to all financial instruments that 
are admitted to trading and all OTC 
financial instruments. Extend reporting obligations also to orders (++)competent 
authorities see trading 
in all products  
(--) additional reporting cost for firms  (--) additional market 
participants will need to 
start reporting (+) offers a complete 
picture of firms' trading 
and other investment 
services and activities  (+) robust to trading innovation  
 (-) not all OTC 
instruments are sufficiently 
standardised  
(--) covers much trading which is not 
potentially abusive  
(-) non-financial firm trading is not covered  (-) higher compliance 
costs for firms due to too 
large scope of products 
covered while no marginal increase of market integrity   
 
5.4 Require market operators to store 
order data in an harmonised way (+) more efficient 
monitoring by 
competent authorities 
especially in a highly 
automated 
environment  
(--) additional costs 
imposed on market 
operators (+) better monitoring for 
market abuse and 
market manipulation by 
competent authorities (=) compliance costs 
compensated by medium 
term gains in terms of 
improved market integrity 
and more orderly trading 
Reporting channels 
5.5 Increase the efficiency of reporting 
channels by the set up of Approved 
Reporting Mechanisms ("ARMs") and 
allow for trade repositories under EMIR 
to be approved as an ARM under MiFID  (++) Better data quality 
reported 
(-) cost of registration 
may increase the cost 
of reporting for firms 
using ARMs  (+) Trade repositories 
are likely to be able to 
report significant parts 
of the derivatives 
markets (+) additional costs for 
reporting firms more than 
compensated by better 
information for regulators 
 
 47    5.6 Require trade repositories authorised 
under EMIR to be approved as an ARM under MiFID  (+) no double 
reporting (--) additional costs for 
trade repositories (+) easier access to 
consolidated information for 
regulators 
(-) restricts reporting's firm choice of reporting 
mechanism (+) additional costs for 
reporting firms more than compensated by better 
information for regulators 
The reinforcement of transparency towards regulators includes two groups of options. The 
first set of policy options (options 5. 2 to 5.4)  look at extending the scope of transactions 
reporting while the second group aim (options 5.6 and 5.7) at improving the organisation of 
the reporting. 
Regarding the extension of the scope of tran saction reporting, the preferred and principal 
option is to extend the scope to all financial instruments not admitted to trading but whose 
value depends on a financial instrument that is admitted to trading and financial instruments that can have an effect on a financial instru ment admitted to trading (option 5.2). This will 
notably bring into scope all derivatives that could be used for manipulative purposes, and as 
result will allow a much better and extensiv e monitoring of markets by regulators. Aligning 
the transaction reporting requirements under Mi FID with those under EMIR allows for the 
majority of the associated costs of this ex tension to be avoided, and for the additional 
reporting costs and additional number of reporti ng firms to be reduced. The other extension 
that is favoured because of better cost/benef its outcome is the requirements for market 
operators to store data in a harmonised way (option 5.4). As pa rt of the information stored, the 
unique identification of the trader or algorithm th at has initiated the order will facilitate and 
improve market surveillance in a highly auto mated environment. Respondents largely support 
these proposals, but many signal that position reporting in lieu of transaction reporting for commodity derivatives is more appropriate. Reporting on transactions and reporting on 
positions have different goals and are not mutual ly exclusive. Reporting on transactions allow 
regulators to monitor for market abuse while repo rting on position also allows for monitoring 
on market abuse as well detection of system ic risks by monitoring the building up of 
excessive positions in regards to the financial capacity of the person taking them. We believe 
there is a need to be as comprehensive as possible in terms of information provided to 
regulators. In parallel we acknowledge there is  a need to streamline reporting requirements in 
order to avoid double reporting and undue costs on market participants. This is why we 
propose to leverage the existence of trade repos itories for derivatives to the extent possible 
(see option 5.5 below).   
The extension in scope of tran saction reporting is estimated to  generate incremental one off 
costs ranging from €65.4 to €84.1million and year ly ongoing costs from €1.6 to €3.0 million. 
The bulk of these costs relates to the extension to OTC instruments and commodity derivatives. Member States that already collect OTC derivatives transactional data (UK, Ireland, Austria and Spain) would be of course  less impacted. Anyway these costs would not 
materialise if reporting requirements under MiFI D and EMIR are harmonised. As storage of 
orders is already standard practice to a certain extent, the incremental costs are not significant. 
One of the main benefits of the extension of  the transaction reporting regime would be to 
enable regulators to effectively detect market a buse cases. But just as it is difficult to give a 
precise estimate of the size of the problem of ma rket abuse, it is hard to quantify the benefits 
of more effectively tackling this problem. 
Concerning reporting channels , option 5.5 aims at increasing the efficiency of reporting 
channels by the set up of approved reporting m echanisms (ARMs). It should be noted that 
transaction reporting is already being conducte d through ARMs in the UK. In addition this 
option envisages the possibility (option 5.5) but  not the obligation (option 5.6) which would 
 
 48    lead to too much data for re gulators, for trade repositories under EMIR to be approved as 
ARM. Respondents generally support streamlining reporting channels in this way, with many 
commenting on the importance of synergis ing data flows under MiFID and EMIR.  
Taken together, these preferred options would gi ve rise to one-off aggregated costs of €65 to 
€84 million and yearly ongoing costs of €3 to €5  million. These incremental costs would be 
more than compensated by the benefits in terms of market integrity (i.e. regulators would have all the necessary informati on to detect abusive practices across all types of instruments)  
6.6. Improve transparency and oversight of commodities markets  
Comparison of options (the preferred options are highlighted in bold and underlined in grey ): 
6 Improve transparency and oversight of commodities markets 
Policy option Impact on stakeholders Effectiveness  Efficiency 
6.1 No action 0 0 0 
Evolution of commodity derivatives markets 
6.2 Set up a system of 
position reporting by 
categories of traders for 
organised trading venues 
trading commodities 
derivatives contracts  (++) increased 
transparency for all market 
participants  
(++) better tracking by 
regulators of the interaction 
between physical and 
financial commodities 
markets 
(-) set up costs for trading 
venues (++) increased 
transparency  
(++) improvement in price 
formation  
(+) alignment with the US (++) marginal additional 
compliance costs for organised 
venues more than 
compensated by improvement 
in terms of more transparency 
and orderly trading for all 
market participants 
6.3 Control excessive volatility 
by banning non hedging 
transactions in commodity derivatives markets  (-) would limit the 
possibility to hedge as it 
becomes more difficult to find a counterparty  (+) may decrease volatility  
(--) sharp drop in liquidity 
(---) position taking activities may move to 
physical markets (--) larger indirect  costs in 
terms of market efficiency than 
benefits for the whole community 
Exemptions for commodity firms 
6.4 Review exemptions for 
commodity firms to exclude 
dealing on own account 
with clients and delete the 
exemption for specialist 
commodity derivatives  (--)  additional compliance 
costs for previously 
exempted firms  (++) increased level playing 
field  
(++) increased investors 
protection (++) costs more than 
compensated by benefits for all 
market participants in terms of 
level playing field and better 
oversight by regulators 
6.5 Delete all exemptions for 
commodity firms (---) additional compliance 
costs for previously 
exempted firms  (++) Increased level playing 
field  
(++) increased investors protection  
(-) disproportionate 
measure compared to the risk involved (-)Costs above benefitsfor the 
whole community 
Secondary spot trading of emission allowances 
6.6 Extend the application 
of MiFID to secondary spot 
trading for emission 
allowances  (--) additional costs for 
intermediaries and trading 
venues that would require 
a MiFID licence to conduct 
such operations 
 (+) comprehensive 
regulatory framework for 
the carbon market 
(++) full consistency with 
financial markets rules 
(++) Increased level playing 
field  
(++) increased investors 
protection  
(-) potential issue for 
suitability and 
proportionality for some 
intermediaries (+) compliance costs more than 
compensated by benefits in 
terms of safer and sounder 
market environment for the 
carbon market 
 
 49    6.7 Develop a tailor-made 
regime for secondary spot trading of emission 
allowances (--) all  exchanges and 
intermediaries required to adapt to new 
organisational and 
operational  duties and obtain authorisation to 
operate (+) comprehensive 
regulatory framework for the carbon market 
(++) Increased level playing 
field  (++) increased investors 
protection  
(+) more flexibility to adapt to the specificities of the 
carbon market 
(--) possible discrepancies with the financial markets 
rules governing the 
derivatives market or risk to develop a lighter regime (-) a specific framework and 
instrument to be developed giving rise to additional 
compliance costs 
The options to improve transpar ency and oversight of commodity  derivatives markets can be 
grouped in three categories.  
The first group of options (opti ons 6.2. and 6.3) aims at addre ssing the issue of the increasing 
inflow of financial investments in these markets. Our preferred option is to increase transparency towards both regulators and th e public by introducing a position reporting by 
categories of traders. This s hould enable regulators  to better assess the impact of these 
financial investments on the price formation mechanism and the rela ted price volatility. 
Banning non hedging transactions would imply banning financial investments which could 
dry up liquidity and significantly undermine th e ability of commercial users and producers of 
commodities to hedge their risks,  and is therefore not prefe rred. Overall, respondents are 
broadly in favour of a position reporting syst em similar to the one in the US. Many note 
however that any classification is partly s ubjective and can be misleading. However market 
participants have increasingly called for incr eased transparency which has led to market 
initiatives
99 in that field inspired by the US commitment of traders report distinguishing 
between open positions held by financial and non financial entities. Although this distinction 
is not watertight, this would significantly impr ove the situation compared to the status quo, 
especially in an environment of  high volatility of pr ices and the misunders tanding of the role 
played by speculation in these markets. 
The introduction of position repo rting by categories of traders would entail costs for both the 
trading venues and the market participants which overall are estimated at between €0.8 and 
€1.0 million for one-off costs and between €3.3 and €3.8 million as yearly ongoing costs. 
The second group of options relate to the exemp tions granted to commodities firms (options 
6.4 and 6.5). Narrowing these exemptions will ensu re a level playing field between financial 
and non financial firms providing investment serv ices in commodity derivatives. In addition 
we want to enhance investor  protection by ensuring that clients of these commercial 
companies are benefiting from MiFID conduct of  business rules when receiving investment 
services. A complete deletion of these exemptions  would be disproporti onate compared to the 
risks posed by these commodity firms to th e financial system as a whole and would 
undermine their ability to trade on own account for hedging purposes. It should be noted that 
the capital requirements these firms should be subj ect to will be dealt w ith as part of the 
forthcoming review of the existing exemptions for commodity firms under the Capital Requirements Directive (CRD).
100 Broadly, most respondents agree with the proposal to 
reduce the scope of the exemptions. Howeve r, significant opposition is noted among the 
corporate end-users, most notably energy compan ies, who are wary of the cost of setting up 
their operations to comply with MiFID and, mo re critically, possible capital requirements 
incumbent upon MiFID firms, and clearing requi rements emanating from the Commission 
proposal on mandatory central clearing for fi nancial firms – also originating in G20 
agreements. However, the application of capit al requirements does not automatically follow 
 
 50    from being caught by MiFID – there is an exem ption in the Capital Requirements Directive 
due to be reviewed before end-2014. Our consu ltation paper was not suffi ciently clear in that 
regard, namely that the debate about the MiFID exemptions (i.e. application of MiFID organizational requirement and conduct of busin ess rules) should be clearly distinguished 
from the debate around the CRD ones (i.e. level of capital requirements needed). The current 
work under MiFID does not prejudge about the out come of the CRD exemptions for which all 
options will be analysed in due course. Seco nd, central clearing is already widespread in 
energy markets and leads to cost-benefits in terms of netting and lower counterparty risk. 
Our preferred option in that field goes one step further than CESR's earlier advice on 
commodities business dated October 2008
101 by proposing to delete the exemption for 
commodity specialist firms. The case for this exemption is no longer valid in light of the 
lessons learned from the financial crisis and th e G20 clear commitment to ensure appropriate 
regulatory coverage of all main participants in financial markets and commodity derivatives 
markets in particular.102 
Regarding the review of the exem ptions, the number of firms th at could be impacted and the 
related costs is very difficult to  assess as these firms are not known to regulators because they 
are usually not required to be  authorised. However as a rule  of thumb the number of firms 
being impacted should be limited as most of  the commercial companies (e.g. big energy 
companies) having significant trading activi ties have already set up a MiFID authorised 
subsidiary. In addition most of  the MiFID exempt firms active in the energy markets and 
located in the UK – which is together with France hosting the main European commodity 
derivatives exchanges – have to be authorised and are already subject to a national regulatory 
regime.  
The third group of options looks at how best to  improve the oversight and integrity of the 
secondary spot carbon market (options 6.6 and 6.7).  Developing a tailo r-made regime would 
probably offer more flexibility to adapt to the sp ecificities of the spot carbon trade. At the 
same time, that flexibility would be limited by th e need to conform to the overall approach to 
market regulation set out in the MiFID and app licable to the other segments of the carbon 
market. Hence our preferred option is to extend  the application of MiFID to secondary spot 
trading of emission allowances. Such an exte nsion would ensure appr opriate regulation and 
oversight of the spot market, while allowi ng compliance buyers to trade on own account and 
hedge their risks by using the existing MiFID exemptions. In addition, it would ensure consistency in the regulatory framework betw een the physical markets and the derivatives 
markets, as the latter are already covered by the MiFID. It would also ensure consistency between the primary market and the secondary market, as the Auctioning regulation adopted 
by the Commission in July 2010 provides an exte nsion of the relevant  provisions of MiFID 
and MAD in the national legislation of Member States hosting an auction platform. Overall, 
there was limited support at this stage fo r extending the scope of MiFID to emission 
allowances among respondents. While many noted that some of the pr oblems witnessed in 
emission allowances markets could thus be overc ome, most urged further study in view of the 
possible implications for smaller firms. First, it is worth to recall that derivatives on emission 
allowances are already covere d under MiFID and emission a llowances per se may trade 
similarly to financial instruments. Second, the ra ther negative feedback from stakeholders on 
the proposed extension of MiFID is probably due  to the lack of knowledge by most users of 
these allowances (i.e. compliance buyers), of the MiFID provisions a nd the other financial 
markets legislation that cross reference to MiFID. We acknowledge that our consultation 
paper might have provided more insight in that respect. Complia nce buyers and sellers 
dealing on own account in emission allowances will be exempt from MiFID if this activity is 
ancillary to their main business and they ar e not part of a financial group. As mentioned 
 
 51    above, the status of the CRD exemptions will be  part of a separate review. The spill over 
effects of an extension of MiFID to the carbo n market in terms of other financial markets 
legislation (e.g. Prospectus Di rective (2003/71/EC), Listi ngs Directive (2001/34/EC), 
Transparency Directive (2004/109/EC), etc.) should  be rather limited as these legislations will 
in most cases not apply or an exem ption will be provided if needed. 
The extension of MiFID to the s econdary spot trading of emissi on allowances would give rise 
to aggregated one-off costs of € 1.5-€1.8 million, with yearly ongoing costs of €390,000-
€480,000 for smaller regional carbon exchanges (i.e. the major carbon exchanges are already authorised as regulated markets). The costs impact on compliance buy ers and non-financial 
market intermediaries (i.e. non-MiFID firms) is difficult to assess at this  stage as the number 
of entities that would be  impacted is not known. 
Together, this package of options would improve the func tioning of commodity derivatives 
markets by reinforcing transparency and applying  similar rules to fina ncial and non financial 
entities carrying out similar activities. Howeve r the costs triggered by these options are 
marginal (i.e. one-off aggregated costs of €2 to €3 million and yearly ongoing costs of €4 
million)  
6.7. Broaden the scope of regulation on pro ducts, services and providers under the 
directive when needed 
Comparison of options (the preferred options are highlighted in bold and underlined in grey ): 
7 Broaden the scope of regulation on products, services and service providers when needed 
Policy option Impact on 
stakeholders Effectiveness  Efficiency 
7.1 No action 0 0 0 
Optional exemption for certain investment service providers 
7.2 Allow Member States to 
continue exempting certain 
investment service providers 
from MiFID but introduce 
requirements to tighten 
national requirements 
applicable to them (particularly 
conduct of business and 
conflict of interest rules) (++) increased level 
playing field between 
service providers  
(++) better 
understanding of 
applicable rules from 
investors because of 
their uniformity  
(-) compliance costs for 
entities concerned (++) increased investor 
protection  
(-) persisting areas of 
discretion for each 
Member States that 
could maintain a level of 
inconsistency at 
European level (++) compliance costs for entities 
concerned compensated by 
increased protection of investors 
7.3 Delete the possibility for 
Member States to exempt certain 
service providers from MiFID 
(article 3) (+++) full level playing 
field between service 
providers  
(--) compliance costs 
for entities concerned  
(++) better 
understanding of rules 
from investors because 
of their uniformity (++) increased investor 
protection (--) compliance costs for firms not 
sufficiently compensated by 
benefits; organizational 
requirements included in MiFID 
would be disproportionate in view 
of the average size of the 
exempted providers and could 
force several commercial 
companies out of business 
Conduct of business rules for unregulated investment products 
7.4 Extend the scope of MiFID 
conduct of business and 
conflict of interest rules to 
structured deposits and other 
deposit based products with 
similar economic effect (++) level playing field 
between products  
(++) better 
understanding of rules 
from investors  
(-)compliance costs for 
banks which could pass 
some of them on to 
their clients (++) increased investor 
protection 
 (++) compliance costs partially 
compensated by benefits for firms 
(most entities selling different 
categories of investments will apply 
the same rules irrespective of 
products they sell) and clients 
 
 
 52    7.5 Apply MIFID conduct of 
business rules and conflict of interest rules to insurance 
products  (+) level playing field 
between products but possible need to adapt 
certain requirements to 
specificities (+) better 
understanding of rules 
from investors (though different rules would 
continue applying to 
insurance products which are not Prips)  
(--) compliance costs 
(especially for entities currently not covered 
under MiFID) (++) increased investor 
protection  (-) possible more 
fragmented regulatory 
framework for the insurance industry as 
MiFID rules unlikely to 
apply to non investment insurance products (+) compliance costs for entities not 
covered under MiFID (e.g. insurance companies) but which 
should be compensated by 
increased and more consistent investors protection 
 
The first preferred option (7.2) consists in in troducing principles for national regimes that 
regulates in certain countries certain invest ment advisors under the exemptions granted by 
article 3 of MiFID. Most of the 16 Member States that make use of this exemption already have in place to a certain degree a national re gime very similar to the MiFID provisions. 
Germany is the Member State with the highe st number of exempt service providers. The 
requirement for these national regimes to have analogous conflicts of in terest and conduct of 
business rules (suitability, information and re porting requirements) as the ones for MiFID 
authorised entities would ensure a comparable  protection of clients receiving investment 
advice irrespective of the entitie s providing it. This would increas e investor protection without 
imposing undue costs on the beneficiaries of th ese exemptions as a deletion of the optional 
exemptions would do (option 7.3). The other favour ite option is to extend some of the MiFID 
rules to structured depo sits (option 7.4) but not to insuranc e products (option 7.5) in order to 
provide to the investors a more consistent and protective legal framework. Member States 
with the highest investments in retail struct ured products are Italy, Germany, Spain, Belgium, 
and France. There is very significant suppor t among respondents for both of the preferred 
options. 
We expect the introduction of principles for the national regimes applying to firms operating 
under the Article 3 exemption to imply a one-o ff cost across all of the affected service 
providers of €15–30 million. An exte nsion of MiFID rules to the sale of such deposits would 
imply an estimated one-off impact of €31-€44m with ongoing costs of €9-€15m on a yearly 
basis. Taken together the prefer red options would give rise to  one-off aggregated costs of €46 
to €74 million and yearly ongoing costs of €9 to €15 million.  
6.8. Strengthen rules of business conduct for investment firms 
Comparison of options (the preferred options ar e highlighted in bold and underlined in grey): 
8 Strengthen rules of business conduct for investment firms 
Policy option Impact on stakeholders Effectiveness  Efficiency 
8.1 No action 0 0 0 
Execution only services and Investment advice 
 
 53    8.2 Reinforce investor protection 
by narrowing the list of non-
complex products for which 
execution only services are 
possible and strengthening 
provisions on investment advice  (-) possible difficulties in 
introducing distinction 
complex/non complex for 
certain categories of 
products (for instance 
UCITS) 
(++) better knowledge of 
clients and products by 
firms and better 
assessment of clients' 
profiles 
(--) compliance costs for 
investment firms (+) increased clarity in 
classification of non-complex 
instruments 
(+) increased clarity of 
conditions for provision of 
advice  
(++) increased investor 
protection (++) compliance costs for 
firms compensated by 
improvement of quality 
service provided to 
clients at global level 
 
8.3 Abolition of the execution only 
regime (+) simplification of 
framework by eliminating 
distinction complex/non-
complex instruments (+) improved treatment 
for clients with low level 
of knowledge and experience 
(--) opportunity costs for 
investment firms (especially those only 
providing execution only 
services) (-) possible additional costs for clients with 
good knowledge and 
experience  (++) increased investor 
protection (--) compliance and 
opportunity costs for 
investment firms not 
compensated by benefits (especially those only 
providing execution only 
services) (-) possible additional 
opportunity costs for 
clients not compensated by benefit in the case of 
clients with good 
knowledge and experience 
Customers' classification 
8.4 Apply general principles to 
act honestly, fairly and 
professionally to eligible 
counterparties resulting in their 
application to all categories of 
clients and exclude 
municipalities and local public 
authorities from list of eligible 
counterparties and professional 
clients per se (++) increased protection 
for public entities 
receiving investment 
services 
(+) clear provision of 
general principles in the 
provision of services to 
eligible counterparties 
(-) marginal additional 
compliance costs for 
investment firms 
(especially those 
providing services mainly 
to professional clients 
and eligible 
counterparties) (+) safer access to 
investment services for 
municipalities and local public 
entities (while leaving 
possibility to ask classification 
as professional client on 
request) 
(+) increased professionalism 
and correctness in provision 
of services among eligible 
counterparties  
(-) only partial improvement 
as the diversity of eligible 
counterparties will remain (+) possible additional 
costs for certain 
municipalities receiving 
investment services 
largely compensated by 
safer services provided to 
the entire category  
(+) compliance cost for 
firms compensated by 
benefits for client 
because of increased 
attention to the quality of 
services provided to them 
8.5 Reshape customers 
classification by introducing new 
sub categories (--)compliance costs for 
investment firms to 
reshape the internal systems for client classification and to re-
classify their existing 
clients (+) possible benefits for 
certain clients 
(-) additional costs for clients (+) increased protection for 
limited categories of clients 
(-) difficulty in implementing sub division in each categories (--) compliance costs for 
investment firms to 
reshape the internal systems for client classification and to re-
classify their existing 
clients not compensated by benefits for all clients 
(-) additional costs for 
clients with little benefits as they are already able 
to ask for a different 
classification under the current regime 
Complex products and inducements 
 
 54    8.6 Reinforce information 
obligations when providing 
investment services in complex 
products and strengthen periodic 
reporting obligations for different 
categories of products, including 
when eligible counterparties are 
involved (--)compliance costs for 
investment firms 
(++) benefits for clients 
receiving more precise 
and timely information 
about products and to 
some extent to 
regulators (++) increased awareness of 
different categories of clients 
about the characteristics and 
the valuation of products 
traded with their investment 
firms 
(++) overall improvement in 
the quality of information on 
products  
(-) reduction in opportunities 
for investors if costs passed 
on to them 
 (++) compliance costs for 
investment firms 
compensated by better 
knowledge of products by 
firms and clients and 
improved relationship 
with clients 
8.7 Ban inducements in the case 
of investment advice provided on 
an independent basis and in the 
case of portfolio management (--) compliance costs for 
investment firms 
(+) possibility for firms, in 
the case of advice, to 
diversify the service they 
offer to clients 
(++) increased quality of 
service and clarity to 
clients (++) removal of certain 
situations of conflicts of 
interests for the most 
sensitive services 
(-) increased direct costs for 
investors that may have to 
pay (higher) fees for these 
services 
(+) increased investor 
protection (++) compliance costs for 
investment firms 
compensated by benefits 
for investors in terms of 
higher quality services 
8.8 Ban inducements for all 
investment services  (---) compliance costs for 
investment firms 
(-) reduced choice and increased costs for clients  (--) broad application of the 
ban without any distinction 
between services would be disproportionate and could greatly damage the business 
model of many investment 
firms (-) costs for firms and 
clients not adequately 
compensated by benefits  
Best execution 
8.9 Require trading venues to 
publish information on execution 
quality and improve information 
provided by firms on best 
execution (-)compliance costs for 
trading venues 
(+) improved ability of 
firms to select trading 
venues 
(+) better execution (and 
better information) for 
clients  (++) improvements in 
delivering best execution to 
different category of clients 
(+) improvement in the ability 
of supervisors to monitor 
firms' compliance with best 
execution  (++) compliance costs for 
trading venues largely 
compensated by benefits 
for other stakeholders in 
terms of best execution 
8.10 Review the best execution 
framework by considering price as 
the only factor to comply with best execution obligations  (+) increased clarity for 
investors 
(-) uncertainties to market participants on 
the impact of factors 
other than price on best execution 
(--) compliance costs for 
firms  (-) additional complexity if 
best execution is extended 
(--) focus on price would not systematically lead to better 
execution than the current 
system because of the importance of other factors 
(costs, market impact, 
likelihood) in the choice of execution venues.  (-) costs not 
compensated by clear 
and univocal benefits 
The strengthening of business condu ct for investment firms is t ackled from different angles. 
The first favourite option is to review the list  of products for which execution only services 
are possible and reinforce conduc t of business rules for the pr ovision of investment advice 
(option 8.2). This will reinforce the protection of investors while preserving their freedom to 
use execution only services which was not the case in option 8.3. The second favoured option is to improve the rules of engagement for eligible counterparties by applying general 
principles of acting honestly as well as adapting sli ghtly (without reshapi ng them as suggested 
in option 8.5) the customers' classification set in MiFID (option 8.4). Ov erall, there is broad 
support for narrowing the list of non-complex inst ruments, but with many cautioning against 
any negative implications for the UCITS bra nd. There is also broa d support for option 8.4. 
Views are more mixed on the merits of stre ngthening provisions and requirements around 
investment advice.  
The costs resulting from a reduction of the scope of non-complex products that can be 
distributed via execution-only services shoul d be marginal. The overall compliance costs 
resulting from a strengthening conduct of business rules for the provision of investment 
advice for investment advisers would amount to  an estimated one-off cost of between €5.6 
 
 55    million and €12.5 million, and ongoing estimated costs of between €134 million and €279 
million. 
We expected ongoing costs of €16 million resulting from the clarification of the rules of 
engagement with eligible count erparties. We do not expect si gnificant costs from excluding 
municipalities from being classified as eligible counterpartie s or professional clients per se as 
such a change has already been effected – at least to an extent – in a number of Member 
States.  
Two other favourite options look at  reinforcing the protection of investors when dealing with 
complex products (option 8.6) with the requir ements for additional information or when 
offered investment advice on an independent basi s or portfolio management (option 8.7) with 
the ban of inducements. A total ban of all in ducements has nevertheless been disregarded 
because of its excessive costs and potential imp act on investment firms. Stakeholder views are 
divided with some agreeing with the need for more timely and stringent reporting in relation 
to complex products, while others consider th is would overload client s with information. 
Views are also divided on restricting inducements  as per above, with more support however in 
the case of portfolio management.  
The proposal to clarify the concept of indepe ndent advice takes into account evolutions at 
national level (e.g. United Kingdom) although is not directly dealt with in CESR advice. 
Netherlands has also indicated that it is co nsidering a  prohibition of inducements for 
investment advice. The proposal  tightens the existing rules wh ile at the same  time leaving 
freedom of choice for investment firms and client s as to the service they wish to provide or 
receive. 
Regarding the additional informa tion proposed for client s in relation to co mplex products, we 
would expect the overall one-off costs to  be between €83.2-145.9 million and yearly ongoing 
costs between €11.6-36.6 million. In the case of th e banning of inducements when providing 
investment advice on an indepe ndent basis, we estimate the costs for firms as being about 
€41m one-off and being about €24-28m ongoing. With respect to  a ban on inducements for 
portfolio managers we expect overall one-off cost implications of about €131 million, and on-
going costs of €3.7m. The key benefit in terms of investor protection would be that the 
inherent conflicts of interests that exist toda y would be removed, with  the consequence that 
portfolio managers and independent advisors would align more thei r decisions with the 
interests of their clients. The structure of the market would move to a certain extent from a 
commission-based towards a fee-based model (i.e . it should be noted that in the case of non-
independent advice inducements would still be allowed).  
Another favourite option consists in requiring trading venues to publish information about 
execution quality and investment firm to im prove information on execution venues they use 
and best execution (option 8.9). This option will  also lead to more precise execution policies 
to be disclosed by investment firms to their cl ients. Many stakeholders say that sufficient 
information already exists in this respect, but broad support is  expressed by Member States 
and buy-side firms.  
The requirement for trading venues to publish information about execution quality is expected 
to trigger one-off costs of €18m and on-going cost s of €6m. This would reinforce the benefits 
in terms of best execution that are expected from  the introduction of a c onsolidated tape (see 
par. 6.3. above).  
 
 56    Taken together these preferred options will st rongly enhance investor protection mainly by 
reinforcing information requirements, by better protecting less knowledgeable investors, and 
by removing inherent conflict of  interests (i.e. banning of inducements for independent 
investment advice and portfolio management). Taken together the preferred options would 
give rise to one-off aggregated costs of €281 to €351 million and ye arly ongoing costs of 
€196 to €369 million. Although we acknowledge these costs are significant we believe these 
options strike the right balance between costs and benefits as we have limited the information requirements and the prohibition of inducements to certain complex products and investment 
services. The need to reinfo rce investor protec tion, by among other removing inherent 
conflicts of interests, is so urgent and evident that national initiatives have already been taken 
(e.g. UK retail Distribu tion review which foresees to ban the payment of third party 
commissions not only for indepe ndent advice as targeted here , but also for all types of 
investment advice).     
6.9. Strengthen rules of organisational requirements for investment firms  
Comparison of options (the preferred options ar e highlighted in bold and underlined in grey): 
9 Strengthen organisational requirements for investment firms 
Policy option Impact on 
stakeholders Effectiveness  Efficiency 
9.1 No action 0 0 0 
Corporate governance 
9.2 Reinforce the corporate 
governance framework by 
strengthening the role of directors 
especially in the functioning of 
internal control functions and when 
defining strategies of firms and 
launching new products and 
services. Require firms to establish 
clear procedures to handle clients' 
complaints in the context of the 
compliance function. (-) compliance costs for 
investment firms 
 (++) greater consistency in role 
of directors in shaping policies of 
firms and on internal control 
functions across EU 
(+) increased focus on directors' 
role and on their professionalism, 
also in the perspective of 
supervisors  
(+) improved handling of clients' 
complaints 
(-) increased level of rigidity in a 
currently flexible framework (++) compliance 
costs for investment 
firms largely 
compensated by 
benefits in terms of 
safer products for 
investors 
9.3 Introducing a new separate 
internal function for the handling of clients' complaints (-)compliance costs for 
investment firms (-) multiplication of 
internal functions in 
investment firms  (+) more uniformity in dealing 
with clients' complaints (-) less flexibility to adapt the 
procedure for handling with 
clients' complaints to the situation of each firms (type of 
services and clients, structure of 
the firm) (-) compliance costs 
and negative aspects not 
compensated by 
benefits 
Organisational requirements for portfolio management and underwriting 
9.4 Require specific organisational 
requirements and procedures for 
the provision of portfolio 
management services and 
underwriting services (-) limited compliance 
costs for firms 
(+) increased protection 
for investors 
(+) increased protection 
for issuers 
 (++) introduction of common 
principles across the EU for 
aspects of portfolio management 
and underwriting currently 
insufficiently regulated 
(++) possibility for supervisors to 
establish more uniform 
supervisory practices  
(-) additional rigidity  
 (++) compliance 
costs for investment 
firms largely 
compensated by 
benefits for all 
investors and issuers 
in terms of better 
services 
Telephone and electronic recording 
 
 57    (---) compliance costs 
for investment firms (except for those 
already subject to the 
obligation). (+) increased tools for 
supervisors 
(++) better protection of clients and detection of 
abusive behaviours for 
market integrity (+) common regime across 
Europe  (--) a fully harmonized model 
does not allow to take into 
account the technological evolution as well as specificities 
in the provision of services 9.5 Introduce a fully harmonised 
regime for telephone and electronic recording of client orders 
Impact on fundamental rights: 
Option interferes with Articles 7 and 8 of CFR.  
 Option provides for limitation of these rights in law while 
respecting the essence of thes e rights. Limiting these rights 
is necessary to meet the general interest objective of ensuring market integrity and compliance with conduct of 
business rules. In order to respect fundamental rights, this 
requirement must be proportionate to the objective pursued and must respect EU data protection rules taking into 
account a maximum retention period for data of 2 years and 
also laying down the conditions for processing recorded communications. Supervision of the lawfulness of the 
processing of recorded communi cation shall be subject to 
the independent oversight of Member States data protection authorities set up by Directive 95/46/EC.   (--) compliance costs 
and downsides not compensated by 
benefits  
(--) compliance costs 
for investment firms 
(except for those 
already subject to the 
obligation). 
(+) increased tools for 
supervisors 
(++) better protection of 
clients and detection of 
abusive behaviours for 
market integrity (++) leaving some flexibility to 
Member States allows to take 
into account technological 
evolution as well as specificities 
in the provision of services 
(+) common regime across 
Europe 9.6 Introduce a common regime for 
telephone and electronic recording 
but still leave a margin of discretion 
for Member States in requiring a 
longer retention period of the 
records and applying recording 
obligations to services not covered 
at EU level. 
Impact on fundamental rights: 
Option interferes with Articles 7 and 8 of CFR.  
 
Option provides for limitation of these rights in law while 
respecting the essence of thes e rights. Limiting these rights 
is necessary to meet the general interest objective of 
ensuring market integrity and compliance with conduct of 
business rules.  In order to respect fundamental rights, this 
requirement must be proportionate to the objective pursued 
and must respect EU data protection rules and also laying 
down the conditions for processing recorded 
communications. Supervision of the lawfulness of the 
processing of recorded communi cation shall be subject to 
the independent oversight of Member States data protection 
authorities set up by Directive 95/46/EC. 
 (++) icompliance 
costs are 
compensated by 
benefits in terms of 
better protection of 
clients and improved 
market integrity 
In order to reinforce the rule s over organisational requirement s for investment firms, three 
policy options have been retained. 
The first one aims at strengtheni ng corporate governance  by increasing the role of directors in 
a number of processes, with an additional focu s on the handling of clients' complaints (option 
9.2). The second one is to requir e specific organisational requirem ents and procedures for the 
provision of portfolio manageme nt services and underwriting se rvices (option 9.4) while the 
third one is to set up a common regime for telephone and electronic recording while 
preserving a certain margin of discretion for Member States (option 9.6). About 15 Member 
States have already a recording requirement whic h is incorporated in national legislation or 
rules. The selected options should ensure an ap propriate reinforcement of the organisation of 
investment firms in some key ar eas for investors prot ection and market integrity (options 9.2 
and 9.4) while contributing to a more coherent framework in  Europe (option 9.6) without 
excessive costs (option 9.3 which considers th e introduction of a new internal function for 
 
 58    handling of clients' complaints) or rigidity  (option 9.5 for a fully harmonised regime for 
telephone and electronic record ing). Respondents generally support provisions on stronger 
governance and internal reporting requireme nts, but are more reserved on specific 
requirements for portfolio management and under writing services. There is broad support for 
a minimum taping regime involving telephone and electronic communicatio ns which must in 
any case respect fundamental righ ts, particularly the rights to private life and protection of 
personal data. 
Strengthening the role of the directors in the functioning of the internal  control functions is 
likely to lead overall to an in cremental on-going cost for firms of €24-36m across the EU. 
Requiring specific organizati onal requirements would lead to a one-off cost of €2.8-4.2 
million in the case of portfolio management, and to one-off costs of €11-€26 million as well as ongoing costs of about €0.25 million in the case of underwriting. In relation to the 
introduction of a harmonised requirement for r ecording client orders we have estimated the 
range of incremental aggregated one-off costs to be €41.7-99.2 million and ongoing costs to be €45.2-101.2 million for the whole of the EU. Ta ken together the preferred options would 
give rise to one-off aggregated costs of €61 to €134 million and yearly ongoing costs of €69 
to €133 million. 
7. T
HE PREFERRED POLICY OPTIONS AND INSTRUMENT  
7.1. The preferred policy options 
Based on the analysis of the impacts above, the preferred options to achieve the objectives set 
out in this impact assessment have been identified in the tables above. An overview is included in Annex 4. 
Overall, the preferred policy options will lead to  considerable improvement in the confidence 
of investors and derivative markets users, la rge reduction in systemic risks and substantial 
improvement in market efficiency. First, the improved transparency rules on equities and the 
new transparency rules on bonds and derivatives combined with the new reporting obligations 
and systems will greatly increase the level of transparency of financial markets, including 
commodities markets, towards regulators and ma rket participants. Coupled with new powers 
for regulators, this should result in more or derly functioning of financial markets across the 
board. Second, the new obligations imposed on i nvestment firms in terms of organisation, 
process and risk controls will  strongly reinforce investor protection and therefore raise 
investor confidence. Third, the new trading framework and obligations imposed on some 
market participants will at the same time decreas e systemic risk and lead to more efficient 
markets. 
7.2. The choice of instruments to ensure  an efficient revision of MiFID 
7.2.1.  Non-legislative cooperation between Member  States with guidelines by ESMA 
A potential option to achieve the objectives set out in this report c ould be to extensively 
utilise cooperation between national regulators through ES MA. Under the current MiFID 
framework national regulators are already required to cooperate, for example in respect of the 
supervision of branches of investment firms where supervisory competences are split between 
the home- and the host-Member State regulat or, and to exchange information. Such 
cooperation could be further intensified and f acilitated by guidelines commissioned by ESMA 
in order to achieve a greater degree of s upervisory convergence when applying rules in 
 
 59    practice. A case in point could be the regulatory re sponse to the relativel y new developments 
in automated and high-frequency trading where common guidelines in how to deal with that 
phenomenon in supervisory dail y practice could be designed.  
However, the disadvantage of this approach is that it would be based on cooperation of 
regulators, devising guidelines that are non-binding to market pa rticipants within the limited 
room for manoeuvre the existing legal framewor k permits. Cooperation can only go so far as 
is allowed by the law and cannot be a substitute for specific, binding legal rules designed to 
address new developments in the markets which the current legislation does not cover or to 
extend the existing framework to additional area s which are currently insufficiently regulated. 
Therefore, legal provisions are needed to accomplish the desired improvements in market 
transparency, market structure and investor pr otection. This instrument does not represent a 
viable solution for accomplishing the goals described in this impact assessment. 
7.2.2.  The right legal instrume nt to amend the MiFID  
Having rejected the option of proceeding by non-le gislative cooperation, this leaves the option 
of trying to achieve the objectives described in  this impact assessment by a legal instrument. 
This would ensure the implement ation and application of target ed amendments, additions and 
extensions envisaged for the scope of MiFID in all Member  States. The improvements in 
relation to market transparency and structure and investor prot ection would be achieved in the 
entirety of the European markets, potential  regulatory arbitrage c ould be minimised and 
especially firms operating on a cross border basis could benefit from economies of scale being assured that the same legal framework is appl ied wherever they operate within the EU. The 
suitable legal instrument for attaining the goals described in this imp act assessment would be 
a combination of a Directive and a Regulation. C hoice between these is made on the basis of a 
case-specific analysis. 
The high level group on Financial Supervision re commended that future legislation should be 
avoided that permits inconsistent im plementation and application of rules
103. This 
recommendation does point to an increased use of  regulations as a legal instrument where by 
design there can be no inconsistencies in im plementation due to deviations in national 
transposition processes and where manifest di fferences in application can be kept to a 
minimum by devising a stringent set of rules di rectly on the European level. In addition, a 
Regulation could avoid diverging national rules being created in  the transposition processes 
and would ensure best a harmonised set of core rules applicable in the EU. Specifically for the 
subject matters covered by MiFID three areas can be distinguished where the choice of legal 
instrument can be assessed separately. 
A Regulation might be the best  way to ensure full harmonis ation of national supervisory 
powers and to further enhance th ese powers. In addition a Regulation is necessary to grant 
specific direct competences to ESMA in the areas of setting position limits and banning of investment products, as well as in the area of coordination of national supervisory powers.   
Concerning other areas, a regulation could be appropriate for the subjects of trade-
transparency and transaction reporting where the application of the rules often depends on 
numeric thresholds (eg for determining when a de ferred publication of a tr ade large in scale is 
permitted) and specific identification codes (populating the automated and machine-readable transaction reports supervisors n eed to investigate potential case s of market abuse). Here any 
deviation on the national leve l would inevitably lead to ma rket distortions  and regulatory 
arbitrage, preventing the development of a le vel playing field. The cu rrent MiFID framework 
has already acknowledged these considerations and dealt with them ad equately. While the 
 
 60    framework directive does entail the general rules, a Level 2 regulation104 conclusively 
regulates the technical details on trade-tran sparency and transaction reporting. Practical 
shortcomings of this regulatory structure have no t been encountered yet, but in the spirit to 
use as much as possible a Regulation as the le gal instrument to take advantage of all the 
benefits it could bring, it might be appropr iate to introduce these requirements in a 
Regulation. This may require the change of th e legal basis. The same approach could be 
utilised when extending the rules in these areas, for example, to non-equity products.  
Concerning investor protection guaranteeing a level-playing fiel d by using a Regulation as the 
legal instrument might appear  to be an attractive option. 
Especially for retail investors across the EU a uniform set of rules may promote the use of 
cross-border providers or the investment in financial produc ts from other Member States. 
However one has to bear in mind that national retail markets for financial instruments across 
the EU still differ with certain instruments and services being more popular in some Member 
States than others. Therefore, in the specific ca se of MiFID, flexibility for Member States to 
add specific rules tailored for their markets adds  to a high standard of  protection for retail 
investors. A directive is the right legal instrume nt for granting such flexibility. A one size fits 
all approach would not be suitable to adequately  reflect the diversity of European markets. 
This would increase compliance costs for invest ment firms while not bringing any benefit in 
terms of investor protection. 
Another case in point is the proposal to excl ude municipalities and lo cal public authorities 
from the list of eligible counterparties to better protect them as investors. The terms 
municipalities and local public authorities are deli berately broadly framed as the structures of 
local governments are very different in the Member  States. Therefore, it appears valid to leave 
it to Member States to determine which inst itutions on the local level should precisely be 
captured by the terms municipa lities and local public authorit ies. The direc tive again does 
seem to be the more suitable instrument to ensure that the ensuing provisions are 
appropriately designed to fit in with the national structures and to work seamlessly in practice.  
Shortcomings of MiFID cannot be linked to the current legal structure and a lack of direct 
applicability of the rules, but rather to tech nical developments, gaps and limitations in scope 
that need to be addressed.  
The current MiFID set-up (framework directiv e and two implementing m easures, one of them 
being a regulation for technical aspects) has wo rked reasonably well in supervisory practice 
and should even improve due to stronger ES MA coordination. A restructuring of this 
framework by devising regulations  on all levels would trigger s ubstantial adaptation costs for 
public authorities and market participants alike only three and a half years after transposition 
(November 2007) of the original MiFID. 
While financial markets are increasingly in ternational in design and outlook national 
specificities remain, e.g. in relation to market m odels used or, in partic ular, in the ways retail 
investors access the financial markets (for exam ple, instruments prefe rred by retail investors 
differ between Member States as  well using independent advisers  or high-street banks as the 
prime gateway to invest). For regulators to be able to appropriately take into account such 
national specificities it is still a valid point within the wide-ranging MiFID field to grant 
Member States a certain degree of flexibility for which the directive is the more suitable tool.  
In conclusion, the Commission services consider  that a Regulation should be devised dealing 
with competences of ESMA, as well as in th e area of coordination of national supervisory 
 
 61    powers and possibly further enhancement of na tional powers. A regulation might also be 
appropriate for the subjects of trade transparency  and transaction reporting.  It should be noted 
that a different legal basis (Article 114 TFEU ) than the existing one (Article 53 TFEU) should 
be used as the latter only allows  for the issue of directives. A di rective rather than a regulation 
is deemed to be the most appropriate instru ment for establishing the amended framework 
dealing with the substantive matters of markets in financial instruments. This outcome is consistent with the choices made for other European legal instruments in the field of 
regulating financial markets and services. 
7.3. Impact on retail investors and SMEs 
In this regard, the strengthening of the pr ovisions on conduct of business rules (i.e. on 
inducements, on complex and non-complex products, on information to be provided to clients 
and the best execution rules, linked also to th e enhancement of the quality of data), the 
modification of some organisational require ments and the strengthening of supervisory 
powers will be measures with a direct impact on the better protection of retail investors and 
thus will improve and enlarge th e access of these inve stors to financial markets. In addition, 
the revision of MiFID will also have an impact in the protection of professional investors, which will have additional safeguards concerni ng the way investment firms deal with their 
investments (e.g. more transparen cy, stricter organisational rule s, new clients classification). 
With regard to SMEs, their protection will be e nhanced when acting as investors. In addition, 
through the revision of MiFID, by introducing an EU label for SME markets, their access to 
capitals markets will be facilita ted. By giving more visibility to SME markets and thus more 
liquidity to their assets, more investors will be attracted to these markets. The fact that the 
regime proposed will facilitate a network of SMEs markets with in the EU gives even more 
possibilities for SMEs to obtain financing via ca pital markets, as thei r assets will have the 
possibility to be traded in all the markets belonging to the network. 
7.4. Impact on third countries/ im pact on EU competitiveness 
Financial markets, including commodity deriva tives markets, are global markets; therefore 
any modification in the EU legislation w ill have an impact on third countries.  
However, it is important to si gnal that several of the modifi cations proposed to the current 
legal framework are steps taken in order to put  into effect G20 commitments. In September 
2009, the G20
105 committed to tackle less regulated and more opaque parts of the financial 
system, and improve the organisa tion, transparency and oversight  of various market segments, 
especially in those instruments tr aded mostly over the counter. In  particular they  agreed that 
all standardised over-the counter ('OTC') de rivatives should be traded on exchanges or 
electronic trading platforms where appropriate . During its Pittsburgh summit, the G20 also 
agreed "to improve the regulation, functioning, a nd transparency of financial and commodity 
markets to address excessive commodity price volatility."106 The G20 commitment was 
reinforced in November 2010 by the summit stat ement in Seoul, which pledges to address 
food market volatility and excessive  fossil fuel price volatility.107 Therefore, the legal 
framework of other important jurisdictions (i.e . USA, Japan) will also be modified in the 
same sense.  
A comparison of the US regulatory reforms with  the MiFID review is included in Annex 14. 
Overall the US is making similar choices, al beit to suit its own market structure and 
framework of laws and oversight. Competition between trading venues is welcomed. In Dodd-Frank, information duties between fi rms and clients are being tweaked and 
 
 62    transparency rules are being extended to new instruments. High frequency trading and dark 
pools are both under study. At this stage, neither will be radically  restricted but some possible 
safeguards are being discussed. As a result, th e EU and US are poised to make regulatory 
adjustments to deal with common issues, althoug h differences in approaches may be justified 
according to the structure and needs of each re spective market. By way of exception, EU-US 
measures in relation to OTC derivatives need to go beyond broad parallelism and be nearly identical. Unlike other instruments more closely tied to local issuers, investors, laws, and 
infrastructures, trading in OTC derivatives can be uprooted more easily to another jurisdiction. As a result, the EU and US need to adopt highly similar, viable and ambitious 
regulatory frameworks for migrating trading in derivatives increasingly from OTC markets to 
transparent, multilateral organised trading ve nues in line with the G20 commitment. Close 
alignment is also required as regards regul atory improvements to commodity derivatives, 
although the solutions cannot igno re differences in the struct ure and make-up of underlying 
local markets.  
However, the possibility of regul atory arbitrage exists with countries that are not part of the 
G20 and therefore not bound by the commitments ta ken at that level. A close monitoring of 
the evolution of the regulation in these countries  will therefore be needed in order to ensure 
that the EU competitiveness is not harmed.  
Third countries will be positively impacted as th e revision of MiFID will introduce a third 
country regime to frame the access of third coun try firms to the EU markets. Nowadays their 
access is fragmented, as each Member State deci des whether to establish a third country 
regime and how to do it. This third country re gime will have a positive impact in the current 
trend of the industry to create me rgers at international level, as  it has recently  been announced 
by important stock exchanges (see Annex 2.4.3), as the third country regime will require establishing comprehensive memoranda of unders tanding between the EU  regulators and third 
country regulators to de al with the regulatory aspects in or der to have the necessary tools to 
better supervise third country firms/market ope rators. Full account should be taken of the 
EU's international commitments, both in the WTO and in bilateral Agreements 
7.5. Social impact 
Some of the proposals suggested will increase investor protection, reinforce the means of 
regulators for controlling fina ncial markets and financial ope rators, and make financial 
markets more transparent and more secure. Therefore, there will be a direct benefit to all types of market participants: investors, retail or institutional, as well as issuers. In particular, the reclassification of some professi onal investors, such as municipa lities and charities, as retail 
investors will avoid that those investors acced e the markets without the necessary level of 
protection, as it has been evidenced during the fi nancial crisis, where some of these actors had 
invested in assets that were  not at all suitable for them. 
The proposals taken should lead to higher investor confidence and possibly greater 
participation in financial markets. In addition, by contributing to reducing markets' disorder 
and systemic risks, these options should improve the stability and reliability of financial markets thereby making it easier for enterprises to  raise capital to grow and create more jobs.  
In addition, by requiring investment  firms to disclose further in formation to investors and to 
learn more about their investment criter ia, the revision of Mi FID might encourage 
investments in specific types of business, su ch as social, environmental, ethical, etc. 
 
 63    7.6. Impact on fundamental rights 
An assessment was made of the policy options  to ensure compliance with fundamental 
rights108. As most of the options considered as part  of this impact assessment do not interfere 
in any way with any of the funda mental rights or reinforce th e right to consumer protection 
and/or the freedom to conduct bus iness, we have focused our assessment on the options which 
might limit these rights and freedoms. A detaile d analysis for these relevant policy options 
can be found in Annex 3. The prop osal is in compliance with the charter as it will lead to 
more effective and harmonised regimes for provisi on of investment serv ices and activities in 
financial instruments improving market integrity  and compliance with MiFID rules. However 
any limitation on the exercise of these rights and freedoms will be prov ided for by the law and 
respect the essence of these rights and freedoms.  To this end the policy options relating to 
whistleblowing (as part of the option on administrative sanctions ) and telephone and 
electronic recording ensure th at access to telephone and data  records, access to private 
premises, data on whistle blowing are subject to  appropriate safeguards. These policy options 
will contribute to market integrity by facilitatin g the detection of market abuse within the EU 
as well as facilitating the m onitoring of compliance with Mi FID conduct of business rules. 
The proposed sanctioning regime will ensure that  similar breaches are sanctioned in similar 
ways throughout the EU, unless differences can  be objectively justified. This Impact 
Assessment addresses problems relating to dive rgences and weaknesses of administrative 
sanctions. It is without prejudice to the situa tion concerning criminal sa nctions regimes in the 
field of MiFID, which deserves further analys is. Following such analysis the Commission will 
decide on policy actions to be taken in this re gard, based on a full assessment of the relevant 
impacts. 
7.7. Environmental impact 
It does not appear that the preferred options identified will have any direct or indirect impacts 
on environmental issues. 
However, there are some positive indirect environmental issues, as thanks to a better oversight 
of commodities markets, the current functioni ng of commodities markets could be improved, 
which could contribute to a more stable e nvironment for producers of physical commodities 
which could improve overall allocation of resources and possibly better take into 
consideration environmental constraints. Lastl y, improving transparency and oversight of the 
emission allowances market w ould contribute to a better f unctioning of the EU Emissions 
Trading Scheme (ETS) which is a cornerstone of the EU's policy to combat climate change. 
The EU ETS is a cap and trade system aimed at cost effective and economically efficient 
reductions of greenhouse gas emissions by creati ng a market in emission allowances and a 
price signal that reflects the abatement costs, as well as the scarcity, of allowances and guides 
decisions on abatement measures. An efficient allocation implies that emission allowances go 
to those participants that have  a marginal cost of reducing em issions above the market price. 
Participants with lower marginal cost would choose instead to abate their emissions, e.g. by 
production optimisation or investment in low carbon technology. The most important place 
for price discovery is the secondary market, where trading takes place between many parties 
throughout the day. Liquidity of the secondary market is crucial fo r the reliability  of the price 
signal. In this context, higher standards of integrity and transp arency applicable to the spot 
carbon markets will enhance in vestor confidence and contri bute to securing sufficient 
liquidity in that market.  
 
 64    8. ESTIMATE OF IMPACT IN TERMS OF COMPLIANCE COSTS AND ADMINISTRATIVE 
BURDEN  
8.1. Estimated overall compliance costs 
The estimates of compliance costs provided below are based on the study carried out by 
Europe Economics. A more detailed breakdown of consolidated costs can be found in Annex 
5. Further detailed analysis is also provided in  this annex, including a de tailed explanation of 
all the underlying assumptions. 
The MIFID review is estimated to impose one-off compliance costs of between €512 and 
€732 millions and ongoing costs of between €312 and €586 million. This represents one-off and ongoing costs impact of respectively 0.10% to 0.15% and 0.06% to 0.12% of total 
operating spending of the EU banking sector
109. This is only a fraction of the costs imposed at 
the time of the introduction of MiFID. The one-o ff cost impacts of the introduction of MiFID 
were estimated as 0.56 per ce nt (retail and savings banks ) and 0.68 per cent (investment 
banks) of total operating spending. Recurring compliance costs were estimated at 0.11 per 
cent (retail and savings banks) to 0.17 per cen t (investment banks) of total operating 
expenditure.110 
 
Consolidated overview of compliance costs (€ millions)
low high low high
Market structures 10 31 9 21
New trading technologies ("automate trading") 1 1 1 1Pre and post-trade transparency and data consolidation 38 41 12 18Reinforce regulatory powers 8 13 10 20Transparency to regulators 65 84 3 5Commodity derivatives markets 2 3 4 4Broaden the scope of regulation 46 74 9 15
Strengthening of conduct of business rules 281 351 196 369
Organizational requirements for investment firms 61 134 69 133TOTAL MiFID REVIEW COSTS 512 732 312 586Total operating costs of investment firms 500.000 500.000 500.000 500.000Total MiFID review costs as a % of to tal operating costs 0,10% 0,15% 0,06% 0,12%TOTAL INCREMENTAL COSTS
one-off on-going
 
We have been cautious in assessing these costs taking conservative assumptions. For 
example, the incremental one-off costs imposed upon investments firms relating to transaction 
reporting of OTC derivatives (including commod ity derivatives) would virtually disappear 
when reporting requirements under MiFID and EM IR are fully harmonis ed, so that trade 
repositories can be allowed to be approved as Approved Reporting Mechanism. This would 
mean that the any additional costs due to MiFID in that regard would be eliminated, reducing the total estimated compliance costs by €64 to 82 million. 
 
8.2. Estimate of impact in term s of administrative burden 
The administrative burden costs are part of th e compliance costs presented above. We have 
identified the compliance costs above which meet  the definition of administrative burden and 
for these compliance costs which are at the same time administrative costs have constructed the Standard Costs Model ("SCM") estimates. Th e preferred options generating administrative 
burden (i.e. the measuresgiving rise to in formation obligations) are as follows: 
• Pre-and post-trade transparency (both equity and non-equity). 
 
 65    • Reporting channels and Data consolidation 
• Commodity derivatives — position reporting 
• Transparency to regulators: transaction reporti ng, storage of orders and direct reporting to 
ESMA 
• Investor protection — the information obligatio ns when offering investment services in 
complex products and the enhanced informa tion to be published by trading venues on 
execution quality and the information give n to clients by firms on best execution 
• Further convergence of the regulatory framew ork — telephone and electronic recording of 
client orders 
• Supervisory powers — position oversight. 
 
€ millions
low high low high
Pre- and post-trade transparency 7,5 11,2 9,3 13,1
Reporting channels and Data consolidation 30,0 30,0 3,0 4,5
Reinforce regulatory powers: Position oversight & limits 8,2 12,9 9,5 20,3Transparency to regulators 65,4 84,1 2,6 4,9Commodity derivatives: Position reporting by categories of traders 0,8 1,0 3,3 3,8
Information on complex products 83,2 145,9 11,6 36,6
Trading venues - Execution quality 18,0 18,0 6,0 6,0Harmonisation of the telephone and electronic recording regime 41,7 99,2 45,2 101,2
Total administrative burden 254,8 402,3 90,5 190,4one-off on-goingTOTAL ADMINISTRATIVE BURDEN COSTS
 
9. ESTIMATE OF IMPACT IN TERMS OF INDIRECT ECONOMIC EFFECT  
We try to assess in this section the impact in terms of indirect economic effects of our 
preferred options. We focus on the areas for which some information is available. 
9.1. Trading of clearing eligible and suffi ciently liquid derivatives on organised 
trading platforms 
Trading derivatives on exchanges, MTFs or elec tronic platforms should result in operational 
efficiencies for traders (both buy- and sell-si de), reduce the occurrence of front and back 
office errors and provide a clear and easily accessed audit trail. The increased transparency on 
such platforms, as well increased competition between dealers, is also likely to reduce the bid-ask spreads in the relevant mark ets provided that liqui dity is not reduced. This reduction in 
spreads which will represent an opportunity cost to dealers of trading on a platform rather than purely over the counter, can be considered as a positive effect for the wider market. In 
addition, even for dealers, the opportunity cost s could be largely offs et by the significant 
increase in volume (i.e. when a product is trad ed on a platform the level of standardisation 
increases, trading volumes increase, trading cost s decrease and liquidity increases) as well as 
increasing ease of trades.
111 Please refer to Annex 8 for more detailed analysis. 
 
 66    9.2. Extension of the trade transparency regime for equities to shares traded only on 
MTFs or other organised trading facilities 
The experience of the UK Alternative Investment Market (AIM), a junior market regulated as 
a MTF and part of the London Stock Exchange  Group (LSE), indicates a 16% reduction in 
spreads with the advent of MiFID transparency regime for shares. AIM was indeed one of the 
primary MTFs, such as First North, which comp lied with the MiFID transparency regime in 
the same way as the main market they bel ong to. Hence the impact of MiFID on the AIM 
should be similar to the impact that would be observ ed in other primary market MTFs if the 
more detailed transparency regime for shares admitted to trading on a regulated market were to be applied.  
9.3. Trade transparency in non-equity markets 
Concerning wholly new pre- and post-trade transpar ency requirements fo r non-equities, it is 
not possible to make a complete assessment of  the possible economic impact - notably in 
terms of liquidity in these markets - at this stage, as these will largely depend on the detailed requirements in terms of delays and content by t ype of instrument and venue to be developed 
in implementing legislation. However, some presumptive assessments can be made.  
Overall, the indirect benefits of improving pre- trade data flows in non-equity markets in terms 
of more efficient price formation, increased competition among dealers and greater certainty 
for investors in contrast to the present context of available data across non-equity products is 
difficult to judge. 
Increased post-trade transparency may have benef its of reducing transaction costs (in the form 
of bid/offer spreads), as informational advantag es of large market ma kers would be reduced 
and investors would be able to negotiate better trading terms.  
We have tried to assess what the potential benefi ts of post-trade transparency could be by first 
looking at the US experiment (the Trad e Reporting and Compliance Engine (TRACE) 
system) and second by analysing available data of exchange traded and OTC bonds. 
Regarding the US experiment, TRACE was full y phased in by January 2006, and offers real-
time, public dissemination of tran saction and price data for all publicly traded corporate bond. 
Please refer to Annex 18 for a detailed analys is of the TRACE initiative. Unfortunately 
mapping the impacts of TRACE on th e US market to the EU market  is not something that can 
be done easily, if at all. There are important differences between the two markets, such as 
greater competition between dealer s and historically tighter bid- ask spreads in the EU market. 
Trading activity is more highly concentrated in US markets, with a handful of banks or 
dealers controlling the majority of the tradin g and syndication. None theless a number of 
interesting lessons could be drawn: 
• The main three studies
112 examining the impacts of TRACE find that TRACE significantly 
reduced transaction costs (spreads). As custom ers originally (in the opaque market) had to 
pay a search cost to find out  quote prices from different de alers, increasing transparency 
had increased their ability to accurately evaluate  the costs they pay and as a result reduced 
transactions costs and improved liquidity. The impact on the liquidity in its broader sense 
such as market depth, trade volume, and the ea se of transacting is less clear cut and still 
open to debate.  
 
 67    • Evidence from TRACE has shown that TRACE has directly benefitted investors and 
traders by increasing the precision of co rporate bond valuation and consequently 
decreasing the bond price dispersion. Research indicated that at the individual bond level, 
regardless of rating or issue size, valuation of bonds positions across a fund became much tighter once TRACE was implemented. As a resu lt, another potential indirect benefit of 
post-trade transparency is higher quality and reliable information for valuation purposes. 
Second Europe Economics carried out analysis of available bond data. It is important to bear 
in mind that the vast majority of corporate a nd government bonds are traded over the counter 
(estimated at 89 per cent of all trades)
113. 
The first set of data relates to  corporate bonds traded on exchange s. The analysis of these data 
suggests that increasing post-tr ade transparency for bonds trad ed on exchanges and regulated 
markets will have a positive impact in terms of reducing bid/offer spreads. Comparisons between countries that currently have post-trad e transparency on exchanges (such as Italy and 
Denmark) with those that don’t shows the spre ads in the former group decreased on average 
by eight basis points after the in troduction of post-tra de transparency. The potential benefit of 
extending transparency to other Member Stat es that do not currently have post-trade 
transparency for bonds is estimated to be approximately €8 million a year based on trading volumes taking place on exchanges.  
The second set of data relates to a subset of OTC corporate and government bonds traded 
OTC. Analysis of data from bonds traded over the counter reveals less  scope for benefits 
arising from post-trade transparency. This is likely to be due to lower levels of liquidity than on-exchange bonds. However, an interesting result emerged in that average spreads for OTC 
traded bonds are lower in countries that have  post-trade transparency for on-exchange bonds. 
Given that our OTC and exchange-traded bond sa mples consisted of almost all the same 
bonds, it is likely that price formation and transparency of bonds traded on exchanges 
influences the transparency of the same bonds traded OTC.  
As a conclusion, both in the case of on excha nge traded and OTC bonds, a narrowing of 
spreads, more reliable prici ng, as well as improved valuati on is expected. In addition 
increased transparency should deliver improved best execution of clients' transactions. But 
indirect costs in terms of less im mediacy and market depth can aris e if the ability of dealers to 
provide liquidity is impaired. This risk is lik ely to be far lower for government bonds than for 
corporate bonds as the former are in general mo re liquid. This potential downside effect could 
be addressed by a proper calibration of the disclosure regime  for orders of large size (e.g. by 
calibrating the type and the timing of information to be published). 
9.4. Consolidation of post-trade data in the equities and no n-equities markets 
As for a mandatory consolidated tape in the equ ities markets, it is e xpected that this should 
bolster competition between trading venues, lead ing to a further reduction in direct fees 
associated with trading. There should also be  an improvement in market depth and liquidity, 
as the consolidated tape should overcome some effects of fragme ntation in European markets. 
Moreover, it should deliver best execution benef its to investors. Based on a study of a sample 
of Europe’s most liquid stocks in January 2010, it has been estimated that this would amount 
to savings of €12.38 million in terms of transaction costs.
114 
With respect to non-equities markets, the set-up of a consolidated tape is expected to deliver 
similar benefits. 
 
 68    9.5. Ban inducements in the case of inves tment advice provided on an independent 
basis and in the case of portfolio management 
Independent advice The following possible effects of this measure could take place: 
• There is a risk that a number of small provid ers may exit the market as a result of the ban 
of inducements
115 (notably those for which commissions is an important source of 
revenues and that will not be willing or ab le to change their business model).   
• There is a significant possibility that many investment advisers working with a 
remuneration structure geared towards third-pa rty commissions would simply cease to self-
describe as being independent and switc h their business to the provision of non-
independent advice (in that making the nature of their business more transparent to clients).  
• There may be a switching effect away (by cl ients) from advisers that switch from a 
commission-basis to a fee-basis. The scale of this switch will be critically dependent upon 
the extent to which consumers value (and are therefore willing to pay) “ independent  
investment advice” against “investment advice”. If this is the case, any secular trend towards independent advice (in th e sense of not being restricted  in market choice and also 
having a remuneration structur e geared towards downstrea m remuneration) would be 
considerably strengthened. This would benefit consumer choice and the quality of service received.  
Portfolio management 
Whereas in investment advice provided on packaged products downstream charging is 
typically not standard practice, fees are usuall y charged to final inve stors in the case of 
discretionary portfolio management.  
The reception of commissions by portfolio ma nagers from product providers has attracted 
attention by regulators, due to the discretiona ry nature of this service. In 2007 and 2011 
CESR indicated the difficulty for portfolio managers receiving inducements to comply with their duty to act in the best interest of the clients
1 and the opportunity to consider a possible 
ban of inducements2. In the UK common market practice excludes the reception of 
inducements in the context of portfolio ma nagement. In Italy inducements are strongly 
discouraged in this case. Unfort unately no data are available to assess the scale of the changes 
driven by such a measure in Italy. An Italian tr ade association described this as having had the 
following impact on the business models of banks: 
• the reduction in the use of inducem ents has resulted in an incr ease in the charges levied on 
investors (to compensate the portfolio ma nagers for the revenues lost — however, 
previously the customer would have borne th ese charges implicitly as the product provider 
would have charge higher fees in order to enable him to pay commissions to the portfolio 
manager and these fees would have been deduc ted from the investment returns achieved)  
                                                 
1 Inducements under MiFID – CESR 07/228b. 
2 CESR Technical Advice to the European Commission in th e context of the MiFID review and Responses to the 
European Commission requ est for additional information – 29 July 2010. 
 
 69    • A switch away from packaged products (where there had been inducements) towards direct 
investments by portfolio managers.  
However, we note that private banking and di scretionary portfolio management (combined) 
have been recently estimated to account for about  6 per cent of mutual fund distribution in 
Italy.116 This was 7 per cent in 2007 (FERI Fund Ma rket Information). Whilst we recognise 
that market changes flowing from the regulatory change in Italy may not be fully reflected in 
the current estimate (and there could also be ot her drivers of the chan ge) and that the split 
between private banking and discretionary po rtfolio management activities might have 
changed this scale of change does not appear likely to be having significant impacts upon the 
asset management sector.  
Whether the same impacts would occur if this model were applied elsewhere in Europe is 
unclear. However one could argue that the prohibition of inducements would result in 
increased charges to the clients of the portfolio ma nagers so that the net impact for the latter is 
neutral. In this case , the inducements on pack aged products could be passed on to the end 
clients who would (in theory) be exactly compensated for the increased charges made by the portfolio managers. This would also mean that  the clients were put into an equivalent 
position, as we have described a bove: i.e. that the increase in annual service charge from the 
portfolio manager would be matched by the redu ction in fees levied  by the product provider 
and deducted from investment returns.  
10. M
ONITORING AND EVALUATION  
The Commission is the guardian of  the Treaty and therefore will monitor how Member States 
are applying the changes proposed in the le gislative initiative on markets in financial 
instruments. When necessary, the Commission will pursue the procedure set out in Article 226 of the Treaty in case any Member State fails to respect its duties concerning the 
implementation and application of Community Law.  
The evaluation of the consequences of the app lication of the legislative measure could take 
place three years after the transposition date fo r the legislative measure, in the context of 
reports to the Council and the Parliament. Th e reports shall be produced by the Commission 
following consultation of the European Secu rities and Markets Authority (ESMA). Key 
elements of such reports would assess in how far market structures have changed in the EU 
following the implementation of the MiFID Review ; how the level of transparency in trading 
in various financial instruments has develope d; and how the cost of trading for market 
participants has changed due to the measures implemented. 
The main indicators and sources of information th at could be used in the evaluation are as 
follows:  
• A report assessing the impact on the market of the new Organised Trading Facilities and 
the supervisory experiences acquired by regu lators; impact indicators should be the 
number of Organised Trading Facilities licensed in the EU; the trading volume generated 
by them per financial instrument as opposed to  other venues and particular over the counter 
trading; 
• a report on the progress made in moving trad ing in standardised OTC derivatives to 
exchanges or electronic trading platforms;  impact indicators should be the number of 
 
 70    facilities engaging in OTC deri vatives trading; and the trad ing volume of exchanges and 
platforms in OTC derivatives as oppose d to volume remaining over the counter; 
• a report on the functioning in pr actice of the tailor-made regime for SME markets; impact 
indicators should be the numbe r of MTFs which have regist ered as SME growth market, 
the number of issuers choosing to have their financial instruments traded on the new designated SME growth market; and the ch ange in trading volume in SME issuers 
following implementation of the MiFID Review; 
• a report on the impact in pr actice of the newly introduced requirements regarding 
automated and high-frequency trading; impact  indicators should be the number of high-
frequency firms newly authorised; and the number  of cases of disorderly trading (if any) 
perceived to be related to  high-frequency trading; 
• a report on the impact in practice of the newl y designed transparency rules in equities 
trading; impact indicators should be the pe rcentage of trading volume being executed 
following pre-trade transparent rules as opposed  to dark orders; and the development in 
trading volume and transparency levels in eq uity like instruments other than shares; 
• a report on the impact in practice of the newly designed transparency rules in bonds, 
structured products and derivativ es trading; impact indicators  for these two reports should 
be the size of spreads designated market-m akers offer following implementation of the 
new transparency rules; and associated with that the development in costs of trading for instruments of various liquidity levels  across the different asset classes; 
• a report on the functioning of the consolidated tape in practice; impact indicators should be 
the number of providers offering the service of a consolidated tape; and the percentage of 
trading volume they cover and the reasona bleness of the prices they charge; 
• a report on the experience with the mechanis m for banning certain products or practices; 
impact indicators should be the number of times the banning mechanisms have been 
utilised; and the effectiveness of such bans in practice; 
• a report on the impact of the proposed measur es in the commodity derivatives markets; 
impact indicator should be the change in pr ice volatility on commodity derivatives markets 
following implementation of the MiFID Review; 
• a report on the experience with the third country regime and a stock-taking of number and 
type of third country participants granted acces s; impact indicators s hould be the uptake of 
third country firms of the new regime; and th e supervisory experiences in practice with 
such firms; and 
• a report on experiences regarding the measures designed to stre ngthen investor protection; 
impact indicators should be the development of  retail participation in  trading of financial 
instruments following implementation of the Mi FID Review; and the number and severity 
of cases where investors, in general, and retail investor, in particular, have suffered losses.  
 
 71    11. ANNEXES: TABLE OF CONTENTS 
1. Annex 1: Operational glossary of ma in terms employed in the document………... 72 
2. Annex 2: Problem definition – background and technical detail…………………. 88 
3. Annex 3: Analysis of impacts and choice of preferred options and instruments… 120 
4. Annex 4: Overview of the preferred options……………………………………. 152 5. Annex 5: Overview of compliance costs………………………………………… 158 6. Annex 6: Overview of administrative burden…………………………………… 205 
7. Annex 7: Detailed underlying costs assumptions………………………………. 233 8. Annex 8: Estimate of impact in te rms of indirect economic effect……………… 235 
9. Annex 9: Summary of secondary policy options considered…………………… 261 10. Annex 10: Bibliography including list of reports published by CESR on MiFID  
related issues…………………………………………………………………….. 270 
11. Annex 11: Dates and list of participants to meetings organised by DG 
Internal Market about Mi FID related issues………………………………... 279 
12. Annex 12: Summary of public hearing……………………………………………. 281 13. Annex 13: Summary of the replie s to the public consultation…………………….. 295 
14. Annex 14: Comparison of MiFID review  with related US new regulation……….. 329 
15. Annex 15: Comparison MiFID review  and key IOSCO principles………………. 340 
16. Annex 16: Number of investment firm s and credit institutions in the EU……….. 344 
17. Annex 17: Literature revi ew of market impact of HFT and automated trading…… 346 
18. Annex 18: Summary of TRACE in itiative and its analysis………………………. 349 
19. Annex 19: Overview of main legislative in itiatives in the field of securities markets 
 ……………………………………………………………….………………… 352 
 
 72    11. ANNEX 1: OPERATIONAL GLOSSARY OF MAIN  TERMS EMPLOYED IN THE 
DOCUMENT  
Admission to trading The decision for a financial instrument to be traded 
in an organised way, notably on the systems of a trading venue. 
Algorithm An algorithm is a set of defined instructions for 
making a calculation. They can be used to automate decision making, for instance with regards to trading in financial instruments. 
Algorithmic trading Algorithmic tradi ng is trading done using computer 
programmes applying algorithms, which determine various aspects includi ng price and quantity of 
orders, and most of the time placing them without human intervention. 
Approved Publication Arrangement (APA) An A pproved Publication Arrangement is a system 
that requires firms executing transactions to publish trade reports through a b ody that ensures timely and 
secure consolidation and publication of such data. 
See section 4 (on data consolidation) of the Review 
of the Markets in Financi al Instruments Directive . 
Approved Reporting Mechanism (ARM) An appr oved reporting mechanism is a platform 
that reports transactions on behalf of firms. This 
can also be done via the multi-lateral trading facility or regulated market on which the transaction was performed. 
Arbitrage strategy An arbitrage strategy is one that exploits 
differences in price that exist due to market inefficiencies, for example, buying an instrument on one market and simultaneously selling a similar instrument on another market. 
Asset Backed Security (ABS) An Asset Back ed Security is a security whose value 
and income payments are derived from and collateralized (or "backed")  by a specified pool of 
underlying assets which can be for instance mortgage or credit cards credits. 
 
 73    Automated trading The use of com puter 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.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. 
Best execution MiFID (article 21) requires that firms take all 
reasonable steps to obtain the best possible result 
for their clients when executing orders. The best possible result should be determined with regard to the following execution factors: price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution 
of an order. 
Bid-ask spread The bid-ask spread  is the difference between the 
price a market maker is willing to buy an asset and 
the price it is willing to sell at. 
Bilateral order An order which is only discussed and disclosed to 
the counterparties to the trade. 
Broker Crossing System (BCS) A number of  investment firms in the EU operate 
systems that match client order flow internally. Generally, these firms rece ive orders electronically, 
utilise algorithms to determine how they should best be executed (given a client's objectives) and then pass the business through an internal system that will attempt to find matches. Normally, algorithms slice larger 'parent' orders into smaller 'child' orders before they are sent for matching. Some systems match only client orders, while others (depending on client instructions/permissions) also provide matching 
between client orders and house orders. Broker 
crossing systems do not show an order book, and as noted above, simply aim to  match orders; due to 
this nature they are sometimes compared to Dark Pools, which have similar characteristics. 
Central Counterparty (CCP) A Central Counter party is an entity that acts as an 
intermediary between trading counterparties and absorbs some of the settlem ent risk. In practice, the 
 
 74    seller will sell the s ecurity to the central 
counterparty, which will simu ltaneously sell it on to 
the buyer (and vice versa). If one of the trading 
parties defaults, the centr al counterparty absorbs 
the loss. 
Circuit breaker A circuit breaker  is a mechanism employed by a 
market in order to tempor arily suspend trading in 
certain conditions, including sudden, deep price falls. One aim of the use of circuit breakers is to prevent mass panic selling and to prevent associated herd behaviours. 
Classification of clients Protection re quirements are calibrated in MiFID to 
three different categories of clients, notably clients, 
professionals, and eligible counterparties.The high level principle to act honestly, fairly and professionally and the obligation to be fair, clear and not misleading apply irrespective of client 
categorization. 
Clearing eligible A financial inst rument which is deemed to be 
sufficiently standardised in order to be cleared by a central counterparty. 
Client assets Client assets are assets (cash, equities, bonds, etc) 
which belong to the clie nt, but which are held by 
investment firms for investment purposes. 
Committee of European Securities 
Regulators (CESR) The Committee of European Securities Regulators 
was one of advisory co mmittees, composed by 
national security regul ators advising the 
Commission and coordi nating the work of 
securities regulators, an d has now been succeeded 
by the ESMA (cf below).  
Commodities Futures and Trading 
Commission (CFTC) The CFTC is a regulatory body responsible for the 
regulation of the commodity futures and option markets in the United States. 
Commodity derivative A financial inst rument the value of which depends 
on that of a commodity, such  as grains, energy or 
metals. 
Competent authority A competent auth ority is any orga nization that has 
the legally delegated or invested authority, capacity, or power to perform a designated function. In the context of MiFID, it refers to the 
 
 75    body which is in charge of  supervising securities 
markets. . 
Complex product A financial product th e structure of which includes 
different components, often made of derivatives and the valuation of which will evolve in a non linear fashion.. These notab ly include tailor-made 
products such as structured  products, asset backed 
securities, and non-standard OTC derivatives. 
Conflicts of interest The term conflict of interest is widely used to 
identify behaviour or circumstances where a party involved in many interests finds that two or more of these interests conflict. Conflicts of interest are normally attributed to imperfections in the financial markets and asymmetric information. Due to the diverse nature of financ ial markets, there is no 
general definition of a conflict of interest; however they are typically gr ouped into Firm/Client, 
Client/Client and Intra Group Conflicts. MiFID 
contains provisions for ar eas where conflicts of 
interest commonly arise and how they should be 
dealt with. 
Consolidated tape A consolidated tape is an electronic system which 
combines sales volume and price data from different exchanges and cer tain broker-dealers. It 
consolidates these into a continuous live feed, providing summarised data by security across all markets. In the US, all registered exchanges and market centres that trade listed s ecurities send their trades 
and quotes to a central c onsolidator. This system 
provides real-time trade and quote information. 
Credit Default Swap (CDS) A credit defaul t swap is a contract between a buyer 
and a seller of protection to  pay out in the case that 
another party (not involved in the swap), defaults on its obligations. CDS can be described as a sort 
of insurance where the purchaser of the CDS owns the debt that the instrument protects; however, it is not necessary for the purchaser to own the 
underlying debt that is insured. 
Cross-market behaviour Trading strate gies which involve placing orders or 
executing trades in several markets. 
 
 76    Dark pool Dark pools are tradin g 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. 
de Larosière group The de Larosière group is a group chaired by 
former head of the Banque de France, Jacques de Larosière, mandated by EC President José Manuel Barroso to advice on reform s to financial services 
regulation and supervisi on. The group published a 
report in February 2009, which led to the establishment of the three new supervisory authorities including ESMA. 
Dealer A dealer is an entity th at will buy and sell securities 
on their own account, acting as principal to 
transactions. 
Derivative A derivative is a type  of financial instrument whose 
value is based on the ch ange in value of an 
underlying asset. 
Direct Market Access (DMA) Participants require access to a market in order to 
trade on it. Direct market access is a form of sponsored access and refers to the practice of a firm, who has access to the market as a Member, to allow another 3rd party firm to use its own systems to access to the market It is  different from the direct 
sponsored access in which the orders of the 3
rd 
party are sent directly to the market through a 
dedicated system providing by the sponsoring Member  
Directive A directive is a legislative act of the European 
Union, which requires Member States to achieve a particular result without dictating the means of achieving that result. A Directive therefore needs to be transposed into national law contrary to regulation that have direct applicability. 
Dodd Frank Act The Dodd–Frank Wall Street Reform and 
Consumer Protection Act became law in the United 
 
 77    States in 2010, introduci ng reforms to financial 
regulation. 
ECOFIN The Economic and Financial Affairs Council of the 
European Union. 
Electronic order book trading A system of transacting in financial instruments 
based on publicly availabl e prices and sizes at 
which investors are willing to transact. It is distinguished from request for quote trading, where investors contact each other bilaterally in order to establish the prices which they can trade on. 
EMIR European Market In frastructure Regulation. 
EU Emission Allowance (EUA) An allowa nce to emit one tonne of carbon dioxide 
equivalent during a speci fied period, as more 
specifically defined in Ar ticle 3(a) of Directive 
2003/87/EC. 
ESMA The European Securities  and Markets Authority is 
the successor body to CESR, continuing work in the securities and markets area as an independent 
agency and also with the other two former level 
three committees. 
ETS European Union Emission Trading Scheme a 'cap 
and trade' system: it cap s the overall level of 
emissions allowed but, within that limit, allows participants in the sy stem to buy and sell 
allowances as they require. These allowances are the common trading 'currency' at the heart of the system. One allowance gives the holder the right to emit one tonne of CO2 or the equivalent amount of another greenhouse gas. The cap on the total number of allowances creates scarcity in the market.. 
European Systemic Risk Board (ESRB) The European Systemic Risk Board was set up in 
response to the de Larosi ère group's proposals, in 
the wake of the financial crisis. This independent body has responsibility for the macro-prudential oversight of the EU.  
Execution-only service Investment fi rms may provide investors with a 
means to buy and sell certai n financial instruments 
in the market without undergoing any assessment of the appropriateness of the given product - that is, 
 
 78    the assessment against knowledge and experience 
of the investor. These execution-only services are only available when certain conditions are fulfilled, including the involveme nt of so-called non-
complex financial instruments (defined by article 19 paragraph 6 of MiFID). 
Fair and orderly markets Markets in fi nancial instruments where prices are 
the result of an equilibrium between supply and demand, so that all available information is reflected in the pri ce, unhindered by market 
deficiencies or di sruptive behaviour. 
Financial instrument A financial instrument is an asset or evidence of the 
ownership of an asset, or a contractual agreement between two parties to re ceive or deliver another 
financial instrument. Instruments considered as financial are listed in MiFID (Annex I) 
Fit and proper Persons who effec tively direct the business of an 
investment firm need to be of sufficiently good 
repute and sufficiently experienced as to ensure the 
sound and prudent management of the investment firm. This is the so called fit and proper test. 
Fundamental data Information on the supply and demand of goods 
and services in the real economy. 
Hard position limit A hard position limit is a strict pre-defined limit on 
the amount of a given instrument that an entity can hold. 
Hedging Hedging is the practice of offsetting an entity's 
exposure by taking out anot her opposite position, in 
order to minimise an unwanted risk. This can also be done by offsetting positions in different instruments and markets. 
High frequency trading High frequency trading is a type of electronic 
trading that is often characterised by holding 
positions very briefly in order to profit from short term opportunities. High frequency traders use 
algorithmic trading to conduct their business. 
Inducement Inducements is a gene ral name referring to varying 
types of incentives paid to financial intermediaries in exchange for the promo tion of specific products 
 
 79    or flows of business. 
Information asymmetry An information asymmetry occurs where one party 
to a trade or transaction has more or better information than another party to that trade or transaction, giving it an a dvantage in that trade or 
transaction. 
Insurance Mediation Directive EU Insu rance Mediation Dire ctive (2002/92/EC), 
introducing requirements for insurance companies such as registration with a competent authority, systems and controls standards, regulation of handling of complaints, cancellation of products. 
Interest rate swap An interest rate  swap is a financial product through 
which two parties exchange flows; for instance, one 
party pays a fixed inte rest rate on a notional 
amount, while receiving an  interest rate that 
fluctuates with an underlying benchmark from the other party. These swaps can be structured in 
various different ways negotiated by the counterparties involved. 
Intermediary A person or firm who acts to bring together supply 
and demand from two other firms or persons. In the context of MiFID, intermediary are investment firms. 
Investment services Investment se rvices are legall y defined MiFID 
(article 4 and Annex I),  and covers various 
activities from reception of orders, portfolio 
management , underwriting or operation of MTFs. 
Indication of interest (IOI) An indication of interest is where a buyer discloses 
that he wishes to purchase an instrument, often made before an initial public offering. This can also be called an expression of interest. An IOI does not 
force the party expressing an interest to act on it i.e. to trade on it. 
Junior market Junior markets are those on which smaller 
companies with shorter track records are often 
listed, as opposed to the established markets on which the larger, older companies are traded. Conditions for listing on these markets are usually less stringent and they are often seen as a starting point before eventually m oving to a senior market. 
 
 80    Junior trading venue See junior market. 
Latency period The time an order entered into a trading system 
stays in it before bei ng executed or withdrawn. 
Liquidity Liquidity is a complex concept that is used to 
qualify market and instruments traded on these markets. It aims at reflec ting how easy or difficult it 
is to buy or sell an asset,  usually without affecting 
the price significantly. Liqui dity is a function of 
both volume and volatility. Liquidity is positively correlated to volume and negatively correlated to volatility. A stock is said to  be liquid if an investor 
can move a high volume in or out of the market without materially moving the price of that stock. If 
the stock price moves in response to investment or disinvestments, the stock becomes more volatile. 
Lit market A lit market is one where orders are displayed on 
order books and therefore pr e trade transparent. On 
the contrary, orders in dark  pools or dark orders are 
not pre trade transparent. This is the case for orders 
in broker crossing networks. 
Lit order, dark order A lit order is one the details of which can be seen 
by other market counterpart s. A dark order is one 
which cannot be seen by other market counterparts. 
Market Abuse Directive (MAD) Directive 2003/6/EC of the European Parliament 
and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse). 
Market abuse Market abuse consis ts of market manipulation and 
insider dealing, which coul d arise from distributing 
false information, or dist orting prices and improper 
use of insider information. 
Market disorder General tradi ng phenomenon which results in the 
market prices moving away from those that would result from supply and demand. 
Market efficiency Market efficiency  refers to the extent to which 
prices in a market fully reflect all the information available to investors. If a market is very efficient, then no investors should have more information than any other investor, and they should not be able to predict the price better  than another investor. 
 
 81    Market fragmentation Market fragmenta tion refers to the dispersion of 
business across different trading venues, where in the past there was only one venue. It requires traders to look for liquidity  across different places. 
Market integrity Market integrity is the fair and safe operation of 
markets, without misleading information or inside trades, so that investors can have confidence and be 
sufficiently protected. 
Market maker A market maker is a firm that will buy and sell a 
particular security on a regular and continuous 
basis by posting or execu ting orders at a publicly 
quoted price. They ensure  that an investor can 
always trade the particular security and in doing so 
enhance liquidity in that security. 
Market operator A firm responsible  for setting up and maintaining a 
trading venue such a regulated market or a multi lateral trading facility. 
Markets in Financial Instruments Directive 
(MiFID) Directive 2004/39/EC that lays down rules for the 
authorisation and organisation of investment firms, 
the structure of markets a nd trading venues, and the 
investor protection regard ing financial securities. 
Multilateral Trading Facility An MTF is a system, or "venue", defined by MiFID 
(article 4) which brings together multiple third-party buying and selling interests in financial instruments in a way that results in a contract. MTFs can be operated by investment firms or market operators and are subject to broadly the same overarching regulatory requirements as regulated markets (e.g. fair and orderly trading) and 
the same detailed transparency requirements as regulated markets. 
Negative externalities A negative externality in finance is usually a cost 
incurred by a party because of another party's decision. It means that not all information is 
reflected in the price that a party is required to pay. 
Opaque market See dark pool. Order matching Order matching is the process by which buying and 
selling interests of the same security at the same price and size are brought  together, which takes 
 
 82    place in venues such as broker crossing networks, 
where the orders of one party are matched to the bids of another, allowing them to conclude transactions at mid point, therefore saving on the bid offer spread. 
Order resting period The time an orde r waits on a trading system before 
it is executed. Simila r to latency period. 
Over the Counter (OTC) Over the count er, or OTC, trading is a method of 
trading that does not take place on an organised venue such as a regulated market or an MTF. It can take various shapes from bilateral trading to trading done via more organised arrangements (such as systematic internalisers and broker networks). 
Organised trading facility (OTF) Any fac ility or system operated by an investment 
firm or a market operator that on an organised basis 
brings together multiple third party buying and selling interests or orders relating to financial instruments. 
It excludes facilities or systems that are already 
regulated as a regulated market, MTF or a systematic internaliser. Examples of organised trading facilities would include broker crossing 
systems and inter-dealer broker systems bringing together third-party intere sts and orders by way of 
voice and/or hybrid voice/electronic execution. 
Placing Placing refers to the process of underwriting and 
selling an offer of shares. 
Position limit A position limit is a pre-defined limit on the 
amount of a given instrument that an entity can hold. 
Position management Position management refers to monitoring the 
positions held by different entities and ensuring the position limits are adhered to. 
Post-trade transparency Post trade tran sparency refers to the obligation to 
publish a trade report every time a transaction in a share has been concluded. This provides information that enables users to compare trading results across trading venues and check for best execution. 
 
 83    Pre-trade transparency Pre-trade transp arency refers to the obligation to 
publish (in real-time) current  orders and quotes (i.e. 
prices and amounts for se lling and buying interest) 
relating to shares. This provides users with information about current trading opport unities. It 
thereby facilitates price fo rmation and assists firms 
to provide best execution to their clients. It is also intended to address the potential adverse effect of fragmentation of markets and liquidity. 
Pre-trade transparency waiver A pre-trad e transparency waiver is specified in 
MiFID (article 29) as a way for the competent authorities to waive the obligation for operators of Regulated Markets and Multilateral Trading Facilities (MTFs) regardi ng pre-trade transparency 
requirements for shares in respect of certain market models, types of orders and sizes of orders. 
Price discovery Price discovery refers to the mechanism of 
formation of the price of an asset in a market, based 
on the activity of buyers  and sellers actually 
agreeing prices for transactio ns, and this is affected 
by such factors as supply and demand, liquidity, information availability and so on. 
Primary Market Operation Primary Market  Operations are transactions related 
to the issuance of new securities. They differ from secondary market operations  which deal with the 
trading of securities already issued and admitted to trading. 
Principle of proportionality Similarly to the principle of subsidiarity, the 
principle of proportionality regulates the exercise of 
powers by the European Union. It seeks to set actions taken by the institutions of the Union within specified bounds. Under this  rule, the involvement 
of the institutions must be limited to what is necessary to achieve the objectives of the Treaties. In other words, the content and form of the action must be in keeping with the aim pursued. The principle of proportionality is laid down in Article 5 of the Treaty on European Union. The criteria for applying it is set out in the Protocol (No 
2) on the application of  the principles of 
subsidiarity and proportio nality annexed to the 
Treaties.  
 
 84    Packaged retail investment products 
(PRIPS) Packaged retail investment products are investment 
products marketed directly  to retail customers and 
typically offer the potential to participate in the return and risk genera ted by an underlying 
instrument or index. They are therefore made of several components out of which an option is very often present. This is why they are called "packaged".. 
Prospectus Directive Directive 2003/ 71/EC of the European parliament 
and of the Council, which lays down rules for information to be made publicly available when offering financial instruments to the public. 
Regulated Market A regulated market is a multilateral system, defined 
by MiFID (article 4), which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments in a way that results in a contract. Examples are traditional stock exchanges such as 
the Frankfurt and London Stock Exchanges. 
Regulation A regulation is a form of legislation that has direct 
legal effect on being passed in the Union. 
Regulator /Supervisor A regulator/supe rvisor is a competent authority 
designated by a government to supervise that country's financial markets. 
Regulatory arbitrage Regulatory arbitrag e is exploiting differences in the 
regulatory situation in di fferent jurisdictions or 
markets in order to make a profit. 
REMIT The proposed Regulation on Energy Market 
Integrity and Transparenc y, laying down rules on 
the trading in wholesale energy products and information that needs to be disclosed that pertains to those products. 
Repository (Trade) A mechanism that gathers together information on 
financial contracts, storing the essential 
characteristics of those contracts for future reference. 
Retail investor/client A person investing his own money on a non-
professional basis. Retail  client is defined by 
MiFID as a non professional c lient and is one of the 
 
 85    three categories of investors set by this Directive 
besides professional clients and eligible counterparties. 
Risk premium The risk premium is the smallest return that 
investors would accept above the amount that a 'risk-free' asset would return. A risk-free asset is a theoretical asset that would never default. So the risk premium is the amount that an investor wants to be paid for taking risk. 
Sanction A penalty, either administrative or criminal, 
imposed as punishment. 
Securities and Exchange Commission (SEC) The  US regulatory body responsible for the 
regulation of securities a nd protection of investors. 
Secondary listing A secondary listing is the listing of  an issuer's 
shares on an exchange other than its primary 
exchange.  
Single rulebook The single rulebook is the concept of a single set of 
rules for all Member States of the union so that 
there is no possibility of regulatory arbitrage 
between the different markets. 
Small cap Small cap is short for small capitalisation, and 
refers to the value of the sh ares in issue, i.e. share 
price multiplied by the number of shares in issue. Small cap usually refers to listed SMEs. 
Small and medium sized enterprises (SME s) On 6 May 2003 the Commission adopted 
Recommendation 2003/361/EC  regarding the Small 
and medium sized enterprise definition. While 'micro' sized enterprises have fewer than 10 employees, small have less than 50, and medium have less than 250. There are also other criteria 
relating to turnover or bala nce sheet total that can 
be applied more flexibly. 
Spread This can refer to the bid offer spread (see separate 
entry).  
Standardised derivative A standardis ed derivative is one with regular 
features based on a standard contract. 
Structured bond A structured bond's value is linked to an underlying 
index or instrument, so that the bond would pay a 
 
 86    coupon in the same way as an ordinary bond, but 
the actual value of the bond to be repaid would depend on the underlying perf ormance that it is 
linked to. 
Structured deposit A structured deposit 's return may be linked to some 
index or underlying instrument, so that the amount repaid is dependent on this underlying performance.  
Supervisor See regulator. Swap Execution Facility (SEF) A swap ex ecution facility is a US trading venue 
similar but not identical to an exchange, whereby many different buyers and sellers can make bids and offers on swaps, and the SEF must also publish relevant data.  
Syndication Syndication is a pro cess through which a group of 
banks are providing a loan to  a debtor, usually with 
the division of risk and financing across the 
different banks which are part of the process 
(syndicate). 
Systematic Internaliser Systematic Internalisers (SIs) are investment firms 
which, on an organised, fr equent and systematic 
basis, deal on own account  by executing client 
orders outside a regulate d market or an MTF.  
Systemic failure A systemic failure refers either to the failure of a 
whole market or market segment, or the failure of a significant entity that could cause a large number of failures as a result. 
Tied agent A company or sales person who can only promote 
the service of one particular provider (generally their direct employer). 
Trading venue A trading venue is an official venue where 
securities are exchanged. In  MiFID, it consists of 
MTFs and regulated markets. 
Transaction reporting 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. It covers all transactions on these instruments, including OTC trades. 
 
 87    Transaction reporting is not  public, and contains 
more details about the transaction than pre and post trade transparency. 
Transparency The disclosure of information related to quote (pre 
trade transparency) or tr ansactions (post trade 
transparency) relevant to market participants for identifying trading opportunities and checking best execution and to regulators for monitoring the behaviour of market participants. 
Transparency Directive Directive 2004/ 109/EC of the European Parliament 
and of the Council which lays down rules for the publication of financial information and major holdings. 
Undertakings for Collective Investment in 
Transferable Securitie s Directives (UCITS) Undertakings for Collective Investment in 
Transferable Securities Di rectives, a standardised 
and regulated type of asset pooling. 
Underwriting Underwriting can refer to the process of checks that 
a lender carries out before granting a loan, or issuing an insurance policy. It can also refer to the 
process of taking responsibility for selling an allotment of a public offering. 
Volatility Volatility refers to the change in value of an 
instrument in a period of time. This includes rises and falls in value, and shows how far away from the current price the valu e could change, usually 
expressed as a percentage. 
 
 88    12. ANNEX 2: PROBLEM DEFINITION – BACKGROUND AND TECHNICAL DETAIL  
12.1. Problem 1: lack of level playing field between market s and market participants 
The implementation of MiFID has dramatical ly changed the structure of financial 
markets across Europe, notably in the equity space. Technological advances have also had a significant impact on the development of equi ty markets. The conduct of 
market participants has evolved to reflect  these developments. These changes have 
helped stimulate competition but have al so led to the application of different 
regulatory regimes to similar trading activi ties, which can distort the level playing 
field between markets an d market participants. 
There are five main reasons  for this situation. 
12.1.1. The uneven operating conditions between Regulated Markets and Multilateral 
Trading Facilities (MTFs)117 
Through the removal of the concentration rule118, MiFID has facilitated competition 
between various trading venues, mainly regulated markets and MTFs. Technological 
innovations have allowed market participan ts to fully exploit this new competitive 
environment. 
Equities have been the asset class most clearly impacted by the implementation of 
MiFID as the majority of equity trading takes place on exchanges (total trading in 
EEA shares amounted to €18.7 trillion in 2010 with OTC trading accounting for 
37%119) as opposed to non-equity instrument s such as bonds and derivatives which 
predominantly take place OTC. There ar e currently 231 trading systems (139 MTFs, 
92 regulated markets and) and 12 systematic internalisers120 registered in the CESR 
MiFID database. Out of these 231 tradi ng systems, 45 Regulated Markets and 50 
MTFs are offering trading in cash equities.121 The growth of the market share of 
MTFs in equities markets has greatly acce lerated since the introduction of MiFID. 
Altogether, MTFs are now assessed to represent between 25 to 30% of the trading activity on the main listed equities
122 although these figures differ substantially 
across markets. CESR123 also explained in one of its reports that this trend is more 
pronounced for UK shares, Euronext shares and German shares, and less so in the Italian and Nordic markets so far. The differences between national markets are 
mainly explained by the relative liquidity of  these markets. The MTFs that offer pan-
European trading (i.e. the shares are adm itted to trading on their primary market, 
usually being the national stock exchange) tend to cover the most liquid shares (UK 
shares for instance) and get higher market share in the trading of these stocks.  
As per Thomson Reuters below the larges t MTFs, being Chi-X, BATS Europe and 
Turquoise, accounted for 23% of the on exch ange equity turnover in the EU as of 
January 2011.  
 
 89    – TABLE 1:  Market share by venue – all European equities – January 
2011 
Venue Group Turnover (€m) %ge
LSE Group 228.765 22,44%
Euronext 147.315 14,45%
CHI-X 144.044 14,13%
Deutsche Boerse 116.431 11,42%
Spanish Exchanges 98.774 9,69%
SIX Swiss 62.385 6,12%
Nasdaq OMX Nordic 57.658 5,65%
BATS Europe 57.224 5,61%
MICEX 52.463 5,15%
Turquoise 30.891 3,03%
Oslo 18.367 1,80%
All Other Venues (42) 5.335 0,52%
Total on exchange equity turnover 1.019.652 100,00% 
Source: Thomson Reuters website124 
Under MiFID the two types of multilateral trading venues (i.e. regulated markets and 
MTFs) are subject to high level requi rements in terms of organisational 
arrangements and market surveillance125. Two main concerns have been expressed 
in that respect:   lacks of alignment in  both the organisational and the market 
surveillance requirements for these two types of trading venues when operating 
similar types of businesses.  
First, differences in the details of organi sational requirements in MiFID that apply to 
MTFs and regulated markets may lead, in practice, to the application of a less stringent regime for the former in situations where the venues are providing comparable services
126. Organizational requirements for investment firms operating 
MTFs are not specific to this activity but  are part of the ove rall organisational 
requirements for investment firms irrespecti ve of the investment service or activity 
carried out, whereas regulated markets are subject to deta iled organizational 
requirements specific to the activity of operating a trading venue. In addition 
investment firms operating a MTF are required to employ appropriate and proportionate resources and systems to ensure the provision of their services
127. This 
concept of "proportionate approach" is id entified by CESR as the key source of a 
potential unlevel playing field between RMs and MTFs128. Further the concept of 
admission to trading only applies to regulated markets in line with the current scope of the Market Abuse Directive ("MAD")
129 which applies to instruments admitted to 
trading on a regulated market. But with the review of MAD and the extension of the 
market abuse prohibitions to financial instruments admitted to trading on other organised trading platform such as MTFs, the concept of admissi on to trading would 
need to be extended to organised trad ing platforms beyond regulated markets.  
Second, existing obligations on operators of regulated markets and MTFs to monitor 
trades conducted on their venue s in order to identify breac hes of rules, disorderly 
trading and market abuse, are not properl y coordinated, given that a financial 
 
 90    instrument can be traded on a number of di fferent platforms (as per above trading in 
the most liquid shares is spread among several trading platforms).  
12.1.2.  The emergence of new trading venues and mar ket structures that do not fall within 
the scope of the definition of eith er regulated markets or MTFs  
They can take various forms and operate under various schemes, especially where 
the trading of derivative s products is concerned. 
Equities markets  
One such innovation in the field of equiti es markets is the development of broker 
crossing systems (BCSs). On the equity markets, matching of client orders is an activity traditionally carried on by investment firms acting as brokers. While such activities are still carried on manually by some  investment firms acting as brokers, in 
the last few years, some investment fi rms have increasingly developed automated 
systems (known as broker crossing systems) to help internally match client orders 
where possible. The execution of clients' or ders is subject to client-oriented conduct 
of business rules130, but the activity of operati ng a system to match clients' orders is 
not regulated as a market unless it meet s the criteria for being defined as a 
multilateral trading facility (MTFs).131 Such  electronic systems can be viewed as a 
hybrid between a facility to assist execution of clients' orders and a multilateral 
system that brings together orders. Th ese systems are perceived as carrying out 
similar activities to MTFs or systematic internalisers without being subject to the 
same regulatory requirements both in te rms of transparency and investor 
protection132. Unlike MTFs these systems are not subject to pre-trade transparency 
rules133 but only to post-trad e transparency requirements, and do not need to have 
monitoring systems in place in order to identify conduct that may involve market 
abuse
134.  
The fact finding carried out by CESR f ound that actual tr ading through these 
systems was "very low, ranging from an av erage of 0.7% [of total EEA trading] in 
2008 to an average of 1.15% in 2009 (increas ing to 1.5% in the first quarter of 
2010)"135. This means that between 2008 and the 1st quarter of 2010 this % has 
tripled to reach 1.5% of tota l EEA trading in shares, or between 4% and 5% of OTC 
equity transactions136. The following table shows the results of the CESR survey. 
– TABLE 2 : Trading executed in brokers' crossing networks 
 2008 2009 2010 
 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 
Value (in € billions) 38 40 43 40 28 37 48 56 58,9 
Crossing as a % of OTC trading 1,5% 1,2% 2,0% 3,0% 2,4% 2,1% 4,4% 4,0% 4,4% 
Crossingas a % of total EEA trading 0,6% 0,6% n.a. 0,7% 0,9%  0,9% 1,4% 1,5% 
In the same report CESR acknowledged th e concerns expressed by some market 
participants and regulators about the speed of growth of BCSs and the potential 
impact of this dark tradi ng (as opposed to lit trading which is subject to pre-trade 
transparency) on price formation in the futu re. Pre-trade transparency is key for the 
price formation process and dark trading (including both broker crossing networks 
 
 91    and dark pools – i.e. platforms operated by a RM or a MTF and benefiting from pre-
trade transparency waivers) is expected to increase in the near future following a 
similar path to the United States where da rk trading made up 13.27% of consolidated 
US equities trading volume at the end of 2010137 and is expected to still grow further 
with estimates by the end of 2011 of 15%.. 
Fixed income markets  
Unlike equities, corporate and financial bonds are not as activ ely traded (fixed 
income markets seek more long term goals  and instruments are generally held to 
maturity); the trading landscape is therefore dominated by government bonds. 
Estimates show in the region of 27% of daily traded debt relates to non-government 
bonds compared to 73% for government bonds138. 
While trading in bonds is dominated by govern ment debt, this is primarily traded 
OTC and is rarely listed on ex change. Rather, approximately 97% of EU bond listings 
relate to non-government debt (both on the domestic market and debt issued on the 
international bond market)139.  
Although non-government debt may be listed, trading does not nece ssarily occur on 
exchanges; rather, estimates based on UK FSA transaction reporting data show that 
approximately 89% of non governme nt debt trading occurs OTC140.  
FIGURE 1 
 
Derivatives markets  
On the derivatives markets, the OTC portion of the market is largely predominant. 
As of December 2009, approximately 89% of derivatives contracts were transacted 
over-the-counter (OTC)141. The Bank for International Settlements (BIS) has 
estimated that the total OTC derivativ e outstanding as of June 2010 was $583 
trillion. This represents a more than doub ling in notional outsta nding from five years 
earlier.142 
 
– FIGURE 2. 
 
 92    International derivatives markets $bn, notional amounts outstanding
0100,000200,000300,000400,000500,000600,000700,000800,000
Jan-98
Jan-99 Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Year$bn
Exchange Traded OTCMiFID Implementation -
 
Source: BIS Statistics on Exchange Trad ed Derivatives, and BIS Semi annual OTC 
Derivatives Statistics. 
The EU is a key location for OTC trading with the UK, France, and Germany 
accounting for almost half of the global daily turnover - a breakdown by country is 
shown below143. 
– TABLE 3 : Location of OTC derivatives turnover by average daily 
turnover 
Location of OTC derivatives tur nover by average daily turnover 
 2001 2004 2007 
 % share % share % share 
UK  33,7 38,0 40,9 
US 15,3 19,3 18,6 
France  5,7 6,6 5,4 
Japan  7,1 6,0 4,4 
Singapore  3,9 3,2 4,1 
Switzerland  3,4 2,4 4,0 
Germany  8,5 4,1 3,2 
Hong Kong SAR 2,8 2,6 3,1 
Australia 2,7 2,7 3,0 
Others 16,8 15,0 13,3 
But the OTC markets have seen an increasi ng take up of electron ic trading, i.e. OTC 
trades that are executed on an electronic  platform, next to the traditional voice 
brokering services.  
 
 93    – TABLE 4 : Estimated monthly turnover by method of execution for all 
venues (bilateral and multilateral) for OTC derivatives product classes 
as of June 2010144 
 Voice Execution Electronic Execution 
Interest rate derivat es  87.7% 12.3% 
Credit derivatives  83.3% 16.7% 
Equity derivatives  85.7% 14.3% 
 OTC trades can be executed on bilateral or multilateral platforms.  
– TABLE 5 : Estimated monthly turnover by type of trading platform for 
OTC derivatives product classes as of June 2010145 
 Bilateral Execution  Multilateral platforms  
Interest rate derivatives  68.9%  31.1%  
Credit derivatives  62.6%  37.4%  
Equity derivatives  82.9%  17.1%  
Various forms of organised trading pl atforms have been developing. These 
electronic platforms (e.g. single dealer platform, multi dealer platforms, and inter dealer broker platforms) are operated by i nvestment firms not regulated as trading 
venues, and hence not subject to the mark et-oriented rules of  organised trading 
venues such as pre-trade transparen cy and market surveillance duties. 
By location for the 2
nd quarter of 2010, BIS found that 50.8 % of the total turnover in 
organised platform traded derivatives took place on North American markets, 42.4% 
in Europe, 4.0% in the Asia-Pac ific region, and 2.9% elsewhere.146 
Significant efforts are underway to improve the stability, transpar ency and oversight 
of OTC derivatives markets. As part of th is, it has been agreed  globally to ensure 
that, where appropriate, trading in standard ised OTC derivatives moves to exchanges 
or electronic trading platforms.147 This is why there is a need to define what type of 
trading platforms would be e ligible for trading of deriva tives and to what types of 
transparency and organizational requiremen ts it would be subject to. Faced with a 
similar situation, the US authorities, through the recent Dodd Frank Wall Street Reform and Consumer Protection Act
148 has created, for derivatives, the new 
concept of Swap Execution Facilities (SEFs)149 that aims at bringing such trading 
venues or structures within the scope of financial services re gulation. A SEF would 
be a form of organised trading facility, br inging together multiple participants. This 
platform would be subject to real time post- trade transparency with delays for large 
trades ("block trade exemptions"). The level of pre-trade transparency is still under 
discussion and will depend on the type of  trading model the SEF definition will 
encompass. 
 
 94    12.1.3.  The rapid technological changes that equity markets have been witnessing over the 
last few years 
Automated trading also known as algorithmic trading can be defined as the use of 
computer programmes to enter trading orde rs 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 tradi ng is used by an increasingly wide range of market users 
(including for example funds and brokers). A third of all EU and US stock trades in 
2006 were driven by automatic programs, or  algorithms, according to Boston-based 
financial services industry research  and consulting firm Aite Group 
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 implemen t traditional trading strategies.150 HFT traders 
execute trades in matters of milliseconds on electronic order books, and are getting 
in and out of positions during the day with little or no exposed pos ition at the end of 
the day. The scale of HFT in Europe al ready accounts for a si gnificant portion of 
equity trading in the EU, and is expect ed to grow further.  According to CESR151, 
HFT trading accounts from 13% to 40% of total share trading in the EU. As a 
comparison, HFT traders account for as much as 70% of all US equity trading 
volume152. 
– TABLE 6 . Share of HFT by trading venue (shares of order books)153 
Trading venue  
 High-Frequency Trading a 
Chi-X  40% 
London Stock Exchange 32% 
BME  25-30%b 
NYSE Euronext  23% 
Borsa Italiana  20% 
Turquoise  19%b 
Nasdaq OMX  13%b 
a  % of total trading value. b % of total trading volumes 
Existing evidence is inconclusive about the impact of automated trading and HFT on 
market efficiency and liquidity (see Anne x 17 for a literature review of market 
impact of HFT and automated trading). Some  studies suggest that HFT using market 
making (i.e. orders sent to capture the spread between the bid and ask quote) and 
arbitrage strategies (i.e. capturing price di fferences between trading platforms) has 
added liquidity to the market, reduced spreads and helped align prices across 
markets. However, there is evidence that  the average transaction size has decreased 
and some participants question the value of the additional liquidity provided154. The 
average transaction size is lower for MTFs  than for regulated markets which might 
be partly explained by the greater use of algorit hmic trading by the MTF 
customers155. Some participants argue there may be improved liquidity for investors 
who trade retail-size orders bu t it is now more difficult fo r institutional investors to 
 
 95    execute large orders. Also, there are differe nt views about whether HFT increases or 
reduces market volatility. Eventually, some  argue there may be a link between HFT 
and the increased use of dark liquidity – i.e. any pool of liquidity which is not pre-trade transparent such  as broker crossing networks and dark pools - as opposed to lit 
markets.
156 
Perhaps the most significant new risk arisi ng from automated trading is the threat it 
can pose to the orderly functioning of market s in certain circumstances. Such threats 
can arise from rogue algorithms, from algor ithms overreacting to market events or 
from the increased pressure on trading venue systems to c ope with the large numbers 
of orders generated by automated trading.157 For HFT there are concerns that not all 
high frequency traders are cu rrently required to be au thorised under MiFID as the 
exemption in Article 2.1(d) of the fram ework directive for persons who are only 
dealing on their own account can be used by  such traders. Therefore there is a 
concern that even if a HFT trader is invol ved in a significant amount of trading they 
may not necessarily be subject to MiFID requirements and therefore to supervision 
by a competent authority.  
While HFT represent an increased and subs tantial share of the transactions on the 
markets and the liquidity they provide to the market may replace the more traditional 
market making activities, high frequency tr aders have no incentive or obligation to 
continue to provide ongoing liquidity to th e market unlike registered market makers. 
Therefore, they are able to provide or withdraw liquidity at any time which may 
cause market disruptions as this woul d mean a sudden increase or drop in the 
amount of transactions entered into  for a particular instrument.  
Finally arrangements such as Direct Ma rket Access (DMA) and Sponsored Access 
(SA) are offered by firms to automated and HFT traders to reduce their latency (i.e. 
time needed to have access to the order book of these electronic platforms) as speed is crucial for these players. According to CESR
158, Sponsored access (SA) is an 
adaptation of the concept of direct mark et access (DMA). Under SA arrangements, 
clients of firms that are members of an  organised trading platform can access the 
trading platform directly without b ecoming members themselves. Under such 
arrangements, clients submit orders to the trading platform by routing them through 
the firm's internal system. DMA is similar, except clients send orders directly to the 
trading platform without passing through the firm's internal system. In the absence 
of proper controls these arra ngements may present risks which have been identified 
by CESR as revolving around the risk of e rroneous activity, the possible impact on 
the integrity and orderly functioning of markets, and the risks for sponsoring 
firms159. IOSCO has also identified similar ri sks in its report on "Principles for 
Direct Electronic Access to Markets"160. 
12.1.4.  The growth of Over The Counter (OTC) trading. 
For equities, OTC trading is perceived by certa in market participants to account for a 
much higher proportion of transactions than  initially consider ed. In 2009, OTC is 
estimated to have represented 37.8 % of  overall European turnover in shares161 . The 
 
 96    consequences according to some national s upervisors, such as the Autorité des 
Marchés Financiers (AMF)162, is that it threatens the quality of price formation on 
exchanges and its representative nature as a substantial part of the transactions are 
not being taken into account.  
As highlighted above under point 2, OTC tr ading is also an im portant feature for non 
equity products such as bonds and deriva tives for which it is the main mode of 
trading. Significant efforts are underway to improve the stability, transparency and 
oversight of OTC derivatives market s. The legislative proposal by the 
Commission163 on financial market infrastructure aims at improving the functioning 
of derivatives markets by increasing the tran sparency of these markets for regulators 
and decreasing counterparty and operationa l risks while the pr oposed regulation on 
short selling164will bring more light on the use of certain derivatives such as Credit 
Default Swaps on sovereign debt.  
In addition to these structural measures, it  has been agreed globally to ensure that, 
where appropriate, trading in standardised  OTC derivatives moves to exchanges or 
electronic trading platforms.165  
There are less than 2,000 sta ndardised interest rate swaps executed globally on an 
average day. The most liquid swaps (10-year  dollar interest  rate swaps) trade about 
200 times per day, while most swaps trade less than 20 times per day.  In the credit 
default swap (CDS) market, ISDA notes that the most liquid reference entities (all of 
which were sovereign entities) averaged 20 trades per day, while the average trade size is around US$5 million for single name CDS.
166 
At a minimum this would imply that trad ing on exchanges and electronic platforms 
becomes the norm when the market in a given derivative is sufficiently well 
developed, and when the shift to such platforms furthers the G20 commitment.167 
Benefits of on exchange or electronic pl atform trading incremental to those brought 
about by greater standardisation, central cl earing and reporting to trade repositories 
include increased transparency for example of price formation,168 improved 
oversight and increased competition between financial services providers. Action to implement the G20 commitments will be discussed in the policy options. 
12.2. Problem 2: Difficulties for SMEs to access financial markets 
Small and medium enterprises (SMEs) receive a very modest part of total investment 
in equity capital markets. While they are the majority in terms of listed companies, 
they are a minority in terms of capitalisation and in particular on volumes of trading. 
Market liquidity is concentrated on large companies.  
Recently collected data by the Federation of European Stock Exchanges (FESE)
169 
shows the relative importance of listed companies in the EU stock exchanges by 
market capitalisation. FESE establishes four categories of companies (see figure below): micro caps (XS ≤ €50M)), small caps (S: betw een €50M and €150M), mid 
caps (M: between €150M a nd €1b) and large cap (L: ≥ €1b). The first column 
presents the relative importance (%) by num ber of listed companies (equity issuers); 
 
 97    the second column by market capitalisation;  the third column shows the trades in 
number, while the fourth column shows the turnover in volume. 
– FIGURE 3:  Share of Market Cap, Trades and Turnover against 
numbers of SMEs in Markets 
 
13.6%93. 3%
85.7%96.0%
19.0%5.2%
9. 6%3.4%
15.9%1.0% 2. 2% 0.4%
50.7%0.5% 2.6% 0.3%0.8% 0.0% 0.0% 0.0%
0%10%20%30%40%50%60%70%80%90%100%
Number Market Cap Trades TurnoverN/A
XS
S
M
L
 
Source: FESE. 
Although FESE did not utilize the SME de finition used in EU legislation170, it is 
evident from the data that SMEs being present in markets fail to attract investments or liquidity which is largely absorbed by large companies. 
In addition, the shallow liquidity of SMEs  tends to lead to more volatility and 
therefore again prevents furt her investors from investing.
171 In addition, the related 
costs for going and being public such as for example cost of compliance with regulatory requirements, co sts associated with the intervention of other 
intermediaries as well as indirect costs are only margin ally proportional to the size 
of the capital raised. As th e amount of capital th at SMEs can raise on the markets is 
limited, the related costs may appear too high and SMEs are increasingly reluctant to bear these costs.  
Market operators try to tackle this i ssue by creating trading venues specialized on 
SMEs, mostly falling under the MiFID MTF category (also known as exchange-
regulated, junior, growth or alternative markets). Regular information and disclosure 
requirements for shares admitted to trading on MTFs are usually lighter than on regulated markets as the disclosure and or ganisation requirements established in the 
EU rules do not apply. Instead such market s are subject to higher level transparency 
 
 98    requirements that apply to MTFs. Member States and/or the exchanges themselves 
may extend the regulated market requirement s to companies listed in those markets, 
but they rarely do so172.  
Currently around 20 trading venues operate across the EU with requirements for 
listing lighter than on regulat ed markets (and therefore lower costs) in order to 
attract smaller companies. In addition to  being lighter, the listing requirements 
which apply are also different between SME markets. For instance, some markets do 
not ask for application documents or ev en a prospectus. Moreover, requirements 
differ concerning a minimum st andard for operating histor y and free floats, trading 
rules, periodicity of financial reporting, ne ed for external audit or not, and use of 
international (IFRS/IAS) or local accounting standards etc.  
 
 99    – TABLE 7 : Summary of Key Listing and On-going Requirements of SME Markets 
 
 100    Amission process (application of 
Prospectus Directive; 
authorsiation of admission document)Requirement for/ role of "key 
advis er"Minimum standards (operating 
history, free float) Trading rulesOn-going financial reporting 
(annual, semi-annual or quarterly; audited or not)Use of IFRS (IAS) o
r
accounting standar d
CEESEG Wiener Boerse Dritter Markt Austria Public offer with prospectus or 
placement with limited information 
(subject to acceptance by exchange)Mandatory "Capital Market Coach".  
Mix of duties - checks "basic 
fitness" of firms for Dritter Markt.  Also acts as liquidity provider for 
auction trading.One year history versus standard 
three years on the Official Market 
(and one year on the Second Regulated Market).  Main market 
requires free float of at least 10,000 
shares.Continuous trading: with market 
makers
Single intra-day auction: mandatorymarket maker or liquidity provider Audited annual (within 5 months of 
year-end); unaudited semi-annual 
(within three months).  Time limits are four and two months 
respectively on Main Market, which 
also requires quarterly reporting.National accounting 
s
IFRS (IFRS on Main M
Bulgaria Unofficial Market "A" Bulgaria na na na na na na
Cyprus Emerging Companies Cyprus If the offering is public, greater than 
€2.5 million and is addressed to 
over 100 persons, a Prospectus and 
approval from the Securities and 
Exchange Commission w ill be 
required. Through private placement, if addressed only to institutional 
investors (strategic or other) or to 
fewer than 100 persons and less than €2.5 million will be raised, an 
Admission Document must be 
submitted to the CSE by Nominated 
Adviser, without a requirement for 
approval by the Securities and Exchange Commission.Nominated adviser required (and 
changes in the nominated adviser 
are reportable).  Nominated adviser 
presents admission document to 
the CES.Two year history (versus four on the 
Main Market in Cyprus).  No free 
float minimum (versus 25%, with at 
least 1000 investors on Main 
Market).  No minimum market 
capitalisation (versus €17 million on Main Market).na Audited annual (four months); 
unaudited semi-annual report (two 
months).  Main Market requires 
quarterly reporting.na
NYSE Euronext Alternext France, Belgium, Netherlands Public offer (prospectus approved by 
AMF) or private placement or direct listing.  Latter two responsibility of 
listing sponsor/issuer.Listing Sponsor required. Performs 
due d iligence on issuer before and 
helps with on-going compliance after 
admission.Two year track record versus three 
year track record on NYSE Euronext.  No minimum free float if 
placement (or €2.5m if IPO), versus 
25% on NYSE Euronext.Single daily call auction unless 
achieving at least 2500 annual trades achieved when option to 
switch to continuous trading system 
possible.  Trading can be on or off central order book (if on, aided by 
Liquidity Providers).  Of Alternext 
stocks 86 have designated Liquidity 
Providers.Audited annual; unaudited semi-
annual.  Quarterly reporting required on NYSE Euronext.IFRS (local GAAP fo
r
companies not maki n
would still require rec
table) versus IFRA or 
NYSE Euronext.
DB Entry Standard Germany For public offerings: the prospectus 
approved and notified by the national 
regulator; for private placements: 
memorandum, which is the sole 
responsibility of the company.  On General and Prime Standard a 
Prospectus is mandatory.Listing Partner is mandatory in order 
to assist issuer in its compliance.At least one set of audited accounts 
(versus three years on General or 
Prime Standard).  No minimum size 
requirement. At least 30 share-
holders (versus initial free-float of 25% on General or Prime Standard).na Audited annual in 6 months; 
unaudited semi-annual in 3 months 
(no prescribed format to latter) 
v ersus time limits of four months 
and two months respectively on General Standard.  Quarterly 
reporting required on Prime 
Standard only.IFRS or national GA
A
for General or Prime S
segment.
Boerse Stuttgart bwmit Germany na Listing Expert (Emissionsexpert) 
appointed by the Munich Stock 
Exchange assists with complaince 
at admission and beyond.Minimum capitalisation €10m.  At 
least 5% free float.  Must be based 
in Baden-Wuerttemberg.Order-driven supported by Liquidity 
Prov ider, EUWAX  AG. na na
Munich (Bavarian) SE m:access Germany MSE approval. na Minimum capital of €1m. na Audited annual versus Audited 
annual; semi-annual and quarterly reporting on Regular Market.German accounting 
s
(versus IFRS on Reg u
ATHEX EN.A Greece Prospectus or Information 
Memorandum versus Prospectus on 
Main List.Nominated adviser mandatory pre-
admission and for at least two years 
thereafter.  Assesses appropriateness of listing and 
submits document to ATHEX 's 
Evaluation Committee.Two years accounts (one year with 
ATHEX permission); two years tax 
audit versus three years for Main List (and minimum profit 
requirements).  Free float at 10% 
(provided at least 50 people) versus 
25% (2000 people) on Main List.  
Minimum capital of €1m.Mostly comparable to main market.  
Specified that one hour of 
continuous trading within pre-set fluctuation limits (10 or 20%).Audited annual; unaudited semi-
annual (time limits to report not 
stated).  Main List also requires quarterly reporting.IFRS or equivalent if 
f
country. Same as M a
Irish Stock Exchange IEX (Enterprise Securities Marke Ireland No pre-vetting of ESM admission 
documents by the ISE unless Prospectus required.ESM adviser must be appointed to 
assess suitability and assist in the 
admission process.No specific admission criteria other 
than the requirement for an applicant to have a minimum market 
capitalization of €5 million.  No 
trading record required (versus three 
years on the official list).   No 
minimum number of shares to be held in public hands (versus 
minimum 25% free float on the 
official list).Trading rules are same as for the 
official market.Audited annual (within 6 months); 
unaudited semi-annual (within 3 months).IAS if EEA; non-EEA 
from limited choice.
AIM Italia Italy Admission document.  No vetting by 
Borsa or by CONSOB (unless 
public offer prospectus) versus mix 
of CONSOB and Borsa Italiana vetting on main market.Msut have Nominated Adviser.  
Nomads are obliged to guarantee 
information transparency for 
inv estors, focus the firm’s attention on the rules that apply to it as a 
publicly quoted company – 
supporting company to ensure itNo minimum free float (versus 25% 
on main market). No minimum 
market capitalisation (versus €40m 
on main segment).  No minimum trading history (versus three years 
on the main segment).Choice of continuous trading or 
volatility auction.Audited annual; unaudited semi-
annual. Main market also requires 
quarterly reporting.[IFRS on all.]
 
 101    Amission process (application of 
Prospectus Directive; 
authorsiation of admission 
document)Requirement for/ role of "key 
advis er"Minimum standards (operating 
history, free float) Trading rulesOn-going financial reporting 
(annual, semi-annual or 
quarterly; audited or not)Use of IFRS (IAS) or local 
accounting standards
Borsa Italiana MAC Italy na na na na na na
Alternative Companies List   Malta na na 10-20% free float minimum on ACL. na na na
Warsaw NewConnect Poland Private placements for up to 99 
institutional and individual investors. 
In this case, irrespectiv e of the size 
of the issue, the admission to 
trading is based on a short and 
simple information document 
prepared and approved by an 
Authorised Advisor.  A public 
offering requires the issuer has to 
comply with the same admission 
procedure as that binding in the 
regulated market with the obligatory 
issue prospectus approved by the 
Financial Supervision Commission 
(KNF). In the case of offerings up to 
€2.5 million, the admission may be 
based on an information 
memorandum subject to KNF's 
scrutiny. Authorised Adviser required pre-
admission and for at least one year 
thereafter.  Market Maker required 
for two years (may be same as 
Authorised Adviser).na Choice between continuous, price-
driven market or, if order-driven, can 
be in either in continuous trading 
system or single-auction system. Audited annual; non-audited semi-
annual reports including only 
selected information (versus on 
Main Market the semi-annual 
reports require an audit and 
quarterly reporting is obligatory).Free choice of accounting standards 
(any internationally recognised 
standards or standards applicable at 
the company's base).  [IFRS 
required on Main Market.]
Ljubliana Entry Market Slovenia na na No operating history requirement 
(versus three on Prime or Standard 
Market).  Minimum free float of 25% 
on Standard (with 150 investors).na na National accounting standards.
Bolsa de Madrid, MAB Spain MAB approval. Registered Advisor checks 
compliance with MAB rules at 
admission and on a continuing 
basis.  Liquidity Provider also 
required.At least €2m free float.  na Audited annual (four months after 
year-end); unaudited semi-annual 
(same form as annual reports, three 
months after period-end).  On main 
market the half-year reports required 
within two months; also requires 
quarterly reporting.IFRS.
NASDAQ OMX First North Sweden, Denmark, Finland, Baltic 
StatesProspectus is needed only when 
securities are offered to the public 
(versus on the Main Market a 
prospectus must be prepared, 
published and approved by the 
relevant authorities prior to listing).Firms must have a Certfied Adviser.  
The Certfied Adviser ensures that 
the company meets the admission 
requirements and the continuous 
obligations associated with having 
shares admitted to trading on First 
North. Furthermore, the Adviser 
constantly monitors the company’s 
compliance with the rules and 
immediately reports to the 
Exchange if there should be a 
breach of the rules.No minimum operating history 
(versus three years on the Main 
Market).  Sufficient number of 
shareholders and at least 10% of 
shares in public hands, or an 
assigned Liquidity Provider (versus 
25% free float on Main Market).  No 
minimum market value €1m on Main 
Market). Order-driven through INET.  Liquidity 
Providers on some Helsinki and 
Stockholm stocks (according to the 
minimum requirements, the Liquidity 
Provider must quote prices 
corresponding to a defined minimum 
value, on both buy and sell sides so 
that the prices do not deviate more 
than 4% from each other. The prices 
must be quoted at least 85 per cent 
of the time during continuous 
trading).Audited annual (to be within three 
months of relevant period end); non-
audited semi-annual reports (to be 
within two months); optional 
quarterly reports.  (On "Premier" 
need at least one report other than 
annual report to be prepared under 
IFRS).  Quartrly reporting required 
on Main Market.Home GAAP (IFRS for "Premier" 
segment).  IFRS required on the 
Main Market.
Nordic Growth Market Sweden, Norway Prospectus (approved by Swedish 
FSA or NGM depenendent upon 
circumstances).Not required. At least 300 shareholders; at least 
10% of shares and 10% of votes in 
public hands.na na na
AktieTorget AB Sweden Prospectus or Information 
Memorandum (latter approved by 
AktieTorget)Not required. At least 200 shareholders with at 
least 10% of shares in public hands.Order-driven (INET).
na na
LSE AIM UK Admission document or Prospectus 
dependent on form of the offer.Firm seeking admission must 
appoint a Nominated Adviser 
(Nomad).  Nomads are responsible 
for advising companies on the 
interpretation of and compliance 
with the rules (both for admission 
and on on-going compliance) - acts 
as "primary regulator".  Firm must 
also retain broker (can also be 
Nomad).No free float requirement (versus 
25% on Full List); No minimum 
trading requirement (versus three 
years on Full List).Quote-driven market maker system, 
mostly using SEAQ (non electronic 
executable quotation trading 
platform) although some of more 
liquid (for AIM) stocks are traded on 
SETSqx (which is hybrid of order- 
and quote-driven).Audited accounts (within 6 months 
of year-end versus four months on 
Full List); Half-yearly (three months 
versus two months on Full List); No 
Interim Management statement 
requirement.FRS or US, Canadian, Japanese or 
Australian GAAP (v ersus IFRS or 
equivalent on Full List).
Investbx UK Investbx approval of admission 
document.na na On-line auction via Sharemark.  
Auctions are not daily.na na
PLUS-quoted UK Prospectus or Admission 
Document.PLUS Corporate Adviser required to 
make application for admission.No quantitative minimums set. Quote-driven market maker system. Audited annual (within five months) 
and half-realy (within three months).IFRS, UK or US GAAP (others only 
with PLUS approval). 
 
 102    As presented above, the current market stru cture of SME markets widely diverges in 
terms of applicable rules. This vari ety of different re quirements leads to 
fragmentation and prevents market netw orks. SME markets often focus on regional 
or even local capital markets173 and are not interconnected  with each other although 
stakeholders claim for a pan-European mark et as a prerequisite for more liquidity174. 
MiFID allows already seconda ry listings in regulated markets and in MTFs for a 
security that has already been adm itted to trading on a regulated market175. However, 
this is not the case for secondary trading on another MTF as different standards may 
apply. As a consequence, today these t ypes of networks between SME markets can 
develop only if there are bilateral private agreements  between the MTF market 
operators. While such a fragmentation limits  investments and th erefore liquidity, a 
harmonized framework may enable SMEs and investors to gain access to an 
international capital pool.176 
– TABLE 8 : Overview of SME-focused Markets in the EU 
Reference 
dateTotal 
number of 
issue rsOf which 
foreignNew 
issue rs in 
2009 (2010)Delistings, 
2009 (2010)Total MV, 
€mAverage 
MV, €mIssua nce  
in 2009 
(2010), €m
CEESEG Wiener Boerse Dritter Markt Austria 31-Dec-10 36              9               10              7               1,101.6      30.6           na
Bulgaria Unofficial Market "A" Bulgaria 31-Dec-10 70              na na na na na na
Cyprus Emerging Companies Cyprus 31-Dec-10 6               na 6               -             na na na
NYSE Euronext Alternext France, Belgium, Netherlands 31-Dec-09 162            na 21* na 5,199.0      32.1           73.0*
DB Entry Standard Germany 31-Dec-09 120            na 14              na 9,016.5      75.1           69.6           
Boerse Stuttgart bwmit Germany 31-Dec-10 58              na na na na na na
Munich (Bavarian) SE m:access Germany 31-Dec-10 37              na 8               na na na na
ATHEX EN.A Greece 31-Dec-10 14              na 1               -             187.0         13.4           na
Irish Stock Exchange Enterprise Securities Market Ireland 31-Dec-09 25              na 2               4               1,613.0      64.5           79.0           
AIM Italia Italy 31-Dec-10 13              na 6* na na na 32.0*
Borsa Italiana MAC Italy 31-Dec-10 8               na na na na na na
Alternative Companies List   Malta 31-Dec-10 1               na na na 4.8             4.8             na
Warsaw NewConnect Poland 31-Dec-10 185            3               86              8               1,297.0      7.0             38.0*
Ljubliana Entry Market Slovenia 31-Dec-09 54              na 8               na 1,007.8      18.7           na
Bolsa de Madrid, MAB Spain 31-Dec-10 12              na 10              -             189.7         15.8           48.0*
NASDAQ OMX First North Sweden, Denmark, Finland, Baltic States 31-Dec-09 103            na 9* [18] 2,410.2      23.4           22.0*
Nordic Growth Market Sweden, Norway 31-Dec-10 22              na na na na na na
AktieTorget AB Sweden 31-Dec-10 139            na na na na na na
LSE AIM UK 31-Dec-09 1,306         [204] 30              293            62,918.4     48.2           4,959.7      
Investbx UK 31-Dec-10 3               na na na na na na
PLUS-quoted UK 31-Dec-09 183            na na na 2,942.5      16.1           na
2,557         87,887.5      
Source: Websites of respective exchange s, PwC IPO Watch Europe Survey, EE 
analysis. The asterix * indicates where th e PwC IPO Watch Survey data (for 2010) 
have been utilised. 
The only successful SME market, in terms of  number of companies listed is AIM177, 
and to a lesser extent and at a smaller scale PLUS-Quoted178, both in the UK. AIM 
has indeed been very successful since its creation in 1995 although the current 
number of listed companies has decreased in recent years. In recent times, few others 
such as the Entry Standard (Deutsche Bö rse) and the New Connect (Warsaw Stock 
Exchange) have been increasing th eir number of quoted companies. 
Last, the general cost of going public (i.e. being admitted to trading) and staying 
listed are often seen as high and burdensome. 179 In relation to low performance in 
 
 103    capital markets, SMEs' costs of going public  and staying listed are often considered 
to be too high. 
– TABLE 9 : Comparison of Total Flotation Costs (expressed in €m and as 
a percentage of the proceeds) between Exchange-regulated and 
Regulated Markets in Selected European States (IPOs, 2005–2008)  
€10m €25m €50m €100m €100m
NYSE Euronext Alternext 0.82 1.8 3.42 6.57 6.35 NYSE Euronext Eurolist
as % of proceeds 8.2% 7.2% 6.8% 6.6% 6.4%
DB Entry Standard 0.89 1.96 3.72 7.18 7.64 DB General Standard
as % of proceeds 8.9% 7.8% 7.4% 7.2% 7.6%
LSE AIM 1.33 3.07 5.96 11.65 9.03 LSE Main Market
as % of proceeds 13.3% 12.3% 11.9% 11.7% 9.0%Proceeds 
 
As presented in the table above, capital costs need to be seen in relation to proceeds 
made: the quota of costs decreases the mo re capital is collected. However, if 
financial markets would provide for SME s' sufficient access to finance including a 
high level of visibility and liquidity, the cost ratio might  be seen as proportionate. 
12.3. Problem 3: Lack of sufficient tran sparency for market participants 
The key rationale for transparency is to provide investors with access to information 
about current trading opportuni ties, to facil itate price formation and assist firms to 
provide best execution to thei r clients. It is also inte nded to address the potential 
adverse effect of fragmentation of market s and liquidity by pr oviding information 
that enables users to compare trading oppor tunities and results across trading venues. 
Post trade transparency is also used for por tfolio valuation purpos es. Transparency is 
crucial for market participants to be able to identify a more accu rate market price and 
to make trading decisions about when a nd where to trade. Pre- and post trade 
transparency serves to address these issu es. The transparency regime in MiFID only 
applies to shares admitted to trading on regulated markets (including when those 
shares are traded on a M TF or over the counter).  
12.3.1.  Equity markets 
Pre-trade transparency refers to the obliga tion to publish (in real-time) current orders 
and quotes (i.e. prices and amounts for selling and buying interest) relating to 
shares.180 Pre-trade transparency obligations a pply to regulated ma rkets, MTFs and 
systematic internalisers. 
Individual market participan ts would sometimes prefer not to disclose their own 
trading interest, while havi ng full access to the trading intentions of everybody else. 
In that context the growth of electronic trading has facilitated  the use of dark 
orders181 which market participants apply to minimise market impact costs. An 
increased use of dark pool s - trading platforms operate d by regulated markets or 
MTFs that benefit from the MiFID waiv ers from pre-trade transparency - does 
 
 104    however raise regulatory and economic conc erns as it may ultimately affect the 
quality of the price discovery mechanism on th e "lit" markets. The i ssue at stake is to 
balance the interest of the wider market wi th the interest of individuals by allowing 
for waivers from transparency in specific circumstances.  
Pre-trade transparency waivers182 
Waivers for pre-trade transparency are provid ed for in MiFID in relation to regulated 
markets and MTFs. The exemptions that allow regulated markets and MTFs to 
operate systems or handle orders or quotes  without publishing pre-trade transparency 
data are as follows: 
- "Large-in-scale waiver"  refers to orders that are large-in-scale compared with 
normal market size; 
- "Management facility waiver" refers to orders held in an order management facility, 
waiting to be disclosed to the market; 
- "Reference price waiver"  refers to systems where th e price is determined by a 
reference price; 
- "Negotiated transaction waiver"  refers to systems that formalise negotiated 
transactions, i.e. the terms of the transact ions are determined outside the system. In 
that case the transaction price is required to be within an appropriate price range, or 
the transaction is subject to conditions ot her than the current market price of the 
share. 
Dark pools - i.e. trading unde r the pre-trade transparency  waivers is estimated to 
account for 8.5% of the ove rall trading in EEA shares  taking place on organised 
trading venues (i.e. regulated markets or MTFs). If we add the broker crossing 
network turnover to this  figure, we end up with more th an 10% of the on exchange or 
electronic platform trading which is da rk or not pre-trade transparent.  
In terms of overall EEA trading, dark pools and broker crossing networks account for 
approximately 7%. This % is still expected to rise in line with the level in the US. 
According to the US SEC, the combine vol ume percentage of dark pools and broker-
dealer internalizers is 20%183.  
In terms of overall EEA trading including OTC, 55% of the trading activity is still 
"lit" or pre-trade transparent whereas 45% is "dark" or not subject to pre-trade 
transparency. 
 
 105    – TABLE 10 : Turnover in EEA shares 
2010
Turnover in EEA shares (€ billions ) Q1 Q2 Q3 Q4 Q1
All trading in EEA shares on RMs and M 1.934 2.228 2.290 2.443 2624,8
Trading on RMs and MTFs as a % of to t 62,0% 62,0% 62,0% 62,0% 62,0%
OTC trading 1.185 1.365 1.403 1.497 1.609
OTC trading as a % of total EEA tradin g 38,0% 38,0% 38,0% 38,0% 38,0%
Total EEA tradin g 3.120 3.593 3.693 3.940 4.234
2010
Turnover in EEA shares (€ billions) Q1 Q2 Q3 Q4 Q1
Trading under pre-trade waivers 147 204 207 241 222,6
Dark pools as a % of EEA RMs and MT 7,6% 9,2% 9,0% 9,9% 8,5%
Trading executed in broker crossing ne t 28 37 48 56 58,9
BCNs as a % of EEA RMs and MTFs tr a 1,4% 1,7% 2,1% 2,3% 2,2%
Total dark tradin g as a % of EEA RM s 9,0% 10,8% 11,1% 12,1% 10,7%
2010
Turnover in EEA shares (€ billions ) Q1 Q2 Q3 Q4 Q1
Trading under pre-trade waivers 147 204 207 241 222,6
Dark pools as a % of total EEA trading 4,7% 5,7% 5,6% 6,1% 5,3%
Trading executed in broker crossing ne t 28 37 48 56 58,9
BCNs as a % of total EEA trading 0,9% 1,0% 1,3% 1,4% 1,4%
Total dark tradin g as a % of total EE A 5,6% 6,7% 6,9% 7,5% 6,6%
OTC trading as a % of total EEA tradin g 38,0% 38,0% 38,0% 38,0% 38,0%
Total dark tradin g - includin g OTC - a 43,6% 44,7% 44,9% 45,5% 44,6%2009
2009
2009
 
Source: European Commission services' own calculations ba sed on CESR/10-802 
and assuming a constant OTC market share of 38% 
Post trade transparency refers to the ob ligation to publish a trade report every time a 
transaction in a share has been concluded.184 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 exec ution 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 ve nue) 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 of trade reports. 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 tr ading days are allowed, 
depending on the liquidity of the sh are and the size of the transaction
185. Publishing a 
large trade immediatel y could move the market agains t the person taking the position 
and make it more costly to execute large orders. Trades report ed with a delay under 
this deferred publication regime represent approximately one-fifth  of all trades on 
average186. The reasoning for allowing exempti ons to the general rule of full and 
immediate transparency for large orders is similar to that of pre-trade transparency. 
Many supervisors seem to agree that the maximum permitted delays for publishing 
 
 106    trade details could be reduced in order to  improve the timeliness of the information 
for all market participants187. This would help to make post trade information 
available sooner to the market. 
The pre and post trade transparency requi rements currently only apply to shares 
admitted to trading on a regulated market. A number of instruments that are similar to shares
188 are outside the scope of MiFID transparency  requirements. These 
instruments from an economic point of view  are equivalent to shares and share many 
characteristics with the equity markets, in cluding liquidity, types of investors, etc. 
Hence most market participants and regul ators are of the view  that it would be 
beneficial to subject these markets to transparency requirements. 
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 M TF or OTC. The regi me does not apply 
though if an instrument is only admitted to trading on a MTF or  another organised 
trading facility as outlined in Section 3.3 above. In the former case the higher level 
transparency obligations for MTFs in the Directive, instead of the more detailed 
regime
189, 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. This concerns 
essentially MTFs that operate SME markets (s ee the list of junior markets above).  
12.3.2.  Non equity markets 
Pre and post trade information perform sim ilar functions for non equity markets than 
for equity markets. But the transparency requirements for these markets are not covered by MiFID and are on ly regulated at national le vel. For non-equities, the 
existing level of transparency is not always considered sufficient
190. CESR clearly 
expressed the view that current market -led initiatives by trade associations191 in the 
bonds, structured finance pr oduct and credit derivatives  markets have failed to 
provide a sufficient level of transparency  in terms of scope,  content and timing192. 
Market participants have encountered si gnificant difficulties  in accessing price 
information and valuing their positions in  the bonds markets following the severe 
retreat of liquidity during the financial cris is. In addition some market participants, 
notably retail investors and small market participants have limited access to trading 
information giving rise to information asymmetries. Pr ices in several non-equity 
OTC markets are a function of the willingne ss of investment firms acting as dealers 
to provide investors with quotes on request  through electronic or  manual (telephone) 
channels and enter into tr ades with them; not a public  interaction of supply and 
demand.  The balance between transparency an d liquidity in non- equities (as in 
equities) is hotly debated193. A higher degree of transp arency might attract new 
market participants, increase liquidity and reduce bid-ask spreads. However the increased transparency could also act as a disincentive for dealers to commit capital 
and as a result have an overall  negative impact on liquidity. 
12.3.3.  Data consolidation 
Besides requiring market data to be relia ble, timely and available at a reasonable 
cost, investors also require the information to be brough t together in a way that 
allows comparison of prices across di fferent venues. Experience since the 
implementation of MiFID shows that the re porting and publication of trade data in 
shares is not living up to this expectation.194 The main problems relate to the variable 
 
 107    quality and differences in the format of th e information, as well as the cost charged 
for the information and the difficulty in cons olidating the information. If these issues 
are not fully addressed, th ey could undermine the overarching objectives of MiFID 
as regards transparency, competition betw een financial services providers and 
investor protection. While a number of initiatives have been put in place to try to 
address these issues there are practical and commercial obst acles that appear to make 
regulatory intervention necessary to facilitat e the consolidation and dissemination of 
post trade information.  
Similar issues are likely to arise for non equity instruments if these are brought 
within the scope of a pre and post-trade transparency regime.  
12.4. Problem 4: Lack of transparency for regulators and insufficient supervisory 
powers in key areas 
In several areas, regulators are lacking the necessary information or powers to 
properly fulfil their role. 
12.4.1.  Commodities markets 
As a general background, MiFID applies to all types of commodity  derivatives which 
meet the definition of a financial instru ment irrespective of the underlying physical 
commodity, be it agricultural commoditie s, energy, or emission allowances.195 
Commodity and commodity derivatives ma rkets are strongly interlinked, and 
problems in these markets typically extend to both. However, it is beyond the scope of this initiative to consider the regulati on of non-financial markets. This is because 
each underlying commodity market has a differe nt market structure and set of price 
drivers. Regarding transparency in the unde rlying physical markets, both in terms of 
trading activity and fundamental data, furt her work will be initiated outside this 
initiative in the respective sectoral le gislations as announced in the Communication 
on commodity markets and raw materials.  The Commission has already adopted a 
proposal on Energy Market Inte grity and Transparency for EU wholesale electricity 
and gas markets (REMIT)
196. 
The Commission here seeks to address the issue of increasing financialisation of 
commodity derivatives markets. This mean s that a growing number of financial 
participants use these markets in search of risk management tools and investment 
opportunities. Commodity deri vatives are increasingly seen purely as financial 
investments by financial institutions as part of their risk allocation strategies. Financial investment flows into comm odity derivative markets have grown 
significantly in recent years. Between 2000 and 2010, for example, institutional 
investors increased their investments in these markets from less than €10 billion in 2000 to more than € 300 billion in 2010
197. Index funds have become key players in 
the market, holding for example about 25-35  percent of all agricultural futures 
contracts198. The volume of financial transactions  in the oil markets represent about 
thirty-five times the oil tr aded in the physical market199.  
Understanding the price formation process in  these markets and the role played by 
the multiple factors influencing the commodity  prices is a complex issue. Some have 
claimed that the increased presence of fi nancial investors in these markets have 
contributed to excessive pr ice increases and volatility. Although closely studied, the 
 
 108    impact of this increasing financialisa tion on prices of the underlying physical 
commodities is not yet fully understood. 
Commodity markets have displayed unpreceden ted movements of prices in recent 
years. Prices in all major commodity mark ets, including energy, metals and minerals, 
agriculture and food, increased sharply in 2007 to reach a peak in 2008, declined 
strongly from the second half of 2008 and have been on an in creasing trend again 
since the summer of 2009. To varying de grees, these price sw ings have been 
reflected in consumer prices, at times l eading to social unres t and deprivation. 
– FIGURE 4 : Brent price development in nominal USD, nominal EUR and 
real EUR (Jan 2007 = 100) 
507090110130150170190210
01/04/0601/07/06
01/10/06
01/01/07
01/04/0701/07/0701/10/0701/01/08
01/04/08
01/07/08
01/10/0801/01/0901/04/0901/07/09
01/10/09
01/01/10
01/04/1001/07/1001/10/1001/01/11IDX Brent USD
IDX Brent EUR
IDX Brent real EUR
 
Source: ICE (Brent), ESTAT (EU27 HCIP), Oanda (exchange rate). 
– FIGURE 5 : Price developments of key foods (January 2008 = 100) 
Wheat Soybean Oil Sugar 
050100150200
2/01/2008
2/03/2008
2/05/2008
2/07/2008
2/09/2008
2/11/2008
2/01/2009
2/03/2009
2/05/20092/07/2009
2/09/2009
2/11/20092/01/2010
2/03/2010
2/05/2010
2/07/2010
2/09/2010
2/11/2010
2/01/2011
2/03/2011050100150200
2/01/2008
2/03/2008
2/05/20082/07/2008
2/09/2008
2/11/20082/01/2009
2/03/2009
2/05/2009
2/07/2009
2/09/2009
2/11/20092/01/2010
2/03/2010
2/05/20102/07/2010
2/09/2010
2/11/2010
2/01/2011
2/03/2011 050100150200
2/01/2008
2/03/2008
2/05/2008
2/07/2008
2/09/2008
2/11/2008
2/01/2009
2/03/2009
2/05/2009
2/07/2009
2/09/2009
2/11/20092/01/2010
2/03/2010
2/05/2010
2/07/2010
2/09/2010
2/11/2010
2/01/2011
2/03/2011 
Corn  Rice (Bangkok 5%) –  FAO Food price index 
     peaked at 279 in May 2008     
050100150200
2/01/2008
2/03/2008
2/05/2008
2/07/2008
2/09/2008
2/11/2008
2/01/2009
2/03/2009
2/05/2009
2/07/2009
2/09/2009
2/11/2009
2/01/2010
2/03/2010
2/05/20102/07/2010
2/09/2010
2/11/20102/01/2011
2/03/2011050100150200
2/01/2008
2/02/2008
2/03/2008
2/04/2008
2/05/2008
2/06/2008
2/07/2008
2/08/20082/09/2008
2/10/2008
2/11/2008
2/12/2008
2/01/20092/02/2009
2/03/2009
2/04/2009
2/05/2009
2/06/2009
2/07/2009
2/08/2009
2/09/2009
2/10/2009
2/11/2009
2/12/2009
2/01/2010
2/02/2010
2/03/2010
2/04/2010
2/05/2010
2/06/20102/07/20102/08/2010
2/09/2010
2/10/2010
2/11/20102/12/20102/01/2011
2/02/2011peaked at 279 end of May 2008
-50100150200
1/2008 3/2008
5/2008
7/2008
9/2008
11/2008
1/2009
3/2009 5/2009
7/2009 9/2009
11/2009
1/2010
3/2010
5/2010
7/2010
9/2010
11/20101/2011 
 
 109    Source: future prices from Ecow in and FAO, own calculations. 
Against this backdrop, the G20 agreed "to improve the regulation, functioning, and 
transparency of financial and commodity markets to address excessive commodity 
price volatility." In its Communication of 2 June 2010 on "Regulating Financial 
Services For Sustainable Growth" 200, the Commission announced it is preparing a 
comprehensive, balanced and ambitious se t of policy initiatives which will touch 
upon commodity derivatives markets. Mo re recently, the Communication of 2 
February 2011 on commodity markets and raw materials has called for further 
action201. More specifically on agricultural commodity derivatives markets, the 
Commission in the 2009 Communication on a better functioning supply chain202 
announced measures to improve oversigh t and the overall transparency of EU 
agricultural commodity derivatives, bot h on-exchange and over-the-counter. The 
review of MiFID is an integral part of these efforts.  
The problems in these markets spring from  five sources. First, commodity and 
commodity derivatives markets are global a nd strongly interlinked.  Second, there is 
concern that competent authorities cannot  adequately assess the price formation 
process due to a lack of transparency. Th ird, there is concern that national and 
divergent means of controlling fair and or derly markets are insufficiently effective. 
Fourth, that not all important market participants are covered. And finally, that certain contracts which resemble fina ncial instruments are not covered. 
First the physical and deriva tives markets are increasingl y intertwined and influence 
each other. The very nature of  a derivative contract is that its value depends on the 
value of the underlying market to which it  refers. In addition, derivative trading 
supports price discovery, and th ereby also influences comm odity prices. In addition 
to growing interdependence between physical  and financial markets, these markets 
have become increasingly global. For in stance, many commodity trading firms are 
based in Switzerland, where they generate  one third of world trade in crude oil.
203 
The global nature of commodity markets can  also be clearly seen by the volume of 
trading in agricultural commodity futures on the Chicago Mercantile Exchange (CME), where average daily volumes in mai ze futures contracts exceed those in Paris 
(EuroNext) by a ratio of more than 100 to 1.
204 
The interlinked and global nature of co mmodity and commodity derivatives markets 
requires reinforcing the cooperation between  financial and physi cal regulators, as 
well as between financial regulators at international level. Financial regulators have called for enhanced global cooperation.
205 In particular, they ha ve signalled the need 
to take a greater interest in the physic al commodity markets, to cooperate more 
closely, and share information with phys ical regulators and other relevant 
organisations. This cooperation should he lp promote a better understanding of the 
price formation process in the derivati ves markets and the interaction between 
physical and financial markets. It should also serve to improve  the detection of 
market abuses which occur across physical and financial markets, and which involve 
multiple markets in different jurisdictions. 
The second problem faced by regulators an d market participants is the lack of 
transparency both in the financial and phys ical markets. As a result financial 
regulators at the international level have called for increased transparency in both the 
financial and the underlying physical markets to bett er understand the price 
 
 110    formation mechanism of commodity derivatives and the interaction with the 
underlying physical markets206.  
Under MiFID, there is no position reporting requirement for derivatives , including 
commodity derivatives. However, most of the commodity derivatives exchanges 
have already in place some form of position reporting or oversight as part of their organizational requirements to ensure fair  and orderly trading on their markets (see 
Annex 5.2.8 Tables 29 & 30). In thhe  European regulation on OTC trading
207 the 
Commission will improve transparency of  these instruments by requiring that 
information on OTC derivative contracts be  reported to trade repositories and be 
accessible to supervisory authorities208. However, the level of granularity of this 
information will not allow competent authorit ies to differentiate positions taken by 
commercial and non commercial entities or for hedging or non hedging purposes, 
and will not allow them to assess the exact na ture and extent of the links between the 
price formation process on commodity ma rkets and the growing importance of 
derivatives markets.  
The third problem faced by regulators is the lack of harmonised and effective 
position management oversight powers to prevent disorderly markets and 
developments detrimental to investors. This includes excessive volatility of 
derivatives prices and the related commodity prices which could undermine the 
proper functioning of these markets. Holding large positions in commodity derivatives markets may allow individual mark et participants to influence the price 
of the derivative or the underl ying in a way that is manipulative or interferes with the 
fair and orderly working of the market. In  addition, the weight  of individual or 
aggregated positions may have an impact on fair and orderly markets. 
Derivative markets have grow n significantly in recent years.
209 The European 
Parliament has recently stated that regul ators should have harmonised powers to set 
position limits to reduce systemic risk and co mbat disorderly trading, especially for 
certain categories of derivatives210 echoing various calls to introduce positions limits 
to curb "financial speculation" in comm odity derivatives markets. As highlighted 
above, the manner in which competent author ities monitor and supervise positions in 
commodity derivatives is different betw een jurisdictions. For example French, 
German, and Spanish commodity exchanges have firm position limits in place for physically settled contracts and/or certain types of commodity de rivatives, whereas 
UK exchanges have a soft pos ition management system in place whereby they have 
the authority to manage positions at any tim e throughout a contract’s life cycle. They 
can instruct a member to close or reduce a position with the exchange, if that is 
necessary, to secure fair and orderly markets
211. This could give rise to regulatory 
arbitrage and/or unlevel pl aying field concerns, especi ally when contracts on the 
same commodity are traded on multiple exchanges. Similar concerns could arise at the international level as the existing positi on limits regime in place in the US will be 
reinforced with the Dodd-Frank Act (see A nnex 14 for a comparison between the US 
and the EU regime). 
Fourth, many important commodity trading fi rms are currently exempt from MiFID, 
even though their activities  increasingly resemble thos e of investment firms. 
Commercial companies active in the commod ity derivatives markets may be exempt 
from MiFID when they deal on own account  in financial instruments or provide 
investment services in comm odity derivatives on an ancill ary basis as part of their 
main business and when they are not subs idiaries of financial groups. Specialist 
 
 111    commodity firms whose main business is  to trade on own account in commodities 
and/or commodity may also be exempt when  they are not part of a financial group212 
These exemptions were intended to c over commercial user s and producers of 
commodities, under the assumption that comm ercial firms and specialist commodity 
firms do not pose systemic risks comparable to traditional financial institutions nor interact with investors. The size and le vel of activity of some of the exempted 
commodity firms has developed over the ye ars and the assumption of their limited 
effect in terms of market disorder or syst emic risk may not be as valid as before. 
 Moreover the G20 has set th e objective to improve derivative market transparency 
and oversight of all players that have a si gnificant activity in tr ading of derivatives 
which goes beyond their own hedging needs,  including commodity derivatives 
players. They should be subject to the same  regulation as financial players active in 
these markets. Finally, it has been suggest ed 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.
213 As these MiFID 
exempt firms are not subject to any Mi FID provisions – in cluding 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 provi sion 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. The same may be true for some energy companies who manage the energy portfolio of smaller, ofte n affiliated utilities. Both securities and 
prudential regulators' point of view is that ther e is a case for providing a more narrow 
interpretation of allowed exempt activ ities in line with the overall purpose of 
MiFID.
214  
A final problem, limited to the carbon ma rket, is that emission allowances, which 
share many elements in common with derivativ es, are not in scope. In addition, there 
is no general regulato ry framework that covers the carbon market. Serious concerns 
have recently been expressed over the functioning of the carbon market that was 
recently created by the EU inst itutions. Emission allowances215 are an instrument 
created by the EU Emissions Trading Sc heme Directive (the EU ETS Directive)216, 
in force since 2005. The ETS system is a co rnerstone of the European Union's policy 
to combat climate change. However, periodi c reports of fraudulent trading activity in 
the physical (non-financial) emission a llowances markets have significantly 
undermined the credibility of this market217.  
This lack of a general regulatory framework  entails that spot trading platforms for 
emission allowances are not required to guarantee standards of soundness, efficiency 
and market access. Intermediaries operating in  the spot secondary market do not need 
to comply with conduct of bus iness requirements or orga nizational safeguards, such 
as capital requirements. Also, financial re gulators currently lack  a complete overview 
of trading activity encompassing bot h financial and spot markets. 
The nature and characteristic s of the emission allowances (i.e. certificate giving the 
right to emit 1 metric tonne of  CO2) could lend themselves to  be classified  either as a 
financial instrument or a physical commodity . As a result their legal classification is 
not uniform in the Member States.218 This divergence has tr iggered some negative 
knock-on effects with respect to:  
 
 112    – the uneven application of VAT rules to tr ade in those allowances across the EU, 
which opened possibilities of VAT carousel fraud219  
– the possibilities of circumvention of anti-money laundering safeguards which do 
not extend in full to the access to sp ot market in emission allowances.220 
At the moment no EU wide market rules a pply to the secondary trading of emission 
allowances. While MiFID covers derivativ es on emission allo wances, it does not 
apply to trading venues or investment firms which trad e emission allowances for 
immediate (spot) delivery. MiFID also applie s to some extent to the future primary 
market (auctions) in those instruments221. As a result, the fact that the secondary spot 
carbon market is not subject to any EU wide comprehensive regulatory framework 
stands in contrast with th e situation in the allowances  derivatives market and the 
regulatory arrangements for th e auctioning (primary market ). This regulatory gap has 
led to national divergences as a few Member  States have brought the secondary spot 
activity in the carbon market  under the national regimes implementing the MiFID or 
Market Abuse Directive.222  
12.4.2.  Transaction reporting 
Regulators also lack necessa ry information due to divergent and limited transaction 
reporting requirements. Investment firm s are required to report to competent 
authorities all trades in all financial in struments admitted to trading on a regulated 
market, regardless of whether the trad e takes place on that market or not.223  
Transaction reporting under Mi FID enables supervisors to  monitor for abuses under 
the Market Abuse Directive (MAD). Transaction reporting is  also useful for general 
market monitoring, as it provides insi ght into how firms and markets behave. 
Records of trading activity can be us ed by supervisors for various purposes, 
including monitoring market st ability, cases of short sel ling, and analysing market 
trends including speculation dur ing times of uncertainty.  
The existing reporting requirements fail to pr ovide competent authorities with a full 
view of the market because their scope is too narrow, a nd because they allow for too 
much divergence.  
First, since transaction re porting enables monitoring the functioning of the market, 
including its integrity in the perspective of MAD, th e requirements under the two 
directives need to remain aligned, taki ng also into account th e ongoing review of the 
MAD224. In addition, the alignment of these two should also take into consideration 
the proposal for a regulation on Energy Mark et Integrity and Tr ansparency for EU 
wholesale electricity and gas markets (REM IT) with regards to energy transactions. 
For example, OTC options and credit defa ult swaps do not need to be reported, 
although they can be used to benefit from abusive strategies, and could also be used 
to give misleading price signals 225. Also, financial regulators at the international 
level have called for increased transpar ency in commodity derivatives markets226. 
Under the current market abuse rules, the prohibition already ex tends to orders to 
trade. In addition, MAD is expected to be  extended to prohibit also attempted market 
manipulation, which could also involve orde rs to trade. Some exchanges may already 
retain order data in their own systems fo r some time. However, there are no reporting 
or data retention rules for or ders to trade at European level. Orders to trade are 
therefore not available in a common format and according to common standards. 
 
 113    Second, reporting requirements today dive rge between Member States. Notably, the 
directive is insufficiently clear as to what constitutes a transaction, and allows for the 
reporting of additional fields at  national level. This adds costs for firms and limits the 
use of trade reports for competent authorities to identify market abuse cases. In addition the diverging reporting requirements give rise to additional complexity to exchange transaction reports between na tional regulators when the same listed 
instrument is traded in different jurisdictions
227.  
Third, investment firms can use third party firms to report their transactions228. These 
entities need to be approved by the compet ent authority, but th ere is no provision 
which ensures adequate ongoing monitoring by the supervisor to ensure these firms provide high quality and cons istent transactional data.  
Fourth, market participants that are not i nvestment firms do not need to report their 
transactions. When non-invest ment firms have direct acces s to organised markets, 
this could create substantial gaps between  trading activity on the venue and reports 
sent to the competent authorities. 
Last, for cost and efficiency purposes, double reporting of trades under MiFID and 
the recently proposed reporting requireme nts to trade repositories should be 
avoided.
229 
12.4.3.  Powers of competent authorities and coope ration at EU and international level 
Experience over the past years, and particul arly during the financia l crisis show that 
competent authorities' powers230 need to be strengthene d in key areas. Notably, 
cooperation with regards to ge neral market oversight is in sufficient, access to the EU 
market by firms from third countries is in sufficiently harmonised, and the level of 
sanctions is insufficiently deterr ent in a number of jurisdictions. 
Regulatory scrutiny of complex products such as certain t ypes of structured products, 
and of the provision of certain investment services and activities diverges. Currently, 
national regulators do not have  the power to temporarily ban or restrict the trading in 
or the distribution of a product by one or mo re investment firms or the provision of 
an activity where there are exceptional a dverse developments which constitute a 
serious threat to financial stability or to  market confidence in their jurisdiction. 
Further, there is no mechanism at EU level to  coordinate such a ban (if they were to 
be imposed) nor any explicit power granted to  ESMA to ban a product at EU level in 
case of persistent sustained market failure at EU level.231 Temporary bans put in 
place during the financial crisis, such as those on short selling in shares and in 
government bonds, demonstrate that taking su ch measures on a national level causes 
compliance problems for firms active in seve ral member states and can result in 
needless market disruption. In addition, na tional bans are not necessarily effective, as 
they may not cover activities that take place in other member states. 
Competent authorities coopera te in detecting and sancti oning market abuse. There 
are also provisions that re quire them to cooperate when suspending trading.232 
However, there are no provisions that ensu re cooperation with regards to general 
market oversight in order to ensure fair  and orderly markets. For instance, the 
manner in which competent authorities monitor and supervise positions in derivatives on trading venues and OTC vari es between EU jurisdictions (see Annex 
5.2.6. Table 25). This lack of coordina tion may mean competent authorities do not 
 
 114    have a full view of the mark et, or fail to take into ac count developments in other 
markets when considering taking action.  In addition, as mentioned under the 
commodity derivatives section, financial regu lators might not have at the moment all 
the necessary information relevant to mon itor price formation, nor all trading data 
needed to monitor trading be haviour in commodity deriva tives markets. Finally the 
exchange of information between competen t authorities in Europe and in third 
countries is insufficient when  supervising market participants and markets which are 
increasingly global. The recent wave of st ock exchange mergers (e.g. the collapsed 
merger between the London Stock Exchange and its Canadian peer TMX, merger 
between Deutsche Börse and NYSE Eu ronext, and merger between the 4th largest 
operator of US equity markets Bats Globa l and Europe's larges t MTF Chi-X Europe 
Ltd.) has highlighted the need for greater  coordination of supervision of market 
operators expanding in global markets. 
Regarding the access of third country firms to EU markets, it is not harmonised 
under the MiFID but is left to the discreti on of Member States as to who may access 
their markets233. Member States may however onl y authorise firms to access their 
own State and also must not treat third count ry firms more favourably than EU firms. 
But this gives rise to a patchwork of national third country regimes granting access 
by third country investment firms and market operators to their markets. 
On sanctions, not all competent authorities have a full set of powers at their disposal 
to ensure they can res pond to all situatio ns with the appr opriate sanction 
corresponding to the severity of the MiFID viola tion observed.234  
The maximum levels of administrative pecu niary sanctions provided for in national 
legislation varies widely among Member States235 and in some cases the maximum 
fine can be considered low and insufficiently  dissuasive. For example, in the case of 
violations of the minimum conditions for au thorisation of investment firms such as 
the need to have adequate organisationa l arrangements to prevent conflicts of 
interests from adversely affecting the interests of its clients (Articles 9 to 14 of MiFID), 17 Member States provide for maxi mum fines of less than 1 million and in 
6 of them the maximum amount is 100 000 Eu ros or less. Violations of investor 
protection rules (Articles 16 to 24 of MiFID)  and market transparency rules (Articles 
25 to 30 of MiFID) can be sanctioned with a maximum of  less than 15 000 Euros in 
some Member States. When the gains of a violation are higher than the expected 
sanctions, the deterrent effect of the sanc tions is undermined. This is reinforced by 
the fact that the offender might consider that his offence coul d remain undetected. 
But these maximum fines can also be consid ered low and insufficiently dissuasive in 
view of the substantia l amount of damage to investors that such violations can cause 
– in recent cases damages caused by failure to  ensure the suitability of investment 
products for certain customers were estimated at several millions of Euros. 
Moreover, some Member States  do not have at their disposal important types of 
sanctioning powers for certain violations. Five Member States do not provide for 
public reprimands/warnings and seven Me mber States do not provide for the 
publication of sanctions, ev en though it is acknowledged  that publication of 
sanctions has a deterrent effect and is of  high importance to enhance transparency 
and maintain confidence in financial markets.  
These divergences and weaknesses may rende r the sanctions for breaches of EU 
financial services legislation insuffi ciently effective, proportionate and 
 
 115    dissuasive.236 They may create distortions of competition in the Internal Market, 
and financial institutions with cross-borde r operations could s eek to exploit the 
differences between the legislation in for ce in different Member States., which may 
be detrimental to the protection of invest ors and consumers of financial services 
products alike. They can also have a ne gative impact on the tr ust between national 
supervisors and hence on cross border financial supervision. 
12.5. Problem 5: Insufficient investor protection  
A number of provisions in the current Mi FID result in investors suffering from 
insufficient or inappropriate levels of protection. Speci fic exemptions and unclear 
demarcation lines between products or services  subject to higher levels of protection 
can lead to investors being sold financia l instruments which ar e not appropriate for 
them and to make investment choices which are sub-optimal. 
12.5.1.  Uneven coverage of service providers  
First, Member States have the option not  to apply MiFID to firms or persons 
providing reception and transmi ssion of orders and/or inve stment advice in relation 
to a broad range of financial instrume nts (See Annex 5.2.9. Table 32). Member 
States may only apply this ex emption when the activities of  the persons are regulated 
at national level, but MiFI D does not specify any details of what this national 
regulation should consist of.  
In view of the complexity of financial markets and products, investors often depend 
to a large extent on suitable recommenda tions provided by professional advisers237. 
In this respect they cannot be  expected to inquire as to the regulatory status of the 
adviser but should enjoy the same level of pr otection irrespective of  the nature of the 
service providers. There are currently ove r 100 000 individuals or firms (mostly in 
Germany) covered by the exemption, comp ared with around 8000 authorised MiFID 
firms or credit institutions providing the sa me services (see 5.2.9). Exempting this 
number of service provider s even on a national basis without setting a minimum 
regulatory framework for investor protection no l onger seems appropriate.  
Second, in the context of the Communication on packaged retail investment products 
(PRIPs),238 the Commission has underlined the importance of ensuring a more 
consistent regulatory appro ach concerning the distribu tion of different financial 
products to retail investors, which however satisfy similar investor needs and raise 
comparable investor protection challenges.239 Specifically, the sale of structured 
deposits, an activity almost exclusively carried out by credit institutions, is outside the scope of EU regulation. This represen ts 12% of the combined EU market for 
PRIPs.
240 The gap in terms of investor pr otection and regulatory arbitrage is 
important. Investors in this market with co mparable aims to those investing in other 
PRIPs, i.e. with either underlying securities or insurance  are at a disadvantage, while 
firms can be tempted to avoid rules applicab le to the sale of other PRIPs and inflate 
sales of deposit-based products.  
Third, national regulators241 have raised concerns with re spect to the applicability of 
MiFID when investment firms or credit  institutions issue and sell their own 
securities. As a primary market activity, issuance of financial instruments is not 
covered by MiFID. However equities and bonds issued by these firms represent a 
sizeable share of total EU issuance. Issuan ce by financial services firms (as a proxy 
 
 116    for investment firms and credit institutions) are very significant in the context of 
issuance in Europe as a whole. Indeed according to Europe Economics, in 2009 over 
40 per cent of equity secondary offering issuance within  the EMEA region was by 
financial services firms. This is equivale nt to issuance €120 billion. The share of 
financials in total bond issuance is less clear but is likely to be substantial (financials 
is the largest segment in terms of outstanding corporate bonds). However the 
significance of direct, non-advi sed sales to retail investors within this total is not 
known. In this respect, CESR has urged clarifying the app licability of MiFID to the 
direct and non-advised sales of these securities lest i nvestors are unprotected in cases 
where they would reasonably expect th e firm to be acting on their behalf.242 
12.5.2.  Uncertainty around execution only services 
MiFID allows investment firms to provide investors with a means to buy and sell so-
called non-complex financial instruments in the market, mostly via online channels, 
without undergoing any assessment of the a ppropriateness of the given product - that 
is, the assessment against knowledg e and experience of the investor.243 Individual 
investors value the possibility to buy and se ll (essentially) shares based on their own 
assessments and understanding.244 Nonetheless, there are three potential problems 
with the status quo which should be addr essed on precautionary grounds. First, the 
financial crisis clearly underlines that access to more complex instruments needs to 
be strictly conditional on a proven understanding of the risks involved. Second, the ability of investors to bo rrow funds solely for invest ment purposes even in non-
complex instruments, thereby magnifying potential losses, needs to be tightly 
controlled. Third the classi fication of all UCITS as non- complex instruments needs 
to be reviewed in light of the evolutio n of the regulatory framework for UCITS, 
notably when assets they can invest in  are themselves considered complex under 
MiFID, for instance derivatives. In all thes e respects, the exact range of instruments 
and services covered under the execution-only regime toda y is not sufficiently clear 
and could lead to – avoidable – problems for investors. 
12.5.3.  Quality of investment advice 
In the context of the financial crisis and recent debates on the quality of investment 
advice, including the debate on PRIPs, seve ral possible areas for improvement have 
emerged. Under MiFID intermediaries provi ding 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  and to the conditions att ached to the provision of 
advice on an independent basis. One study in dicates that, at present, investment 
advice is unsuitable rou ghly half of the time.
245 Compounded by cases of mis-selling 
amid the financial crisis, the number of  complaints regarding the quality of 
investment advice has also  been increasing. Europe Economics has searched the 
databases and annual reports of financial services-focused ombudsman in selected 
countries (including Belgium, Czech Repub lic, France, Germany, Greece, Ireland, 
Luxembourg, Spain and the UK) in order to  investigate the recent prevalence (or 
even specific cases) of mi s-selling or bad advice pr ovided to retail clients: 
– The UK’s Financial Ombudsman Service opened 22,278 new cases relating to 
investments and pensions in 2009/10.246 Of these, 62 per cent related to 
complaints about sales and advice.  
 
 117    – Germany’s Ombudsmann der Privaten Banken reviewed 1,325 complaints 
relating to the provision of investment advice and asset management in 2008.247 In 
the latter case, the numbe r of complaints about a dvice had quadrupled over 2007, 
which was attributed to the impact of the financial crisis. The complaints related to inadequate explanation of the specific ri sks attached to a part icular security or 
the pressure exerted to purc hase overly risky assets.  
–
 Similarly in Greece of the complaints received regarding investment business a 
common one was that the key information regarding a particul ar product was not 
adequate.248  
12.5.4.  The framework for inducements 
MiFID regulated for the first time the payment of various types of incentives to 
investment firms which can influence the choice and the promotion of products when 
firms provide services to cl ients (inducements). The MiFID rules for incentives from 
third parties require inducements to be di sclosed and to be designed to enhance the 
quality of the service to the client249. These requirements have  not always proven to 
be very clear or well ar ticulated for investors250. Further, their application has created 
some practical difficulties and some concer ns, especially with respect to portfolio 
management and investment advice251, and may lead to sub-optimal choices on 
behalf of the investor. This inherent conflict of interest  is potentially widespread: 
over half of all EU investment firms and credit institutions are licensed for the provision of portfolio manageme nt and/or investment advice.
252 The problem is 
partially already recognised in the national law, supervis ory or industry practices of 
some Member States (e.g. UK, Italy).253 
12.5.5.  The provision of services to non retail  clients and classi fication of clients 
The MiFID classifies client s in different categories and calibrates protections 
accordingly. Conduct of business obligations fu lly apply only to retail clients while 
they apply partially or do not apply to professional clients and eligible counterparties.  
The current crisis and alleged mis-selli ng practices involving cer tain categories of 
non retail clients, notably local authoritie s and municipalities, have shown that the 
ability of some non-retail clients to understand the risk they are exposed to, 
especially in the case of ve ry complex products, may be in adequately reflected in the 
MiFID. The current framework for clients'  classification and the calibration of 
applicable protections does not  reflect their needs accurately. 
12.5.6.  The execution quality and best execution 
MiFID requires invest ment firms to execute orders on terms most favourable for the 
client (best execution). This obligation254 hinges on the availabi lity of data on the 
quality of execution at different trading ve nues as well as accura te and timely pre- 
and post-trade transparency data (addressed in section 3.4 above). This combination 
enables firms to select the trading venues where they execute orders and to comply 
with best execution obligati ons on an on-going basis, as well as to review their 
execution policies as markets evolve. Howe ver, MiFID currentl y does not require 
venues to publish harmonised data on execution quality. Potentially relevant information for best execution purposes
255 is thus not systematically available in a 
readily comparable format to market participants256. As a result, investors are 
 
 118    excessively dependent on the assurances of the investment firms they use that best 
execution has been delivered. This can  propagate sub-optimal outcomes, 
inefficiency, and opportunities foregone. 
12.6. Problem 6: Weaknesses in some areas of  the organisation, processes and risk 
controls and assessment of market participants  
The problem presents several dimensions. 
12.6.1.  Insufficient role of directors, weaknesse s in the organizational arrangements for the 
launch of new products, operations and se rvices, and internal control functions 
MiFID requires persons who direct the busin ess to be fit and proper, establishes a 
general framework for organizational require ment and regulates specific internal 
control functions (compliance function, ri sk management function, internal audit 
function).257 Events during the financial crisis illustrate the importance for firms to 
have in place robust corporate governan ce arrangements, in cluding appropriate 
chains of accountability and involvement of  directors, as well as strong internal 
control functions258. Likewise, organisational check s and safeguards around the way 
investment firms design and launch new products and services should be robust259. 
On the ground, Member State practice may vary, but specific shortcomings in the 
general framework of MiFID have been e xposed in this respect. Notably these 
concern the degree of experience and engage ment of all board members (not just 
executive directors) and of their direct responsibility re garding the operation of the 
internal control functions. 
12.6.2.  Specific organizational requirements fo r portfolio management, underwriting and 
placing of securities  
Portfolio management on a client-by-client  basis requires a spec ific authorization 
under MiFID and is subject to the genera l organizational requirements and conduct 
of business rules260 but the area of the actual management of portfolios on a 
discretionary basis by firms, however, is  not covered by a ny specific provision. 
Inherently, the discretion enjoyed by the portfolio manager can nonetheless give rise 
to disputes regarding unsuitable or poor i nvestment choices. I ndeed, Member States 
have recorded numerous complaints where clients have challenged the way in which 
their portfolio has been ma naged. The review of the published annual reports of 
financial services ombudsmen261 did reveal some problems arising in relation to 
discretionary portfolio management services. In particular, these were highlighted by 
the ombudsmen in Belgium, the Czech Republic, France, Germany, Ireland, Luxembourg, Spain and the UK. In th e 2010 Annual Report published by the UK 
Ombudsman, it noted that th e complaints made about discretionary portfolio 
management services typically involved the following issues:
262 (i) A failing of 
administration of their portfo lio; (ii) The portfolio was not managed in a ways that 
was initially agreed; (iii) A failure by the manager to diversify the investments made 
in the portfolio; (iv) A manager that made  too many, or too few, changes to the 
portfolio over a certa in period of time. Only a few of the ombudsmen identified the 
number of cases relating to  discretionary management. For instance, the German 
private banking ombudsman identifies 274 cases  relating to discretionary portfolio 
management (9 per cent of the cases it handled in the securities area, 4 per cent of its 
total cases workload); in Luxembourg seven of the cases settled related to this area 
(being three per cent of the total).  
 
 119    For underwriting and placing, corporate fina nce business is covered under different 
investment and ancillary serv ices in MiFID: underwriti ng and placing, advice to 
undertakings, including serv ices related to mergers,  services related to 
underwriting.263 Firms providing the investment service of underwriting and placing 
need to be authorised and are subject to MiFID require ments. Nevertheless, some 
specific practices264 contrary to firms' obligations to take all reasonable steps to 
prevent conflicts of interest, such as underpri cing or overmarketing of securities to be 
issued have recently been noted.   
12.6.3.  Telephone and electronic recording  
MiFID gives Member States the possibility of requiring firms to record telephone 
and electronic communications involving c lient orders. Most Me mber States have 
used this option. However, the wide discretion introduced by MiFID has led to 
different approaches being adopted by Memb er States, ranging from the lack of any 
obligations to the imposition of ve ry detailed rules in this area265 (see also Annex 
5.2.11 Table 35) . There is therefore no consistent framework across Europe on this 
question creating differences in the superv isory tools available to regulators and 
disparities between firms pr oviding the same services in  different Member States 
 
 120    13. ANNEX 3: ANALYSIS OF IMPACTS AND CHOICE OF PREFERRED OPTIONS AND INSTRUMENTS  
This table highlights the key initiatives unde r this review with their respective level of priority, their lin k with internatio nal or other EU 
initiatives, the impact on market structur e and/or business models (i.e . level of transformational impact), the level of execut ion risks, and the 
level of costs. Key initiatives are highlighted in grey.  
– TABLE 11 : Key initiatives 
Operational objectives Level of priority 
(high/medium)  International initiative or 
link with other EU 
initiative  Level of 
transformational 
impact (hi gh/medium/ 
low) Level of       
execution risk 
(high/medium/ low)Level of costs 
(high/medium/ low)
Regulation of market 
structure taking into a/c 
needs ofSMEs  High Yes (G20 trading of 
derivatives; SME 
financing) Medium to high 
(creation of OTFs)Low to medium Medium 
Set up relevant framework around new trading practices
 Medium Yes (IOSCO direct 
market access) Medium Medium Low 
Improve trade 
transparenc y on equities 
and non equities  High Yes (G20 
transparency of 
derivatives) Low (for equities) 
to high (non 
equities) Low to high Medium 
Reinforce powers of 
regulators and 
coordination in 
supervisory practice  Medium Yes (Larosière 
Group; sanctions) Medium Low Low 
Improve transparency 
towards regulators (i.e. 
transaction reporting)  Medium Yes (MAD review) Low Low Low (costs 
incurred under 
EMIR) to high 
Improve oversight of 
commodities markets  High Yes (G20) Medium Medium Low 
 
 121    Reinforce regulation on 
products and services  Medium Yes (PRIPS 
structured deposits) Low Low Medium 
Strengthen conduct of 
business rules for IF  High No Low to medium Medium High 
Stricter organisational 
requirement for IF  Medium Yes (Corporate 
governance EU work 
stream) Low Low Medium 
 
 
 122     
13.1. Regulate appropriately all market struct ures and trading prac tices taking into 
account the needs of smaller participants 
Option 1 – take no action at EU level. 
As explained in the problem definition, ther e are shortcomings in the current design 
of MiFID with respect to pr oviding a level-play ing field for the di fferent types of 
trading venues existing in the market and regulating them appropriately. These 
shortcomings would remain if  no action at EU level was taken. In addition, SME 
financing via securities markets would remain at its current level.  
Trading platforms 
Option 2 - Introduce a new category of Organise d Trading Facilities (OTF) besides RMs and 
MTFs to capture current (including  br oker crossing systems - BCS) as well as 
possible new trading practices while and further align and reinforce the 
organisational and market surveillance requi rements of regulated markets and MTFs 
Establishing a new category of organised tr ading facilities would have the advantage 
of applying appropriate trad ing venue specific obligations  to a variety of different 
types of systems that involve the bringing together of multilateral or bilateral orders, 
for example crossing systems, "swap execu tion facility"-type platforms, hybrid 
voice/electronic broking systems and any othe r type of organised execution systems 
that are used by firms. An appropriate new regulatory category w ould be created that 
is flexible enough to meet the differing natu re of these systems. It would also be 
future-proof as the category would be widely defined to  capture new systems that 
may develop in the future. It would also result in the application of pre-trade transparency requirements and therefore re duce the number of orders that are dark. 
This could benefit best execu tion and price formation. This  option will also enable 
full convergence with the US regulation currently being discussed regarding 
derivatives trading (the Swap Execution Facilities – SEFs under the Dodd Frank 
Act).  
Further aligning the detailed rules applying to regulated markets and MTFs would 
have the advantage of ensuring that similar rules apply where entities essentially conduct the same type of busine ss. Especially in equities trading there is an intense 
competition between Regulated Markets and MTFs and would therefore help create a level playing field. 
Requiring co-operation and an exchange of information between trading venues 
would also appropriately reflect the em ergence of certain MTFs which nowadays 
have a sizable market share in  particular in the trading of European blue chips. In 
practice this means that equities are trad ed intensively on a significant number of 
trading venues so that a hi gher degree of co-operation between those trading venues 
can help reducing the probability of cross venue market abuse strategies. Intensified 
cooperation and information exchange would therefore improve market integrity in 
those cases where trading of fi nancial instruments is spread over a number of venues.  
A disadvantage of streamlining the rules for regulated markets and MTFs could be 
that the compliance costs for some MTFs would increase. These costs may be passed 
 
 123    on to users so that this measure may cut in to some of the reductions in trading costs 
stakeholders have experienced follo wing the implementation of MiFID.  
There are no obvious disadvantages to requiring an enhanced co-operation and 
information exchange between different trad ing venues trading identical instruments. 
Establishing the initial routines for co- operating and exchanging information will be 
associated with some costs. However, the organisations affected  run highly efficient 
state of the art IT systems so that liaising with other venues should not be overly 
burdensome and any costs incurred should be  more than mitigated by the positive 
impact achieved on market integrity. 
Disadvantages in relation to establishi ng the new category of OTF would also be 
associated with costs. For firms operating the various types of systems that may be 
an OTF there will be initial costs in dete rmining whether the system constitutes an 
OTF and how the rules apply to the syst em. There will then be ongoing costs of 
complying with the new organisationa l and transparency requirements.  
Option 3 – Expand the definition of MTF so that it  would capture trading on broker crossing 
systems (BCSs) (Alternative to option 2) 
This option would have the advantage of applying trading venue specific rules to a 
specific type of system pr eviously only regulated as an investment firm thus 
improving market transparency, creating a level playing field among trading venues 
and promoting legal certainty. 
However, a disadvantage coul d be that indiscriminately  applying the MTF rules to 
BCS may be too inflexible and entirely cha nge their business mode l. This would fail 
to recognise the functional differences between a broker cr ossing its client orders (a 
traditional and legitimate activity carried on by brokers) and the operation of an exchange. Finally, this approach may not be  future proof as if new types of systems 
emerge in the future that are not broker crossing systems they would not be captured. 
Trading of derivative instruments 
Option 4 – Mandate trading of st andardised OTC derivatives (i .e. all clearing eligible and 
sufficiently liquid derivatives ) on regulated markets, Multilateral Trading Facilities 
(MTFs) or organised trading facilities  (OTFs) (Additional to options 2 3) 
One advantage of implementing this opti on would be that a previously opaque 
market which entails systemic risk would be moved to more transparent and strictly supervised platforms. In addition, this  option would enhance competition between 
trading venues and improve the quality and re liability of prices quoted for derivatives 
which are currently traded OTC. Investor s looking e.g. for an OTC derivative for 
hedging purposes of the market may find it di fficult to make an informed judgement 
about the price they are quoted because of  the current opacity of the market. By 
implementing this option reference prices  created through trading on electronic 
platforms would be availa ble improving the bargaining position of investors, 
especially the smaller institutional ones. Th is option would also be consistent with 
the new US rules that allows trading of cleared OTC derivatives to take place on 
swap execution facilities, while establishing  a framework of trading venues suitable 
for EU markets and respecting the EU treat y and case law as regards the delegation 
of powers to agencies such as ESMA. Ex emptions would be provided for corporate 
 
 124    end-users, in order to avoid imposing central clearing a nd circumventing the 
exemptions under the Commission propo sal on OTC derivatives, central 
counterparties and trade repositories.266 
A disadvantage could be that derivatives traded on electronic pl atforms may not be 
sufficiently customised to fu lfil the particular needs of certain investors trying to 
hedge their positions. However, bespoke derivatives would still exist as only those derivatives are moved to platforms where such a move is appropriate, i.e. if there is a 
high degree of standardisation and also liquidity. The second disadvantage is that this 
shift of trading on organised venues from previously OTC traded products could 
dramatically change the business model of the main dealers and possibly lead to a 
substantial drop in their ability to provide  liquidity. This could have a significant 
detrimental impact for investors a nd users of these instruments.  
Option 5 – Set targets in legislation for trading in standardised OTC (i.e. all clearing eligible 
and sufficiently liquid derivatives) derivatives to move to organised venues (Alternative to option 4) 
The advantages of this option would be that it goes with the trend of market practice 
(with derivatives increasingly being traded on automated trading facilities) and 
avoiding the need for protracted negotiations  on, first, the range of instruments to 
which mandates should apply,  and second, the range and exact characteristics of 
venues that could qualify under the G20 char acterisation of exchanges and electronic 
trading platforms.  
The disadvantages would be the need to es tablish suitably ambitious yet attainable 
target levels per asset class, the need for rigorous monitoring of th e targets, as well as 
a back-up enforcement procedure in case they  are not met. Further, the G20 text on 
trading of derivatives should be read together with the agreement on clearing. That 
is, where a mandatory approach is chosen on th e latter, it is arguabl y incoherent to be 
significantly less firm on the approach to trading, i.e. to extend the notion of "where appropriate" beyond the scope of applicable venues and inst ruments to the choice of 
regulatory means. 
SME markets  
Option 6 – Introduce a tailored regime for SME markets under the existing regulatory 
framework of MTFs (Additional)  
The introduction of a tailored regime fo r SME markets under the existing regulatory 
framework of MTFs would mean to set up a harmonized standard which market 
operators may apply when cr eating a SME segment. Howe ver, the EU SME regime 
would not be a mandatory one, so market ope rators may decide not to create such a 
segment. 
If market operators decide to make use of the EU regime for SME markets, they 
would need to comply with organisational and system requirements to be further 
defined and specified in dele gated acts. To build market  confidence the SME regime 
will ensure the high level of investor prot ection as provided for in regulated markets 
in order to gain a quality label. For exam ple, market abuse legislation should be 
applied. This regime will lead to more vi sibility of SMEs and therefore will attract 
 
 125    more investments. Finally, more investments will provide for more liquidity and 
make applicable costs proportionate. 
Implementing this option would have the a dvantage of a quality segment providing 
for more visibility and therefore more li quidity while at the same time reducing the 
costs of administrative burdens for issuer s, such as for instance a proportionate 
disclosure regime according to the amended Prospectus Directive. In particular, SME 
markets under such a tailored regime will gain a positive perception due to high regulatory standards notably of investor protection. Ba sed on this a quality label 
could emerge. This will lead to more vi sibility of the SMEs listed and, in 
consequence, will attract more investments. More investments will broaden the capital pool available and therefore reduce volatility while increasing liquidity in 
markets. This will make it more attractive for SMEs to seek an admission to trading 
on a MTF thus making it easier for them to access the capital markets to raise 
finance. Furthermore, harmonized st andards will allow a network among SME 
markets to broaden the capital pool accessi ble for SMEs. Therefore, it will bring 
more issuers and above all investors to th ese markets, which should facilitate their 
growth and thus the financing of SMEs expansion. The setting up of a harmonised 
regulatory framework will not be sufficient to guarantee the emergence of a network 
of markets as national traditions in terms of family ownership or financing mode of 
SMEs may persist. Therefore, flanking meas ures such as setting up specific financing 
schemes at European level for SMEs may be  needed to strengthen the establishment 
of a real network of SMEs markets. Once such connection is achieved, it will allow SMEs to access to a broader capital pool and raise larger amounts of funds which 
will decrease the relative cost of capital versus bank financing. 
A disadvantage could be that market operators do not employ the framework 
provided. Nevertheless, as the use of the EU tailored framework is not mandatory, flexibility is left to market operators to use a different model. Then no quality label 
of the new regime may emerge. Furtherm ore, lacking a comm on basis, markets 
would not be able to establish networks among themselves. Finally, the situation for 
SMEs seeking finance on capital market  would stay as di fficult as today. 
Option 7 – Promote an industry-led initiative to  enhance the visibility of SMEs markets. 
(Alternative to option 6) 
Instead of setting up an EU harmonized regulatory framework for SME markets an 
industry-led initiative could be promoted developing mark et standards leading to a 
harmonized appearance of SME markets and finally networks between SME markets 
across the EU. The industry may, accordi ng to SMEs' and inve stors' demand and 
needs, create a self-regulated standard model taking into account existing market 
models and practises. This option could impl y the use of some financing tools (e.g. 
introduction of this type of financ ing in the Competitiveness and Innovation 
Framework Programme267) helping to develop further this  type of industry initiative.  
The main advantage of this option would be  that it should help SME markets to 
develop further their networ ks by agreeing on common exch ange-regulated standards 
and practises. This option provides flexibility for market operators whether and what rules to apply. A framework agreed by ev eryone has the advantage that it will gain 
more acceptances by market operators. 
 
 126    However, the downside is that an SM E market segment agreed among market 
operators may not attract the same interest  at investor-side. Industry negotiations 
may lead to a weak framework providing fo r insufficient provision for instance with 
regard to investor protection. However, a poor perception will not only expel investors but, in conseque nce, also may have negativ e spill over effects on the 
issuers' reputation.
268 The past experience (in the 1990s) with second-tier markets 
based on industry developed standards is not positive: all of them disappeared, but AIM
269.  
– TABLE.12 : Rise and Fall of the European New Markets 
 
Source: Mendoza270 
Furthermore, as market operators are comp etitors, they may look for their individual 
business advantage271 and may avoid entering into networks with other operators and 
allowing them access to their market segment.  Market operators already today rarely 
use the possibility to set harmonized industry standards across Europe to create 
networks enhancing SME markets' visibil ity and liquidity. T hus an industry-led 
initiative might need a regulatory framework proposed under option 8 above. 
13.2. Regulate appropriately new trading tec hnologies and address any related risks 
of disorderly trading 
Option 1 – take no action at EU level. 
As explained in the problem definition, ra pid technological advances in the recent 
past have transformed tradi ng practices in the markets due  to the increased use of 
algorithmic trading with  high frequency trading repres enting one specific type of 
automated trading. Curren tly the MiFID framework la cks specific measures to 
address these and other similar future tec hnological developments. If the regulatory 
framework is not adapted to address such new developments in the markets risks of 
market disorder and systemic failure are increased.  
Organizational requirements  
 
 127    Option 2 – Narrow the exemption granted to persons dealing on own account to ensure that  
high frequency traders that ar e a direct member or dire ct participant of a RM or 
MTF are authorised  
The effect of this change is  that all entities engaging in  high-frequency trading that 
are a direct member or direct participant of a RM or MTF would be required to be 
authorised as an investment firm under Mi FID so that they would be supervised by a 
competent authority and would be required to comply with 
MiFID provides organisa tional requirements for firms (e.g. systems, compliance and 
risk management obligations). The applic ation of MiFID require ments and oversight 
of activities by financial s upervisors would decrease the risks of systemic failures 
and/or disorderly trad ing potentially arising from these activities.  
A disadvantage of such a measure would be that these traders would incur costs for 
the authorisation process and ongoing co mpliance with MiFID requirements. 
However, these costs are also incurred by other participants in the financial markets, so imposing financial superv ision on these players who are increasingl y significant 
and active market participants seems appropriate.  
Option 3 – Reinforce organisationa l requirements for firms involv ed in algorithmic or HFT 
trading and for firms provid ing sponsored or direct market access facilities 
(additional to option 2) 
Implementing this option would have the a dvantage that it woul d place the onus on 
firms involved in algorithmic and high freque ncy trading to have in place specific 
measures to mitigate some of the main syst ems risks inherent in algorithmic and high 
frequency trading. Further, for firms that  allow their systems to be used by other 
traders it would clearly attribute responsibil ity for any misuse of  the access to the 
investment firm granting access. Having prope r risk controls and filters in place 
would help prevent disorderly trading em anating from entities acting on the markets 
via such access arrangements. The obligation to disclose details of algorithms to 
regulators upon request would ensu re more rigorous oversight.  
This option does not have any obvious disadva ntages apart from a possible marginal 
increase in costs for the relevant firms.  
Option 4 – Reinforce organizational requirements (e.g. circuit breake rs, stress tes ting of their 
trading systems) for market opera tors (additional to option 2 and 3) 
Implementing the option would help mitigate and prevent the risk of potential 
disorderly trading associated with auto mated trading and other unforeseen market 
developments. An additional advantage would be that circuit breakers in particular 
can protect investors against execution of their orders at a price level not representing 
the real value of an instrument but rather  caused by high volatility due to disorderly 
trading conditions. This option is very much in line with the measures considered by 
the US authorities furt her to the flash crash of 6 May 2010. Significant 
interconnection between markets in the US  means that having  adequate circuit 
breakers and stress testing was of greater importance to prevent widespread system 
risks. While market infrastructures are not interconnected in the same way in Europe 
as in the US, there is still significant potenti al for market disturba nces if operators of 
 
 128    venues do not have in place clear circuit breakers and if trading systems have not 
been properly tested to prevent systems crashing 
Implementing this option w ould increase compliance costs for market operators. 
However, as these costs would help preven t disorderly trading or system breakdowns 
which could have negative consequences fo r market users and the reputation of the 
market operator, they appear to be a justified and essential investment in the best 
interests of markets. 
Activity of HFT  
Option 5 – Submit high frequency traders to re quirements to provide liquidity on an ongoing 
basis (additional to 2, 3 and 4) 
The advantage of implementing this option wo uld be to ensure that  high frequency 
traders cannot abruptly enter or leave the market for an instrument resulting in a 
sudden increase or decline in liquidity for that financial instrument. For example if 
there were adverse market conditions a withdrawal from the market could cause a sudden drain in liquidity which could exacer bate price movements and volatility for 
an instrument.  
A disadvantage could be that high frequenc y traders may refrain from participating 
in the markets as they woul d not want to take on liqui dity provision obligations, 
especially in advers e market conditions.  
Option 6 – Impose minimum resting pe riod for orders (alternative to 5) 
Implementing this option would stop high fr equency traders and algorithmic traders 
from testing the depth of order books by submitting and cancelling orders in very quick succession. This would put less stress on the IT systems of market operators 
reducing the risk of systemic failures. If  such practices constitute market abuse 
imposing a minimum latency period could stop them thus preventing disorderly 
trading and promoting market integrity.  
A disadvantage would be that a minimum latency period w ould limit market liquidity 
and efficiency and price discovery. The ab ility to constantly update orders helps 
maintain a tight bid-ask spread. In so far as some automated trading practices can be 
abusive this is an issue that will be a ddressed in the review of the Market Abuse 
Directive. This option would also am ount to a prohibition of many forms of 
algorithmic and high frequency trading strategies  that are considered to be beneficial 
to the market (e.g. market making and arbi trage strategies) where constantly updating 
orders is essential to enable the firm to pr ovide the best prices and mitigate its risk. In 
addition, this measure could also indiscrimi nately affect other forms of trading where 
it is necessary to cance l or update orders. It therefore has the potential to distort the 
functioning of the market and create va rious unintended cons equences. Finally, 
defining the minimum period w ould be highly controversial and sophisticated market 
participants may find innovative ways to  exploit this rest ing period to their 
advantage. 
 
 129    Option 7 – Impose an order to exe cuted transactions ratio by im posing incremental penalties 
on cancelled orders and setting up minimum tick size (alterna tive to 5 and 6) 
The advantages described in option 6 would al so be attained by this approach, i.e. the 
stress on IT systems would be  alleviated and high frequency and algorithmic traders 
would be limited in their attempts to te st the depth of the order book. The minimum 
tick size would also limit the scope of arbitrage for HFT and would also avoid 
unsound competition between trading venues that may be tempted to lure liquidity by 
reducing tick size to ridiculous levels. 
The disadvantages however, would be less severe than descri bed under option 6. 
This measure would in all lik elihood, provided that the ra tio is suitably calibrated, 
only affect the high frequency traders or algor ithmic trading activity it is targeted at. 
Market liquidity and efficiency and the quality of price discovery should not be 
adversely affected. Assuming that the ratio a nd the system of penalties is effectively 
calibrated then risks would be effectivel y addressed while minimising the adverse 
effect on spreads. Market ope rators would be best placed  to calibrate  the optimal 
approach that fits for the pa rticular market concerned.  
13.3. Increase trade transparency for market participants 
Option 1 – take no action at EU level. 
It is described in the problem definition that the current transparency regime for 
equities has exhibited shortc omings in relation to, for example, the calibration of 
existing waivers, the timing of post-trade information and the quality in the reporting and publication of trade data. In addition, the MiFID regime  currently does not cover 
non-equities at all where the ex isting data reporting tools av ailable in the market are 
not considered sufficient. A ll of these shortcomings woul d remain if no action at EU 
level was taken.  
Trade transparency for equity markets 
Option 2 – Adjust the pre- and post-trade trans parency regime for equities by ensuring 
consistent application and monitoring of the utilisation of pre-trade transparency waivers, by reducing the delays for pos t-trade publication, and by extending the 
transparency regime applicable to equiti es to shares traded only on MTF or 
organised trading facilities  
The package of measures enrolled in th is option would improve  the transparency 
information available in the European ma rkets. More specifically, clarifying and 
streamlining the rules on pre-trade transp arency waivers would ensure that the 
exemptions to pre-trade transparency are kept to the absolute minimum necessary and divergences in applic ation between Member St ates would be reduced 
contributing to a level-playi ng field. On the post-trade si de, the envisaged measures 
would promote swifter access to  data which should facilit ate the consolidation of 
data, make it more useful for market partic ipants and overall improve the efficiency 
of the price discovery process. Finally, exte nding the transparency regime to shares 
only traded on MTFs or orga nised trading facilities w ould have the advantage of 
making the trading in those instruments visible to th e market improving overall 
transparency and also leve lling the playing field.  
 
 130    There are no obvious disadvantages to st reamlining the rules for the pre-trade 
transparency waivers. For post-trade transparency reducing the maximum deadline for real-time reporting may require a certai n investment by investment firms in IT 
systems. However, one must bear in mind that already the general rule is that 
transactions need to be pub lished as close to real time as possibl e with publication 
after three minutes being the exception rath er than the norm. Th erefore firms should 
already have the necessary in frastructure in place and any adjustments due to this 
rule change should be of a minor nature . A potential disadvant age of reducing the 
permissible delays for publishi ng large transactions could be that liquidity providers 
refrain from committing capital due to concerns  that transactions would be disclosed 
to the market before they can unwind a larg e position. However, this concern can be 
addressed by an appropriate calibration of  the delays that, a lthough shorter remain 
permissible. Also extending the scope of th e transparency regime to shares traded 
only on MTFs or organised trad ing facilities only could also  be met by concerns that 
this may cause a further drop in liquidity fo r shares that may not  be overly liquid to 
begin with. However the MiFID equities re gime does entail a sufficient degree of 
detail to cater for illiquid shares by allo wing pre-trade waiver and post-trade deferral 
options.  
Option 3 – Abolish the pre-trade transpar ency waivers and the deferred post trade 
publication regime for large transac tions (Alternative to option 2) 
An advantage could be that all trading would be instan tly transparent to the investing 
public as all options for not making orde rs transparent or executed transactions 
immediately transparent would be repealed..  Also such a measure would create the 
ultimate level-playing field as there could be no differences in the national implementation and application of waivers.  
However, total transparency does have its drawbacks as market participants will be 
reluctant to submit large orders to the mark ets if they are displayed instantaneously. 
Especially liquidity providers would refrai n from committing capital out of fear that 
the market turns against them and they e nd up with significant losses because they 
could not manage the order properly or do not have time to unwind a position while the disclosure is being delayed on the post- trade side. Investors would be tempted to 
further break orders into smaller sizes but  this could multiply execution costs. In 
addition, such a total transparency regime would reduce investor protection as useful 
order management facilities, such as stop or ders (i.e. a stop order is an order to buy 
or sell a stock once the price of the stock reaches a specified price, known as the stop 
price), would not be availabl e anymore. Also this regime would work against market 
efficiency as the instantaneous display of  large orders can cause unexpected market 
swings and agitation which may lead to a dr y up in liquidity a nd a widening of bid-
offer spreads thus reducing the quality  of the price discovery process.  
Further the benefits in terms of transparen cy are likely to be limited as a recent 
CESR has shown that over 90% of trading in EEA sh ares on organised trading 
venues are currently pr e-trade transparent. 
Finally, this option would put EU trad ing venue at a signi ficant commercial 
disadvantage to venues outsi de the EU where such waivers are a common and long 
established feature of market s (cf. Annex 14 describing th e situation in the US).  
Trade transparency for non-equities markets 
 
 131    Option 4 – Introduce a calibrated pre and post trade  transparency regime for certain types of 
bonds and derivatives (Additional to option 2 or 3) 
Implementing this option would deliver advantages for transparency information 
available freely, the intensity of comp etition and potentially market efficiency. 
Investors would have a bette r picture of the options available to them due to 
additional price information available to everybody rather than quality information 
only being available to a sele cted few professional player s who can then make use of 
their informational advantages. Therefore this extended access to transparency information across asset classes would leve l the playing field between investors, 
including those from the retail side. In th e medium-term it may lead to efficiency 
gains and an improved price discovery proce ss as transparency and an enlarged view 
of what is available in the market for investors may enforce competition. As an additional advantage, the tail or-made approach envisaged he re per asset class and per 
instrument would ensure that the transpar ency provisions tie in with the specific 
characteristics of the market in each particular asset clas s. This would help avoiding 
detrimental effects to liquidity and market diversity.  
A disadvantage of this option could be th at too much transparency may have a 
detrimental effect on liquidity as market participants and especially market makers 
may be reluctant to commit capital if their quotes or trades are displayed in public and the market may turn against them. Howe ver, this disadvantage can be overcome 
by carefully calibrating the tran sparency rules for each sp ecific instrument in each 
asset class so that an a ppropriate equilibrium is f ound between transparency and 
liquidity. This calibration would be especially impor tant for bonds with small 
outstanding such as the ones issu ed by smaller Member States. 
Option 5 – Introduce a calibrated post trade only  transparency regime for certain types of 
bonds and derivatives (Alternative to option 4) 
The objectives attained by option 4, i.e.  increasing market transparency and 
improving market efficiency would also be  achieved by this opt ion, however to a 
lesser extent as only post-trade informati on would be covered while the information 
on present, real-time tradi ng opportunities on the pre-trad e side would still not be 
available to the public on a non-discriminatory basis. A potential advantage could be 
that the concerns regarding an impact on market liquidity would be diminished. 
Investors may be less worried about inform ation leakage and more willing to commit 
capital if their order information pre-trade would remain in the dark. 
On the downside, while post-trade information is important for the market the same 
goes for pre-trade information especially fo r investors looking to  "hit" a quote in a 
particular moment and in order to rem ove information asymmetries. Therefore, 
rather than leaving pre-trade transpar ency entirely outside the new regulatory 
approach designing a framework where pre-  and post-trade information is custom-
designed for each instrument including wa ivers and delays in disclosure where 
appropriate appears as the more intelligent,  comprehensive and fl exible approach to 
achieve the desired objectives.  
Cost and consolidation of trade data 
Option 6 – Introduce measures to reduce th e costs of data notably by requiring the 
unbundling of pre and post trade data and provide guidance on reasonable costs of 
 
 132    data, and improve the quality and consistency of post-trade data by the set up of a 
system of approved publication arrangements (APAs) (Additional to options 2 or 3 and 4 or 5)  
Preventing the sale of bundles of pre and post trade data unless the constituent parts 
of the bundle are also made available se parately at a reasonable price would 
contribute to lower data costs for investors while also facilitating the establishment of a consolidated tape (see options 8 and 9) at an affordable cost. Developing ESMA 
standards on criteria for calcu lating what constitutes a reas onable cost for data should 
further contribute to decreasing the costs of  obtaining market data for stakeholders. 
The standards would introduce a level of transparency to costs previously not 
available. ESMA standards to further harm onise both the content and format of post 
trade data would significantly improve the ability of data providers to consolidate 
post trade data. The establishment of APAs and the requirement for investment firms 
to use them as a means of publication would improve overall  data quality and 
accessibility. These advantages would be attained as the APAs would be subject to an authorisation and on-going supervision pro cess needing to adhere to strict quality 
standards. As a consequence they would be  obliged to publish market data in a way 
facilitating the overall consolidation of European market data.  Finally, prescribing 
the release of data free of charge 15 minutes after the trade would improve the 
overall accessibility of the d ealings and movements on financial markets in particular 
for retail investors. 
The primary disadvantage associated with this group of measures for investment 
firms could be the increase in costs by having to employ APAs. However, this 
disadvantage could be mitigated as APAs would presumably operate in a competitive environment so that they would offer their services at a reasonab le cost. The use of 
uniform reporting requirements resulting from the establishment of APAs would greatly benefit consumers of financial data products as th ey would no longer struggle 
to cross map data from data vendors, ma king it easier for them to switch between 
data providers and giving them the free dom to choose the indi vidual data products 
that best suit their busine ss needs. The other measures under this option do not entail 
any obvious disadvantages.  
Option 7 - Reduce data costs by establishing a system for re gulating the prices of data 
(Additional to option 6) 
An advantage of this option would be that costs for investors for getting hold of data 
could be controlled. Entities consolidati ng data and investors would have easier 
access to the data and it could be used mo re efficiently for best execution purposes 
and, possibly, more economically  by the users of the data. 
However, such intervention into the operati on of financial markets would be alien to 
the financial supervisory system which sets the legal framework for market 
participants but so far does not prescrib e prices charged by participants in the 
financial markets. In practical terms while driving down the costs this measure may have a detrimental effect on data quality. If trading venues are severely limited in 
their ability to charge for making data av ailable they may put fewer resources into 
that part of their business and the service they provide to the market may be lacking 
innovation and the use of state of the art technical equipment.  
 
 133    Option 8 – Improve the consolidation of post-trad e data for the equities market by the set up 
of a consolidated tape system operated by one or several commercial entities for all types of financial instrument . Introduce a consolidated t ape for non-equities markets 
after a period of 2 years under the same  set up as for the equities markets 
(Additional to option 6 or 7) 
This option would be complementary to Option 6 as the data pre-managed by the 
APAs would then be submitted to dedicated consolidators that would need a separate approval. The function of the single or seve ral consolidators would be to collect all 
information that is published per share at  any given time and make it available to 
market participants by means of one consolid ated data stream at a reasonable cost.  
An advantage of implementing this option w ould be that one or several consolidated 
sources of reliable and comprehensive post- trade information woul d be available to 
market participants helping them in ach ieving best execution for clients, improving 
market transparency on a non-discriminato ry basis and countering the effects of 
market fragmentation. Thus it would be a step towards the single European market 
adopting a feature of the inte grated US equities market . Also this option should 
significantly reduce costs for market partic ipants when trying to get a complete 
picture of the market.  
A specific advantage of  having several providers woul d be that the provision of 
consolidation services would be open to competition so that the consolidators would need to offer reasonable, innovative and stat e of the art services at a reasonable price 
to convince the investing public of purchas ing the consolidated data from them. 
Further competition would ensure the provi ders are responsive to the needs of 
different data users. In the event that se veral commercial entities are involved in the 
process, there is potential that competi tion on price between such providers may be 
detrimental to the quality of the data pr ovided. Further, the absence of a uniform 
proprietary system or data format could al so lead to fragmentat ion of consolidation 
services, and thereby increase costs for us ers. Also there could be an issue of 
independence and conflict of interest if certain APAs were giving preferential 
treatment to certain consolidators due to them belonging to the same group of 
entities. However, these disadvantages s hould be avoided by implementing rigorous 
quality standards and standardised reporting formats in legislati on as a prerequisite 
for approval as a consolidator and by rigor ously enforcing rules to be implemented 
demanding non-discriminatory access to data fo r consolidators at a reasonable price.  
The one commercial entity approach would have the advantage of establishing a 
single point of reference for European trade transparency data very much on par with 
the US approach already in place for equities  markets. This single point of reference 
could strongly convey the pict ure of an integrated European market to the market 
participants in- and outside the EU wh ere trading may be fragmented across a 
significant number of trading venues but where the transparency data is consolidated 
in one place, easily accessible to every in vestor. A potential disadvantage of this 
approach could be that if a consolidated ta pe is to be operated by a single commercial 
entity, this would constitute  a single point of failure if, for example, for technical 
reasons the consolidated data would not be available at any point in time. In addition, 
this option could create a situation of monopoly for the single commercial provider 
that would have been selected so there is a lack of competition and also potentially innovation and sufficient incenti ve to cater to the needs of different data users. 
 
 134    Option 9 – Improve the consolida tion of post-trade data for the equities markets by the set up 
of a consolidated tape system organised as  a public utility or industry body for all 
types of financial instruments. Introdu ce a consolidated tape for non-equities 
markets after a period of 2 years under the same set up as for the equities markets 
(Alternative to option 8) 
In addition to the advantages of consolid ation already described under option 8 this 
approach specifically could ha ve the added advantage of being run by a not for profit 
entity which would by design be  impartial in the way it handles data from different 
venues and has got no incentive in giving pr eferential treatment to any particular 
player or in the market. 
However, there also appears to be a downs ide to running the consolidated tape as a 
not for profit entity because it may prove  a hindrance to provi ding an innovative 
service tailored to the needs of the invest ing public and to operating at the lowest 
cost possible. This may in tu rn prove an obstacle to offering competitive prices for 
the data as competition is indeed missing. Further, there would be considerable cost in setting up such a system as public ent ities will not already operate such systems 
and will need to acquire the necessary systems and expertise. In addition, the 
considerations under option 9 regarding the c onstitution of a single poi nt of failure in 
the case of a single commercial  provider also apply here. 
13.4. Reinforce regulators' powers and cons istency of supervisory practice at 
European and international levels 
Option 1 – Take no action at EU level 
This would perpetuate the current patchwor k of the scope and nature of supervisory 
powers with regard to how products or pr actices involving financ ial instruments may 
be restricted, the level of information supervisors can access when they oversee 
markets, and the way key regulatory and supervisory powers are exercised across 
Europe. While cost-neutral in the short- term, this would hinder progress towards a 
single market in financial services and to wards even enforcement across the EU. In 
the medium to long-term, EU supervisory capacity in relation to  disruptive market 
activity or future crises w ould be impaired with conse quences in terms of economic 
and social costs. 
Powers of regulators 
Option 2 – Introduce the possibility for national  regulators to ban for an indefinite period of 
time specific activities, produc ts or practices. Give the possibility to ESMA under 
specific circumstances to introduce a tempor ary ban in accordance with Article 9(5) 
of the ESMA regulation N°1095/2010 
The creation of dedicated mechan isms at EU level for restri cting specific activities or 
products which give rise to significant co ncerns in terms of investor protection, 
market stability or systemic risk would a llow for a streamlined and more transparent 
regulatory procedure, for example in response to disorderly market conditions or warnings issued by the European Systemic Risk Board, improve legal certainty, effectiveness, and ensure equal treatment of  EU market participants and investors.  
 
 135    This entails little immediate costs apart from opportunity cost s for the users of 
products and providers of services that would be banned while mitigating possible 
negative cross-border externalities of disruptive practices  in the future, and is fully in 
line with the design and logic of Europe's new supervisory ar chitecture. If used in an 
overly restrictive manner, the exercise of  this power could restrict financial 
innovation and prevent market particip ants from financial opportunities. 
Option 3 – Introduce an authorisation regime fo r new products and practices (Alternative to 
option 2) 
This would substantially rein force investors' protection by making sure that all new 
products and services are properly scruti nised by regulators a nd the most damaging 
ones are rejected. 
This would reduce the chances of new produc ts being introduced  into the market, 
leading to opportunity costs for the developers of ne w products. It would also 
lengthen lead times for product development.  However, it would restrict innovation 
and the scope for economic gains to a much larger extent than Option 2. It would also go against encouraging greater res ponsibility among investment services 
professionals, as well as the approach of  allowing for freedom of movement for 
investment service providers provided that  they perform detailed checks of products 
and services against th eir clients' risk profile and e xperience. An authorisation from 
the national authority for any activities covered by MiFID would still be needed. 
Last, it would require considerable means for the entity in charge of this authorisation as financial innovation yields many new types of products. 
Option 4 – Reinforce the oversight of posi tions in derivatives, including commodity 
derivatives, by granting regulators the power to introduce positions limits, coordinated via ESMA (Additional to option 2 or 3) 
Having the power to request information on i ndividual positions will lead to a better 
dialogue between competent authorities and the market. This will give competent 
authorities a better understanding of what is  happening in the market, and will make 
market participants more critical of their own behaviour. Venues may have an 
incentive not to impose position limits, as this will limit liquidity. Competent 
authorities can be expected to be more in dependent in exercising this power. Greater 
coordination at EU level of the exercise of oversight powers in relation to positions in derivatives would ensure a level play ing field and convergent application for 
market participants. It woul d also increase the effectiveness for derivatives on the 
same underlying traded on different platforms. 
The power to set harmonised hard positi on limits, amendable over time, across the 
EU would allow for effective action when th e scope for disruptive activity or threat 
to market integrity cannot be sufficiently addressed in an ad hoc fashion. 
There are initial and ongoing costs for supervisors in ex ercising greater scrutiny as 
well as for market participants in transm itting positions to regulators. In addition, 
there could be potential opportunity costs fo r market participants in limiting their 
positions. However, at the consolidated level, these are outdone by gains in greater market integrity.  
 
 136    Option 5 – Reinforce the oversi ght of financial markets whic h are increasingly global by 
strengthening the cooperation between EU and third country securities regulators. In 
addition, reinforce monitoring and investigatio n of commodity derivatives markets 
by promoting international cooperation among regulators of financial and physical 
markets (Additional to option 2 or 3 and 4) 
This option would consist in strengthe ning cooperation between competent 
authorities with other mark et supervisors around the wo rld, both bilaterally and 
through ESMA. It would require them to take  market developments on other relevant 
markets, and the interests of investors in other Member States into account. This will 
give supervisors a consolidated overview of  the market, and allows them to combine 
their market experience. As a result, mark et integrity and fair and orderly markets 
will be improved by reducing risk of cross-market manipulation. 
In addition, there will also be ongoing in formation sharing, assistance in sending 
information requests, and cooperation in cr oss-border investigations. This option is 
complementary to a similar option proposed  in the review of the Market Abuse 
Directive. While MAD is limited to market  abuse, this option seeks to promote 
cooperation in supervising fair  and orderly working of mark ets. It will complement 
MAD by allowing the monitoring of position lim its, and data sharing in order to be 
able to set appropriate position limits on financial markets. 
While bringing considerable benefits in te rms of market oversi ght, this option does 
not impose any additional obligations on mark et participants. A ll costs involved are 
imposed on competent authorities. This includes costs for transmitting and processing data, and for establishing new (multilateral) memoranda of understanding and cooperation agreements. 
Conditions of access to third country firms  
Option 6 – Harmonise conditions for the access to  the EU of third coun try investment firms, 
by introducing a third country regime (a  common set of criteria, memoranda of 
understanding (MoU) between the Member St ates regulators and the third country 
regulators under the coordination of ESMA ) (Additional to option 2 or 3, and 4 and 
5) 
This option would allow the national competen t authority to register (and thus grant 
access to the E.U. internal market) and supe rvise third country investment firms and 
market operators for the non-retail mark ets complying with legally binding 
requirements to the EU securi ties legislation requirements  in accordance with a set of 
criteria to be further developed in de legated acts. Memora nda of understanding 
would have to be established between the third country authorities and the Member 
States regulators under the coordination of ESMA). This would entail a more 
harmonised and legally clear basis for gran ting third country investment firms and 
market operators pan-EU access to EU secu rities markets. This  would replace the 
current patchwork of national third count ry regimes granting access to individual 
Member States. The costs are borne by public  authorities, while the benefits would 
accrue to investors and other market participants, as they will have a wider choice of providers, thus enhancing the competitiven ess of EU markets. Any harmonisation of 
access conditions would have to be compatible with the EU's international commitments, both in the WTO and in bilateral agreements. 
 
 137    Option 7 – Introduce an equivalence and reciprocity  regime by which after assessment by the 
Commission of the third country regulatory  and supervisory framework access to the 
EU would be granted to inves tment firms based in that third country(Alternative to 
option 6)  
This option would entail the assessment of each third country regulatory and 
supervisory framework by the Commission to decide on the equiva lence of the third 
country framework to allow for automatic access to the investment firms based in that country subject to  reciprocal access for EU firms.  The assessment of equivalence 
would enable third country firms to acce ss EU markets and avoid duplication of 
rules, notably in the case of relationships between eligible count erparties. However, 
it could take some time because many ru les apply to investment firms when 
providing investment services  and, in many jurisdictions, key applicable rules are 
now under review to enhance the legal framework due to the financial crisis. In 
addition, this option could entail political reticence to take an equivalence decision 
on a given third country. Any limitation of access for third-country market operators 
would have to be compatible  with the EU's international commitments, both in the 
WTO and in bilateral agreements. 
Sanctions 
Option 8 – Ensure effective and deterrent s anctions by introducing common minimum rules 
for administrative measures and sanctions at EU level (Additional to option 2 or 3, 4, 5, 6 or 7) 
This option would ensure that administrati ve sanctions applied across the different 
Member States are effective to end any breach of the provisions of the national 
measures and also deter future breach of  these provisions. It would also limit the 
possibility of cross-border in fringements from countries with lower standards. In 
addition, the setting of appropriate whistle  blowing mechanisms would help protect 
persons providing information on infringeme nts and incentivise involved persons to 
cooperate. There are limited drawbacks to this option. 
Assessment of fundamental rights  
For this policy option the following fundament al rights are of particular relevance: 
freedom to conduct business (Article 7), prot ection of personal data (Article 8), Title 
VI Justice, particularly the right to an effective remedy and fa ir trial (Art. 47), 
presumption of innocence and right of defence (Art 48).  
Introducing common minimum rules for admini strative measures and sanctions will 
improve the coherent application of sancti ons within the EU which is necessary and 
proportionate to ensure that comparable  breaches of MiFID are sanctioned with 
comparable administrative sanctions and measures. These rules will particularly 
ensure that the administrative measur es and sanctions which are imposed are 
proportionate to the breach of the offen ce. As the rules under this option will 
introduce minimum rules for administrativ e measures and sanctions, they will 
contribute to the "right to an effective reme dy and to a fair trial" (Article 47 of the 
charter of fundamental rights). In addition,  the principle of innocence and right of 
defence (Article 48) will be preserved. In view of the ab ove, this policy option is 
considered in compliance with the charter of fundamental rights.  
 
 138    Regarding the introduction of "w histle blowing schemes", this  raises issues regarding 
the protection of personal data (Art 8 of the EU Charter and Art. 16 of the TFEU) 
and the presumption of innocence and right of  defence (Art. 48) of the EU Charter. 
Therefore, any implementation of whis tle blowing schemes should comply and 
integrate data protection pr inciples and criteria indi cated by EU data protection 
authorities272 and ensure safeguards in compliance with the Charter of fundamental 
rights. 
Option 9 – Ensure effective and deterrent sanc tions by harmonising ad ministrative measures 
and sanctions (Alternative to option 8) 
This option would entail harmonising, across Member States, the range of 
administrative measures and amount of admi nistrative fines that could be imposed. 
The advantage would be a significantly ha rmonised playing-field in EU financial 
markets in terms of threat of sanctions. While this option is highly effective in achieving the policy objec tives of deterrence, it is not su re that this option is efficient 
as market situations, legal systems and tr aditions differ among Member States. To 
have exactly the same types and levels of sanctions might not be reasonable and 
proportionate to ensure deterrent sanctions. Therefore this option is considered less 
efficient then introducing minimum rules for administrative sanctions. 
 Assessment of fundamental rights
 
For this policy option the following fundament al rights are of particular relevance: 
freedom to conduct business (Article 7), prot ection of personal data (Article 8), Title 
VI Justice, particularly the right to an effective remedy and fa ir trial (Art. 47), 
presumption of innocence and right of defence (Art 48).  
This option would ensure that  the same offence would be subject to the same type 
and level of administrative sanction acros s the EU. This option will contribute to 
"right to an effective remedy and to a fair trial" (Article 47 of the charter of fundamental rights) as rule s will be uniform across al l Member States and the 
principle of innocence and right of defence (A rticle 48) will be pres erved. In light of 
the above, this policy option is consider ed in compliance with the charter of 
fundamental rights. However, designing uniform administrati ve measures and 
sanctions against the breach of MiFID acro ss all Member States with different sized 
markets is disproportionate. 
Regarding the introduction of "whistleblowing schemes", this raises issues regarding 
the protection of personal data (Art 8 of the EU Charter and Art. 16 of the TFEU) 
and the presumption of innocence and right of  defence (Art. 48) of the EU Charter. 
Therefore, any implementation of whis tle blowing schemes should comply and 
integrate data protection pr inciples and criteria indi cated by EU data protection 
authorities
273 and ensure safeguards in compliance with the Charter of fundamental 
rights. 
13.5. Reinforce transparency towards regulators 
These options will be assessed primarily ag ainst their effectiveness in achieving the 
specific objective of allowing supervisor s to monitor compliance with MiFID and 
MAD. These policy options will also be a ssessed for their efficiency in achieving 
these objectives for a given level of res ources or at least co st while avoiding unduly 
 
 139    negative effects on market efficiency. Howeve r, options will also be assessed against 
other objectives where appropriate. 
Option 1 - take no action at EU level. 
Under this option, informa tion on trading that does not  occur on regulated markets 
will continue to be available only in a fragmented way. This means that competent authorities do not have a complete picture of trading activity in the market, and that 
the available data are difficult to analyse. Also, certain forms of abusive trading, such 
as manipulating commodity prices through the use of derivatives, manipulating the 
price of a financial instrument through an OTC instrument, and benefiting from 
inside information through OTC derivatives , will remain largely invisible. The 
absence and accessibility of data together make it difficult to detect and investigate market abuse. Also, the differing reporting requirements will continue to lead to 
needless compliance costs for firms. 
Nevertheless, the above consequences woul d not apply for wholes ale electricity and 
gas markets since REMIT provides for an e ffective EU level reporting framework for 
all wholesale energy products (including derivatives)  which are not reportable under 
the current reporting provisions  of MiFID or EMIR. Such data would be instantly 
available for competent financial and en ergy regulators alike and enable them a 
comprehensive view of all relevant phys ical and derivatives energy transactions. 
Scope of transaction reporting 
Option 2 - Extend the scope of transaction reporti ng to regulators to all financial instruments 
(i.e. all financial instruments admitted to  trading and all financial instruments only 
traded OTC). Exempt those only traded OT C which are neither dependent on nor 
may influence the value of a financial inst rument admitted to trading. This will result 
in a full alignment with the scope of th e revised Market Abuse Directive. Lastly 
regarding derivatives, harmonise the trans action reporting requirements with the 
reporting obligations under EMIR  
Extending the scope of transaction reporting to such instruments will bring the 
reporting requirements in line with the exis ting provisions of MAD, as well as with 
those of the revised MAD. The extension wi ll also be useful for systemic purposes, 
as it gives insight into trading patterns  and resulting concentrations of risk. 
Even if many of these instruments, i.e. de rivatives, will already need to be reported 
under EMIR, the equity instruments that are admitted on OTFs will not be covered 
by this regulation. In addition, the cont ent of transactions reported to trade 
repositories will not necessarily be the same than the one required under MiFID. This would make the data consolid ation of these reports very  difficult. Therefore, the 
extension of MiFID is needed to make sure  that all instruments are covered and that 
the reports sent to trade reposito ries meet MiFI D requirements. 
Commodity derivatives may be used for mark et abuse purposes, notably to distort the 
underlying market. The value of commodity de rivatives does not depend on that of a 
financial instrument, but on the unde rlying physical comm odity. Commodity 
derivatives will therefor e need to be brought into scope separately 
 
 140    The disadvantage of this option is that  it leads to higher compliance costs for 
financial firms. This is notably due to  the inclusion of instruments which are 
admitted to trading on OTFs. Also, the exte nsion overlaps with the requirement to 
send information about OTC derivatives trad ing to trade repositories under EMIR. 
Last, for cost and efficiency purposes, double reporting of trades under MiFID and 
the recently proposed reporting requirements  to trade repositories, and under REMIT 
should be avoided. This entails fully harmonising the reporting requirements under 
MiFID, EMIR, and REMIT. Almost all of the additional compliance costs associated 
with introducing this option will be avoide d if reporting under EMIR is fully aligned 
with the requirements under MiFID. 
Option 3 – Extend the scope of transaction re porting to all financial instruments that are 
admitted to trading and all OTC financial instruments. Extend reporting obligations also to orders (Alternative to option 2) 
This option entails that investment firms would need to report all transactions in 
financial instruments which they have carried out, regardless of whether an 
instrument is admitted to trading or not . This extension would ensure that the 
reporting requirements are ali gned with the provision of investment services and 
activities under MiFID. In a ddition, reporting part ies will have to transmit to their 
competent authorities not only the transac tions that they have done but also the 
orders that they have received or initiated  
It would mean that all trading in derivati ves would be reported. Also, all equity and 
bond market trading, including all OTC instru ments, will be transp arent to competent 
authorities. This will give them a full picture of the performance of MiFID activities on a daily basis. Overall such an extensi on would give a comple te picture of all 
trading in financial instruments by financia l firms. A broad approach would be robust 
to financial innovation with regards to trading practices . The disadvantage of this 
approach is that it brings into  scope instruments that are not  susceptible to or used for 
market abuse. Also, there may be practical  problems to report instruments that are 
only traded infrequently, and are thereby di fficult to capture in standard formats. 
The main advantage of the reporting of or ders is that it will allow competent 
authorities to monitor order book activity. This is in line wi th the extended scope of 
the Market Abuse Directive, which forbid s attempts to manipulate the market and 
submitting orders that would give distortive price signals can be a form of market 
abuse. In addition, the reporting of orde r would allow the esta blishment of a full 
audit trail, from the moment where a client  or trader decides to place an order until 
the execution of the order and transformation into a trade. On the downside, this option will dramatically increase the volume of  the reporting that market participants 
will have to do. It will also extend the obligation to firms not currently caught under 
the transaction reporting regime. This w ill require them to make extensive 
investment to cope with this new obligati on. The cost of this option is therefore 
likely to be very high. In addi tion, the reporting of orders will generate a lot of data 
that competent authorities will need to be  able to analyse to extract meaningful 
information. 
 
 141    Option 4 – Require market oper ators to store orde r data in a harmonise d way (Additional to 
option 2 or 3) 
Requiring market operators to keep these records in a standardised way will allow 
competent authorities to conduct automate d searches. This will allow them to 
monitor for attempted market  abuse, as well as for order book manipulation. Also, 
the market operators are well placed to ma intain the volume of data involved. ESMA 
would set the appropr iate standards. 
The disadvantage of this approach is that  it will impose costs on market operators. 
Also, order information will not be stored in the same database as transaction information, making it harder for competent authorities to get a complete picture of 
the market. 
Reporting channels 
Option 5 – Increase the efficiency of reporting channels (i.e. third parties reporting on behalf 
of investment firms) by the set up of a system of Approved Reporting Mechanism 
(ARM), and allow for trade repositories authorised under EMIR to be approved as 
an ARM under MiFID (Additional to option 2 or 3, and 4) 
The advantage of this approach is that it ensures consistenc y of data reporting 
through requirements on the reporting firms.  By allowing trade repositories to serve 
as ARM's, this option woul d also limit the risk of double reporting by firms. Trade 
repositories are likely to ha ve all the data required to be reported under MiFID. If 
data requirements are not the same under MiFID and EMIR, firms would have to 
send additional data fields to  enable trade repositories to report on their behalf. 
ARMs are to be distinguished from AP As. Third party transaction reporting is 
already being conducted through ARMs, notably  in larger Member States (Germany 
or United Kingdom for instance). This opti on will seek to harmonise the framework 
under which they operate and ensure clear oversight.  
The main disadvantage of this approach is  that it will impos e additional costs on 
reporting firms, as the ARM's may charge a fee for the transmission of data on their 
behalf, notably when additional systems investments are necessary. However, this fee may be lower than the costs incurred by the firm when it chooses to report its 
transactions itself. As reporting via ARMs is not made mandatory, investment firms 
can still report directly leav ing the issue relating to the consistency of reported trades 
unresolved. However, this disadvantage wi ll need be addressed in implementing 
measures by further harmonisi ng the content of reporting. 
Option 6 – Require trade repositories authori sed under EMIR to be approved as an ARM 
under MiFID (Alternative to option 5) 
The main advantage of this approach is that it will ensure all transaction data are sent 
to competent authorities, so that they w ill not need to access multiple databases to 
analyse transaction data. It also mean s that, although there will legally be two 
separate reporting obligations on firms, in  practice there will be no double reporting.  
The main disadvantage with this option is that, when trade repositories are not able to 
report on behalf of firms in a cost effici ent manner, this will impose higher than 
 
 142    normal market costs on firms. Mandating th e use of trade repositories might bearer 
higher risks and costs than simply allow their use as under option 4. 
13.6. Improve transparency and oversight of commodities markets  
Option 1 – Take no action at EU level. 
If nothing is done at the EU level, we will have less transp arent and efficient 
commodity derivatives markets and leav e the door open to regulatory arbitrage 
between Member states, and between the EU  and other third country jurisdictions 
like the US. Competent authorities will not be able to assess the linkages between 
commodity and commodity derivatives markets,  there will be no tools to ensure that 
increasing financialisation does not hurt the functioning of commodity markets, and 
certain derivative like instruments will remain outside the scope.  
Evolution of commodities markets 
Option 2 – Set up a system of position repor ting by categories of traders for organised 
trading venues trading commod ity derivatives contracts 
This option would significantl y increase the transparency of these markets by making 
available to the regulators (in detail) and the public (i n aggregate) meaningful 
information on the activities of the different markets participants. This increased 
transparency would improve the price form ation mechanism and enable regulators as 
well as market participants to better assess the role of financial speculation and its impact on the prices and volatility of th e underlying physical markets. As the public 
information is at aggregate level, this w ill not impact individual companies' trading 
behaviour. Another advantage of this measure would be to align the EU regulatory 
framework with the US where a position reporting by categor ies of traders is already 
in place and covers all co ntracts listed on US commod ity regulated exchanges.  
The disadvantage of this obligation is the cost for organised commodity derivatives 
trading venues. On the other hand some of these trading venues have already taken 
initiatives in this field
274.  
Option 3 – Control excessive volatility by banning non hedging transactions in commodity 
derivatives markets (Additional to option 2) 
While one could argue that it would decrea se volatility and price spikes in these 
markets, a total ban would most probabl y dry up liquidity and further increase 
volatility, as well as be difficult to admini ster. It would thus not be effective to 
address the stated goal. There is some evidence that commodity markets for which 
there is no liquid derivatives market ar e more, or no less, volatile than other 
commodity markets.275 Another main key risk with such a measure would be to 
move financial speculation from the deri vatives or financial markets to the 
underlying physical markets.  
Exemptions for commodities firms 
 
 143    Option 4 – Narrow exemptions for commodity firm s to exclude dealing on own account with 
clients of the main business and delete the exemption for specialist commodity 
derivatives trading houses (Additional to option 2 and 3) 
The main advantage of this option would be  to limit the scope of the exemptions to 
the intended business of hedging physical a nd price risks by commercial companies. 
It would also ensure that companies whos e main activity is tr ading on own account 
would be authorised and duly supervised as any other entity trading on own account 
in other financial instruments, and approxima te the approach in the US regarding the 
regulation of major swap participants, only from a qualitative not quantitative angle. Finally investor protection would be reinforced as th e possibility to provide 
investment services by exempt firms, which are by definition not subject to any 
MiFID provisions includi ng conduct of business rules would be narrowed down.  
The disadvantage of this option is the co sts for companies which were previously 
exempted to comply with the MiFID rule s. The capital requirements these firms 
would be subject to will be dealt with as  part of the forthcoming review of the 
existing exemptions for commodity firms under the Capital requirements 
Directive
276. This review will take place before th e expiry of these exemptions end of 
2014. 
Option 5 – Delete all exemptions for co mmodity firms (Alternative to option 4) 
The advantage of option 5 compared to option 1 would be to  capture under the 
MiFID regulatory regime all firms active in trading in commodity derivatives markets, either for financial investme nt or hedging purposes, including market 
makers. 
The main shortcoming of this option woul d be to potentially capture under MiFID 
entities that widely use financial instru ments and commodity derivatives for hedging 
the risks linked to their underlying physical commercial activity, as well as various 
non-investment firm entities providing invest ment services on an ancillary basis to 
the clients of their main business, and s ubject these to poten tially disproportionate 
obligations compared to the risks they pose to the financial system. This might as a 
result undermine the ability of these comp anies to properly hedge their commercial 
risks, and of some clients in obtaining th e special ancillary services performed by 
specialist non-investment firm intermediaries.  
Secondary spot trading of emission allowances 
Option 6 – Extend application of the MiFID to secondary spot tradingof  emission allowances 
(Additional to option 2, 3 and 4 or 5) 
This option would bring the carbon ma rket under a comprehensive regulatory 
regime, which is consistent with financia l markets regulation. This would enhance 
market transparency and investor protecti on, establishing a level playing field and 
uniform standards for the services of interm ediaries active in the various parts of the 
carbon market (primary and sec ondary, spot and derivatives). 
With such extension of MiFID, entities provi ding such services w ould be required to 
hold a MiFID licence and comply with all MiFID organisatio nal and operational 
requirements in the course of that activity. Similarly, trading venues specialising in 
 
 144    spot trade in emission allowances and thus not currently subject to the MiFID, would 
be expected to obtain a MiFID authorisati on (as a regulated market, an MTF, or an 
organised trading facility). 
Under this option, the issue of suitability and proportional ity might potentially arise, 
especially with regard to those intermedia ries that so far limited their activity to 
secondary spot trade and/or ha ve a fairly restricted and sp ecific pool of clients (e.g. 
industry associations providing intermedia tion services for their members). Where 
appropriate, such situations could be m itigated by application of exemptions or 
proportionality clauses envisaged for inte rmediaries under MiFID or by taking into 
account their specificities in the revision of  implementing measures  (Level 2) within 
the powers conferred upon the Commission. 
Option 7 – Develop a tailor made regime for se condary spot trading(Alte rnative to option 6) 
This option would probably offer more flex ibility in terms of developing a regime 
suited to the specificities of the spot carbon tr ade. At the same time, that flexibility 
would be limited by the need to conform to the overall approach to market regulation 
set out in the MiFID and app licable to the other segmen ts of the carbon market.  
Even if the overall consistency with the MiFID were secured, the introduction of a 
dedicated framework for spot  trading of allowances a nd its autonomous evolution 
over the years would give rise to the risk  of (excessive) segmentation in how the 
different parts of the carbon market are regulated, which wo uld be an impediment to 
a sound development of that market. Finally , a replication of mo st of the general 
principles of the MiFID in any new instrument for spot carbon market could also be 
inefficient. 
13.7. Broaden the scope of regulation on products, services and providers under the 
directive when needed 
Option 1 - Take no action at EU level.  
If no action is taken at the EU level, it is ve ry likely that all the issues that the policy 
options described below would persist and possibly get more serious. In some cases 
Member States would react at  national level, in others  they wouldn't. The result 
would be that, in the area of investments - where the EU framework is already quite 
broad and harmonised - a few pr oducts and entities could not be subject to any or to 
very different legislation. An unlevel play ing field would continue  both for investors 
receiving similar services ba sed on different rules in di fferent jurisdictions and for 
certain products which woul d compete unevenly with other more regulated products 
(for instance: structured deposits versus  structured bonds) or  would be treated 
differently in different Member States. 
Optional exemptions for certain investment providers 
Option 2 - Allow Member States to continue exempting certain investment service providers 
from MiFID but introduce requirements to tighten national provisions applicable o 
them (particularly conduct  of business and conflict  of interest rules) 
This option is a middle ground option be tween deleting the optional exemptions 
under Article 3 and leaving the situation as it is. As such , it presents the advantages 
of setting up a minimum and c onsistent level of standards for the providers to be 
 
 145    exempted while preserving some flexibility  at national levels for catering for the 
specificities and constraints of these pr oviders for which a full implementation of 
MiFID could be detrimental, mostly because  of their small size. This option would 
allow to strengthen investor protection standards and to level them irrespective of the 
entities providing the services (whether subj ect to MiFID or not).  This would also 
make the rules easier to understand by invest ors because their in creased uniformity. 
The downside of this option is that a number of areas  (notably organisational 
requirements) will remain at the discre tion of Member States, which presents 
residual risks of deficiency and in consistency at European level. 
Option 3 - Delete the optional exemptions under  Article 3 and subject these investment firms 
to the full MiFID regulatory regi me (Alternative to option 2) 
This option is an extension of the previ ous one. By deleting the optional exemptions, 
all these firms will be subject to all MiFID obligations. This would ensure a consistent and high quality framework across Europe. This would also make the rules 
easier to understand by investor s because their uniformity.  
Nevertheless, this line of action could also be considered dispropor tionate in the light 
of the purely national dimension of the busin ess of these entities (which do not enjoy 
the possibility of providing services in other Member States) and their limited size
277 
exposing them to additional implementation costs and possibly forcing some of them out of business. 
Conduct of business rules for unreg ulated investment products 
Option 4 - Extend the scope of MiFID conduct of business and conf lict of interest rules to 
structured deposits and other similar deposit based products (Additional to option 2 or 3) 
In line with Commission's approach on pack aged retail investment products (PRIPs) 
which identified MiFID as clear benchm ark for selling practices involving PRIPs, 
this option would ensure proper and hom ogeneous selling rules for these products 
which are currently unregul ated at EU level but wh ich have very similar 
characteristics to other categories of i nvestment for invest ors and are actively 
marketed to them often by the same intermed iaries providing investment services in 
other financial products. 
On the downside, this option could raise the cost of distribution of these products by 
banks which could transfer some of these costs to investors making them less appealing.  
Option 5 – Apply MiFID conduct of business and conflict of interest rules to insurance 
products (Additional to option 2 or 3, and 4) 
This would ensure a fully consistent regulatory environment for all similar 
investment products whatever the nature of  the distributor is. This could lead to 
easier possibilities of choice and safer investme nt by investors, especially retail ones. 
Nevertheless, such a solution presents also drawbacks. The first one lies with the fact 
that the insurance industry pres ents specificities in the or ganisation of its distribution 
of products compared to banks which co uld make more complex the automatic 
 
 146    extension of MiFID and would require tec hnical adaptations. The second drawback 
is that the insurance distribution is alre ady covered under the Insurance Mediation 
Directive, which covers as pects and products other than  PRIPs. The objective to 
ensure consistency in th e PRIPs context by adopti ng the MiFID standards for 
insurance PRIPs will be achieved in the c ontext of the In surance Mediation Directive 
(IMD), the revision of which is due in 2011. ;   
13.8. Strengthen rules of business conduct for investment firms 
Option 1 - Take no action at EU level. 
The application of certain EU requirements for the provision of investment services 
exposed some shortcomings. If no action is taken at the EU level, it is very likely that all the issues described be low would persist and possibl y get more serious. In a 
highly harmonised context as the one in Mi FID, Member States  would probably not 
react sufficiently at their le vel (or even could not because of constraints in adopting 
additional requirements). On the other hand, if  they reacted, this would lead to new 
fragmentation, to different treatment of the same service providers and products in 
different jurisdictions and, finally, to a scaling back of the results obtained so far in pursuing a single market for financial services. 
Execution only services and investment advice 
Option 2 – Reinforce investor protection by revi ewing the list of products for which execution 
only services are possible and strengthen ing provisions on investment advice  
The revision of the definition of non co mplex products will allow clarifying the 
uncertainty around this concept and better defining certain cate gories of financial 
instruments, especially in  view of the increasing sophistication of investment 
products. The second measure will substantially reinforce the rules surrounding advice, one of the key services  offered by investment firms. 
A disadvantage of the first aspect of this op tion is that, in the c ontext of ever growing 
financial sophistication, non complex produc ts will remain difficult to clearly 
identify. A drawback of the second proposal  is that entities providing investment 
advice would continue to be  able to offer advice based on a more limited range of 
financial instruments. On the other hand, the option would provide further clarity and 
better choice to investors and would pr eserve the current, broad definition of 
investment advice, which allo ws providing simpler and less  costly forms of advice 
while imposing in any case high MiFID sta ndards of conduct of business obligations 
(strong suitability test and rules concerni ng inducements in a ddition to the further 
improvements to be introduced in implementing measures). 
Option 3 – Abolition of the execution onl y regime (Alternative to option 2) 
The main advantage of this solution is to  provide clients with the protection of the 
"know-your-customer" rule for any transact ion (even if only based on the limited 
assessment of appropriateness).  
Nevertheless, on the downside, it could be de trimental to certain types of investors 
who are interested in receiving execution only services and are not willing to pay for additional services they do not need. This is the case for instance of customers who 
 
 147    have a sufficient knowledge of financial markets or are ev en highly sophisticated and 
are able to make their own investment choices. 
Customers' classification 
Option 4 – Apply general principles to act h onestly, fairly and professionally to eligible 
counterparties resulting in their applicati on to all categories of clients and exclude 
municipalities and local public aut horities from the list of eligible counterparties and 
professional clients per se (Additional to option 2 or 3) 
By clarifying the principles of this regime , limiting the availability of this regime in 
terms of products and/or institutions, this option will contribute to limit the risk of 
mis-selling and excessive risk taking by in stitutions that has appeared during the 
crisis. This option has to be read in conjunction with option 6, insofar as it refers to non-retail clients. 
The drawback of this opti on is that it may make it more rigid the provision of 
services to certain clients and does not fully  solve the issues of the diversity of the 
eligible counterparty category which encompasses a wide range of participants. 
Option 5 –Reshape customers' classification (Additional to option 2 or 3, and 4) 
This option is the extension of the previous  one. It would cons ist in reviewing the 
overall customers' classificat ion of MiFID with a view of  sub dividing them into 
more refined categories in order to matc h more closely the di versity of existing 
market participants. 
There are certain drawbacks to this op tion. First, except for a few categories 
(notably, municipalities and local administrations) there are few clear-cut criteria to make distinctions in the context of certain categories of clients (for instance, between 
entities authorised as  credit institutions or  investment firms) . Second the current 
regime is already flexible, in that it does not foresee the category of eligible counterparties for certain serv ices (e.g. advice) and allows entities to require a 
different classification. Thir d, it would require changi ng a harmonized classification 
system introduced just in 2007/2008 and was co stly to implement, without clear and 
univocal evidence of broad malfunctioning.  
Complex products and inducements 
Option 6 – Reinforce information obligations wh en providing investment services in complex 
products and strengthen periodic reporting ob ligations for different categories of 
products, including when eligible counterparties are involved (Additional to option 2 or 3,and 4 or 5)  
This would allow investors to have a be tter understanding of the products and the 
risks attached to them prior to investing in them and to have better monitoring of 
their investment in these products over th e whole tenor of the product. Some of these 
obligations should also benef it eligible counterparties. 
These new obligations could increase the costs of the firms when trading these 
products. They could pass these costs on to the investors or refr ain from marketing 
such products which could take away some  investment opportunities for investors. 
 
 148    Option 7 – Ban inducements in the case of investment advice provided on an independent 
basis and in the case of portfolio management (Additional to option 2 or 3,4 or 5 and 6)   
This would avoid the risk of conflicts of  interest for portfolio managers who are 
allowed in discretionary portfolio management to make decision without 
involvement of the client a nd reinforce the obj ectivity of the selection of products 
provided by investment firms in  case of independent advice. 
The drawback of this option is the possible cost for inte rmediaries, at least at the 
initial stage, to change the structure of  their incomes and of the modalities for the 
provision of these services. This could lead to increased costs for investors. 
Nevertheless, these costs might be abso rbed in the longer term and would be 
balanced by a better quality of  these two services for which the client may expect the 
highest degree of independence.  
Option 8 – Ban inducements for all investmen t services (Alternative to option 7)  
This would aim at ensuring that investment firms are not influenced at all in their 
product selection by the reward that they can  extract on the side from these products. 
On the other hand, this option would dram atically impact of the current business 
model of investment firms and could actua lly result in a reduction in the range of 
services and products offered to clients and significant increase of costs for clients 
receiving any investment services. 
Best execution 
Option 9 – Require trading venues to publish information on execution quality and improve 
information provided by firms on best execu tion (Additional to option 2 or 3, 4 or 5, 
6, and 7 or 8) 
The positive effects of such change would be to allow firms to improve compliance 
with best execution obligations as they will have more information to use to adapt their execution policy. In a ddition, this should lead to additional information 
provided by investment firms and to more precise and concrete execution policies to 
be disclosed by investment firms to their clients, including pr ofessional clients. 
Option 10 – Review the best execution framework by  considering price as the only factor to 
comply with best execution obligat ions (Alternative to option 9) 
Such a move would allow a simplification of the criteria that could benefit investors 
which are especially sensitive to the criteria  to be retained. On the negative side, the 
relative importance of the various criteria va ries according to the type of clients and 
type of orders (for instance, speed of execu tion may be relevant for certain clients). It 
is therefore very difficult to come up with  one unique criterion that would fit all 
types of investors and orders . Furthermore, in a fragmented environment such as the 
European one, the impact of costs could largely exceed any positive effect on price. 
 
 149    13.9. Strengthen rules of organisational requirements for investment firms  
Option 1 – Take no action at EU level 
The crisis has shown the re levance of appropriate cor porate governance principles, 
including the responsibility of boards and ro le of internal functions. If no action is 
taken at the EU level to improve the framework for organisational requirements 
under MiFID, it is very  likely that all the issues de scribed below would persist and 
possibly get more serious. In a highly ha rmonised context as the one in MiFID, 
Member States would probably not react sufficiently at their level (or even could not 
because of constraints in adopting additi onal requirements). On the other hand, if 
they reacted, this would lead to new fragmentation, to different treatment of the same service providers in different jurisdictions and, finally, to scaling back some of the 
results obtained so far in pursuing a single market for financial services. 
Corporate governance 
Option 2 – Reinforce the cor porate governance framework by strengthening the role of 
directors especially in the functioning of internal contro l functions, and when 
defining strategies of firms and launching products and services. Require firms to 
establish clear procedures to handle clie nts' complaints in the context of the 
compliance function. 
This option emphasizes the rele vance of choices at the high est level of the firm in 
shaping the overall compliance of the financ ial institution with requirements for the 
provision of investment services and activi ties. It provides inte rnal functions with 
further authority and improves, inter alia, the treatment of complaints received from any type of clients. 
On the negative side, in certain cases this option may introduce a le vel of rigidity in 
areas currently covered by a fl exible framework (for instan ce fit and prop er criteria). 
Option 3 – Introduce a new separate internal func tion for the handling of clients' complaints. 
(Additional to option 2) 
While this option would further stress the relevance of proper treatment of 
complaints, it may lead to unnecessary stan dardisation of complaints handling which 
does not recognize the possible differences in terms of complexity and type of 
problems raised in concrete cases. The es tablishment of a sepa rate function could 
lead to fragmentation of internal functi ons and risks of inefficient communications 
between parts of the firm dealing with cont rols on the proper provi sion of services by 
the firm and some possible additional costs. 
Organisational requirements for por tfolio management and underwriting 
Option 4 – Require specific organisational requir ements and procedures for the provision of 
portfolio management services and underwr iting services (Additional to option 2 and 
3) 
This option aims at introduc ing a more detailed – while still general – framework for 
the provision of services (notably portfo lio management and underwriting) which are 
already in the scope of the directive but are insufficiently regulated.  In particular this 
option will require firms to formalize thei r investment strategi es when managing 
 
 150    clients' portfolios. Relating to underwrit ing services, firms would be required to 
provide information concerning  the allotment of financial instruments, and to have 
specific procedures for the management of conflicts of interest situations. 
On the negative side, in certain cases this opt ion might introduce a level of rigidity in 
these areas (for instance, information requ irements covering the allotment of the 
financial instruments in the process of underwriting). 
Telephone and electronic recording 
Option 5 – Introduce a completely harmonized regime for telephone and electronic recording 
of client orders (Additional to option 2, 3 and 4)  
This option implies the deletion of the curre nt option for Member States to introduce 
requirements to record telephone convers ations or electron ic communications 
involving client orders a nd the introduction of a fu lly harmonized regime. 
The advantage would be the delivery of  a common regime across the EU. Since 
telephone recording is first of all a tool for supervisors, th e drawback is that Member 
States would not retain flexibility in modi fying the scope of this obligation in terms 
of services covered, retention period and technical means to be recorded according to 
local market conditions.  
Option 6 – Introduce a common regime for tele phone and electronic r ecording of client 
orders but still leave a margin of discreti on to Member States (Alternative to option 
5) 
This option aims at introducing a comm on regime for telephone recording (for 
instance, execution and reception and tr ansmission of orders, dealing on own 
account) while still leav ing a margin of discretion to Member States in applying the 
same obligation for services not covere d at EU level (for instance portfolio 
management). The retention period at EU leve l could be set at 3 years, i.e. less than 
the ordinary 5 years period required for ot her records, while leaving the option to 
Member States to apply the ordina ry period also for these records. 
This option would address the drawbacks of the previous one. On the negative side, 
it would leave margins for some differentiations at national level, but this would be consistent with the diversity of supervisor y methods and techniques that exist across 
the EU.  
Fundamental rights assessment of options 5 and 6
 
This requirement entails an interference w ith the fundamental ri ght to privacy and 
the protection of personal data (Articles 7 and 8 of the EU Charter), in particular, 
with regard to the access to recorded communications by third parties, namely supervisory authorities. However limiting this  right is proportiona te and necessary as 
competent authorities need this information in order to ensure market integrity and 
enforcement of compliance with business of conduct rules. However any measure 
should respect EU data protection rules laid down in Directive 95/46/EC. The 
retention period to be set should take accoun t of existing EU legi slation on retention 
of data generated or processed in connec tion with the provision of publicly available 
electronic communications for the purposes of fighting seri ous crime. The retention 
period has been set at a maximum of three years, as it has been found proportionate 
 
 151    and necessary to meet the legitimate objective pursued. Acco rdingly the proposed 
retention period is no longer than three ye ars as this would not comply with the 
principles of necessity and proportiona lity necessary to make it lawful an 
interference with a fundamental right. 
 
 152    14. ANNEX 4: OVERVIEW OF THE PREFERRED OPTIONS  
Policy options Summary of policy options 
1 Regulate appropriately all market structures and trading places taking into account the needs of smaller participants, especi ally 
SMEs 
1.2 Introduce a new category of 
Organised Trading Facilities (OTF), besides Regulated Markets (RM) and 
MTFs to capture current (including 
broker crossing systems - BCS) as well as possible new trading practices while 
further align and reinforce the 
organisational and surveillance requirements of regulated markets and 
MTFs  Under this option a new category called org anised trading facility would be established 
capturing previously not regulated as a specific MiFID trading venu e organised facilities such as 
broker crossing systems, "swap execution facilit y" type platforms, hybrid electronic/voice 
broking facilities and any other type of organise d execution system operated by a firm that 
brings together third party buying and selling inte rests. This new category would ensure that all 
organised trading is conducted on regulated venues that are transparent and subject to similar 
organisational requirements. The different types of trading venues will be clearly distinguished 
based on their characteristics. Regulated ma rkets and MTFs are characterised by non-
discretionary execution of trans actions and non-discriminatory access to their systems. This 
means that a transaction will be executed accord ing to a predetermined set of rules. It also 
means that they offer access to everyone willing to trade on their systems when they meet an objective set of criteria. By contrast, the ope rator of an organised trading facility has discretion 
over how a transaction will be executed. He has a best execution obligation towards the clients 
trading on his platform. He may therefore choose to route a transaction to another firm or platform for execution. An organised trading facility may also refuse access to clients he does 
not want to trade with. An important constrai nt on OTFs is that the operator may not trade 
against his own proprietary capital. This would m ean that firms operating internal systems that 
try to match client orders or that enable clients to execute orders with the firm will have to be 
authorised and supervised under the re spective provisions of a MTF or OTF or Systematic 
Internaliser. The OTF category would not in clude ad hoc OTC transacti ons. It would also not 
include systems which do not match trading interests such as: systems or facilities used to route 
an order to an external trading venue, systems used to disseminate and/or advertise buying and 
selling trading interests, post-trade confirmation systems, etc.   
The organisational requirements applying to r egulated markets and MTFs, as well as OTFs 
would be further aligned where businesses are of a similar nature especially those requirements 
concerning conflicts of interest  and risk mitigation systems. Operators of the various trading 
venues trading identical instruments would be required to cooperate and inform each other of 
suspicious trading activity and various other trading events. 
1.4 Mandate trading of standardised 
OTC derivatives (i.e. all clearing eligible and sufficiently liquid derivatives) on 
RM, MTFs or OTFs  This option picks up on the G20 commitment to move trading in standardised derivatives to 
exchanges or electronic trading pla tforms where appropriate. All derivatives which are eligible 
for clearing and are sufficiently liquid (the criterio n of sufficient liquidity would be determined via 
implementing measures) would be required to be traded on regulated markets, MTFs or OTFs. 
These venues would be required to fulfil specif ically designed criteria and fulfil similar 
transparency requirements towards the regulators and the public.  
1.6 Introduce a tailored regime for SME 
markets under the existing regulatory 
framework of MTF  Under this option a special category of SME market would be established in MiFID, under the 
existing regulatory framework MTF, specifically  designed to meet the needs of SME issuers. 
Such a regime would entail more calibrated element s in relation to the eligibility of SME issuers 
facilitating access of SMEs to MTFs while still creating a unified European quality label for 
SMEs providing for more visibility and therefore more liquidity in SME stocks. 
2 Regulate appropriately new trading technologies and address any related risks of disorderly trading 
2.2 Narrow the exemptions granted to 
dealers on own account to ensure that 
High Frequency Traders (HFT) that are a direct member or direct participant of a 
RM or MTF are authorised  Under this option, all entities that are a direct member or a direct participant of a RM or MTF, 
including those engaging in high-frequency trading , would be required to be authorised as an 
investment firm under MiFID so that they would all be supervised by a competent authority and required to comply with systems, risk and co mpliance requirements applicable to investment 
firms.  
2.3  Reinforce organisational 
requirements for firms involved in 
automated trading and/or high-frequency 
trading and firms providing sponsored or 
direct market access  Under this option specific obli gations would be imposed targeted s pecifically at algorithmic and 
HFT trading ensuring that firms have robust risk c ontrols in place to prevent potential trading 
system errors or rogue algorithms. Informati on about algorithms would also be required to be 
made available to regulators upon request. In addi tion, firms granting other traders direct or 
sponsored access to their systems would need to hav e stringent risk controls in place as well as 
filters which can detect errors or atte mpts to misuse their facilities.  
 
 153    2.4  Reinforce organisational 
requirements (e.g. circuit breakers, stress testing of their trading systems) 
for market operators  This option would address automated trading from the perspective of the market operators. 
Operators of organised trading venues would be ob liged to put in place adequate risk controls to 
prevent a breakdown of trading systems or against potentially destabilising market 
developments. These operators would be required to stress test and encode so-called circuit 
breakers into their systems which can stop trading in an instrument or the market as a whole in adverse conditions when orderly trading is in  danger and investors need to be protected. 
Operators would also be obliged to put in place rules clearly defining circumstances in which 
trades can be broken following trading errors and procedures to be followed if trades can be 
broken. 
2.7 Impose an order to executed 
transaction ratio by imposing incremental penalties on cancelled 
orders and setting up minimum tick size Under this option market operators would need to ensure that their market participants maintain 
an adequate order to transaction executed ratio. It  would impose that market operators impose 
a system of incremental penalties for cancelled orders. This would limit the number of orders 
that can be placed and then cancelled by high frequency traders. This would reduce stress on 
trading systems as it would prevent excessively large numbers of orders from being sent and then withdrawn and updated. It would also prev ent behaviour where participants submit a 
multitude of orders withdrawing them almost immediately just to gauge the depth of the order 
book. In addition, the obligation for market operator s to set up minimum tick size (i.e. a tick size 
is the smallest increment (tick) by which the price of exchange-traded instrument can move) on 
their trading venues would prevent excessive arbitrage by HFT as well as unsound competition 
between trading venues that could lead to disorderly trading. 
2.5 Introduce requirements for 
automated traders to provide liquidity on 
an ongoing basis  This option would require algorithmic traders to  both trade on the venues they connect to on an 
ongoing basis and to provide meaningful  liquidity at all times. Requiring this as an integral part 
of the trading strategy of an algorithm would c ontribute to more orderly and liquid markets and 
mitigate episodes of high uncertainty and volatility.   
3 Increase trade transparency for market participants 
3.2 Adjust the pre and post trade 
transparency regime for equities by 
ensuring consistent application and monitoring of the utilisation of the pre-
trade transparency waivers, by reducing 
delays for post trade publication and by extending the transparency regime 
applicable to shares admitted to trading 
on RMs to shares only traded on MTFs or  OTFs  This option would focus on strengthening a num ber of features of the existing trade 
transparency regime for equities. The current waiv ers from pre-trade transparency obligations 
would be further harmonised as to their applic ation and their monitoring would be improved 
giving ESMA an enhanced role in the process. In  the post-trade section the maximum deadline 
for real-time reporting would be reduced down to one minute (from three) and the permissible 
delays for publishing large transactions would be si gnificantly reduced. Furthermore, the scope 
of the transparency regime would be extended to instruments only traded on MTFs and 
organised trading facilities.  
3.4 Introduce a calibrated pre and post 
trade transparency regime for certain 
types of bonds and derivatives  This option would entail extending the MiFID trade transparency rules (both pre- and post-trade) 
from equities to certain types of other financia l instruments such as bonds, structured products 
and derivatives eligible for central clearing and submitted to trade repositories. As non-equity 
products are very different from equity produc ts and very different one from another, the 
detailed transparency provisions would need to be  defined for each asset class and in some 
cases for each type of instrument within that asse t class. This calibration will need to take into 
account several factors including: (i) the make -up of market participants in different asset 
classes, (ii) the different uses investors hav e for the instruments, and (iii) the liquidity and 
average trade sizes in different instruments. The detailed provisions will be laid down in 
delegated acts.    
3.6 Reduce data costs notably by 
requiring unbundling of pre and post 
trade data and providing guidance on reasonable costs of data, and improve 
the quality of and consistency of post 
trade data by the set up of a system of Approved Publication Arrangements (APAs)  Under this option, measures would be implem ented reducing the costs of data for market 
participants: 
- organised trading venues would be required to  unbundle pre- and post-trade data so that 
users would not be required to purchase a whole da ta package if they are only interested in, for 
example, post-trade data; 
- Standards by ESMA determining criteria for ca lculating what constitutes a reasonable cost 
charged for data would be envisaged; - Introduce further standards regarding the content and format of post trade data; 
- Investment firms would be required to publish all post-trade transparency information via so-
called Approved Publication Arrangements (APAs).  These APAs would need to adhere to strict 
quality standards to be approved ; and 
- Trade data would be required to be provided free of cost 15 minutes after the trade. 
3.8 Improve the consolidation of post 
trade data for the equities markets by 
the set-up of a consolidated tape system 
operated by one or several commercial providers. Introduce a consolidated tape 
for non-equities markets after a period of 
2 years under the same set-up as for This option would be complementary to option 3.6 as the data pre-managed by the APAs would 
then be submitted to dedicated consolidators (i.e . one or several commercial providers) that 
would need a separate approval. The function of these consolidators would be to collect all 
information that is published per share at any given time and make it available to market 
participants by means of one consolidated data st ream at a reasonable cost. The set-up of a 
consolidated tape by one or several commerc ial providers would be required for non-equities 
markets after a transitional period of 2 years depen ding on the type of financial instrument. This 
 
 154    equities markets differed application woul d ensure that the consolidation of tr ade data would take place after the 
implementation of the new trade transparency re quirements for non-equities markets by market 
participants.  
4 Reinforce regulators powers and consistency of supervisory practice at European and International level 
4.2 Introduce the possibility for national 
regulators to ban for an indefinite period 
specific activities, products or services 
under the coordination of ESMA. Give 
the possibility to ESMA under specific 
circumstances to introduce a temporary ban in accordance with Article 9(5) of 
the ESMA regulation N°1095/2010
278 This option would consist in gi ving national regulators the power to ban or restrict for an 
indefinite period the trading or distribution of a pr oduct or the provision of a service in case of 
exceptional adverse developments which gives to significant investor pr otection concerns or 
poses a serious threat to the fina ncial stability of whole or part of the financial system or the 
orderly functioning and integrity of financial mark ets. The action taken by any Member State 
should be proportionate to the risks involved an d should not have a discriminatory effect on 
services or activities provi ded by other Member Sates. ESMA would perform a facilitation and 
coordination role in relation to any action taken by Member States to ensure that any national 
action is justified and proportionate and where appropriate a consistent approach is taken. 
ESMA would have to adopt and publish an opinion on the proposed national ban or restriction. If 
the national Competent Authority disagrees with ESMA's opinion, it should make public why. In 
addition to the powers granted to national com petent authorities under the coordination of 
ESMA, ESMA would have the power to temporarily ban products and services in line with the ESMA regulation. The ban could consis t in a prohibition or restriction on the marketing or sale of 
financial instrument or on the persons engaged in t he specific activity. Th e provisions would set 
specific conditions for both of  these bans on their activati on, which can notably ha ppen when 
there are concerns on investor protection, threat  to the orderly functioning of financial markets 
or stability of the financial system. Such a power would be complementary to the national 
powers in the sense that a ban by ESMA coul d only be triggered in the absence of national 
measures or in case the national measures ta ken would be inappropriate to address the threats 
identified. 
 
4.4 Reinforce the oversight of positions 
in derivatives in particular commodity 
derivatives, including by granting regulators the power coordinated via 
ESMA to introduce positions limits  This option has several layers. First trading v enues on which commodity derivatives trade would 
be required to adopt app ropriate arrangements to support li quidity, prevent market abuse, and 
ensure orderly pricing and settlement. Position limits are a possible measure to this effect, i.e. 
hard position limits are fixed caps on the size of  individual positions that apply to all market 
participants at all times. Position management is  another, i.e. the possibility for the venue 
operator to intervene ad hoc and ask a participant  to reduce its position. Second, national 
competent authorities would also be given broad powers to carry out position management with 
regard to market participants' positions in any type of derivatives and require a position to be 
reduced. They would also be given explicit powers to impose both temporary (i.e. position 
management approach) and permanent limits (i.e. pos ition limits) on the ability of persons to 
enter into positions in relation to commodity  derivatives. The limits should be tran sparent and 
non-discriminatory. ESMA would perform a facilitat ion and coordination role in relation to any 
measure taken by national competent authoriti es. Finally, ESMA would have temporary powers 
to intervene in positions and to limit them in a temporary fashion consistent with the emergency 
powers granted in the ESMA regulation. In other words, ESMA would be equipped with position management powers in case a national competent authority fails to intervene or does so to an insufficient degree, but no position limit powers.  
4.5 Reinforce the oversight of financial 
markets which are increasingly global by strengthening the cooperation between 
EU and third country securities 
regulators. In addition reinforce monitoring and investigation of 
commodity derivatives markets by 
promoting international cooperation among regulators of financial and 
physical markets This option would consist in strengthening coop eration between competent authorities with 
other market supervisors around the world, po ssibly through ESMA. In the specific case of 
commodity derivatives markets this option woul d in addition reinforce the cooperation between 
financial and physical regulators both within the EU and at international level. This entails 
establishing new memoranda of understanding and cooperation agreements. In addition, there 
will also be ongoing information sharing, assi stance in information requests, and cooperation in 
cross-border investigations. This option is comp lementary to a similar option proposed in the 
review of the Market Abuse Directive. While MA D is limited to market abuse, this option seeks 
to promote cooperation in supervising fa ir and orderly working of markets.  
 4.7 Harmonise conditions for the access 
to the EU of third country investment 
firms, by introducing a third country 
regime (based on equivalence and reciprocity and memoranda of 
understanding (MoU) between the 
Member States regulators and the third country regulators under the 
coordination of ESMA) This option would create a harmonised framework for granting access to EU markets for firms 
based in third countries. The prov ision of services to retail clients would always require the 
establishment of a branch in the EU territory; th e provision of services  without a branch would 
be limited to business for eligible counterparties. This option would entail the assessment of equivalence and reciprocal access of the third country regulatory and supervisory regime in 
relation to the EU regime and to EU-based opera tors. This assessment would be formalised by 
a decision of the Commission. Memoranda of unde rstanding (MoU) between the Member States 
regulators and the third-country regulators should be concluded. Investment firms established in 
third countries for which equi valence has been granted would have access to the EU market, 
with the provision of services to retail client s would always requiring the establishment of a 
branch in the EU territory and compliance by the firm with key MiFID operating and investor 
protection conditions. 
 
 155    4.8 Ensure effective and deterrent 
sanctions by introducing common minimum rules for administrative 
measures and sanctions  This option would require Member States to pr ovide for administrative sanctions and measures 
which are effective, proportionate and dissuasiv e byintroducing minimum rules on type and level 
of administrative measures and administrativ e sanctions. Administrative sanctions and 
measures set out by Member States would have to satisfy certain essential requirements in 
relation to addressees, criteria to be taken into  account when applying a sanction or measure, 
publication of sanctions or meas ures, key sanctioning powers and mi nimum levels of fines. This 
option would also entail establis hing whistleblowing mechanisms.  
5 Reinforce transparency to regulators 
5.2 Extend the scope of transaction 
reporting to regulators to all financial 
instruments (i.e. all financial instruments admitted to trading and all financial 
instruments only traded OTC). Exempt 
those only traded OTC which are neither dependent on nor may influence the 
value of a financial instrument admitted 
to trading. This will result in a full alignment with the scope of the revised 
Market Abuse Directiv e. Lastly regarding 
derivatives, harmonise the transaction reporting requirements with the reporting 
requirements under EMIR This option entails that investment firms report the details of transactions in all instruments 
which are traded in an organised way, either on a RM, a MTF or an organi sed trading facility to 
regulators. Notably the extension to OTFs would bring a whole set of derivatives products into 
scope (e.g. part of equity derivatives, credit deriv atives, currency derivatives, and interest rate 
swaps). All transactions in OTC instruments which are not themselves traded in an organised 
way  will also have to be reported, except when the value of those does not depend to some extent on or may not influence that of instrum ents which are admitted to trading. Extending the 
scope of transaction reporting to such instrument s will bring the reporting requirements in line 
with the existing provisions of MAD, as well as  with those of the revised MAD, and corresponds 
to existing practice in some Member States (e.g. UK, Ireland, Austria, and Spain). Commodity 
derivatives may be used for market abuse purpos es, notably to distort the underlying market. 
Commodity derivatives will  need to be brought in to scope separately. This  extension overlaps 
considerably with the scope of reporting r equirements to trade repositories under EMIR. 
5.4 Require market operators to store 
order data in an harmonised way  This option entails that all market operators keep records of all orders submitted to their 
platforms, regardless of whether these order s are executed or not. Such records need to be 
comparable across platforms, notably with regard to  the time at which they were submitted. The 
information stored should include a unique identific ation of the trader or algorithm that has 
initiated the order. ESMA will set the appropriate standards. 
5.5 Increase the efficiency of reporting 
channels by the set up of Approved 
Reporting Mechanisms ("ARMs") and allow for trade repositories under EMIR 
to be approved as an ARM under MiFID  This option entails that all entities involved in reporting transactions on behalf of investment 
firms are adequately supervised. Under this option,  competent authorities' powers to monitor 
ARM's functioning on an ongoing basis will be clarif ied. Also, the standards that ARM's need to 
comply with will be harmonised. 
6 Improve transparency and oversight of commodities markets 
6.2 Set up a system of position reporting 
by categories of traders for organised 
trading venues trading commodities 
derivatives contracts  Under this option organised tradi ng venues which admit commodity derivatives to trading would 
have to make available to regulators (in detail) and the public (in aggregate) harmonised 
position information by type of regulated entity. A trader's position is the open interest (the total 
of all futures and option contracts) that he holds . The trader would have to report to the trading 
venue whether he trades on own account or on whose behalf he is trading including the 
regulatory classification of their end-customer s in EU financial markets legislation (e.g. 
investment firms, credit institutions, alte rnative investment fund managers, UCITS, pension 
funds, insurance companies). If the end beneficiary of  the position is not a financial entity, this 
position would by deduction be classified as non-fi nancial. The focus of this obligation will be 
commodity derivatives contracts traded on organis ed trading venues (contracts traded either on 
regulated markets, MTFs or organised trading fa cilities) which serve a benchmark price setting 
function. The objective of this position reporti ng would be to improve the transparency of the 
price formation mechanism and improve understandi ng by regulators of the role played by 
financial firms in these markets.  
6.4 Review exemptions for commodity 
firms to exclude dealing on own a/c with 
clients and delete the exemption for specialist commodity derivatives  Specialist commodity firms whose main business is to trade on own account in commodities 
and/or commodity derivatives would not be exempt  any more. Commercial entities would not be 
allowed any more to trade on own account with clients and the possibility to provide investment services to the clients of the main business on an ancillary basis would be applied in a very 
precise and narrow way. This option would not by itself affect capital requirements imposed on 
firms. 
6.6 Extend the application of MiFID to 
secondary spot trading of emission 
allowances This option would involve coverage under the MiFID of emission allowances and other 
compliance units under the EU Emissions Trading Scheme. As a result, all MiFID requirements 
would apply to all trading venues and intermediarie s operating in the secondary spot market for 
emission allowances. Venues would need to bec ome regulated markets, MTFs, or OTFs. 
Financial market rules would apply to both spot and derivative markets for emissions trading, 
establishing a coherent regime with overarching rules. This would replace the need to devise a 
tailor made regime for secondary spot emission allowances markets.  
7 Broaden the scope of regulation on products, services and service providers when needed 
7.2
 Allow Member States to continue 
exempting certain investment service This option leaves Member Stat es the possibility to exempt certain entities providing advice 
from the Directive but requires that national legi slation includes requirement s similar to MiFID in 
 
 156    providers from MiFID but introduce 
requirements to tighten national requirements applicable to them 
(particularly conduct of business and 
conflict of interest rules) a number of areas (notably proper authorization process including fit and proper criteria and 
conduct of business rules). Member States woul d maintain discretion in adapting organizational 
requirements to the exempted entit ies based on national specificities 
7.4 Extend the scope of MiFID conduct 
of business and conflict of interest rules 
to structured deposits and deposit based products with similar economic effect This option would aim at extending MiFID conflic ts of interest and conduct of business rules 
(particularly information to and from clients,  assessment of suitability and appropriateness, 
inducements) to structured deposits, products wh ich currently are not regulated at EU level 
8 Strengthen rules of business conduct for investment firms 
8.2 Reinforce investor protection by 
narrowing the list of non-complex 
products for which execution only 
services are possible and strengthening provisions on investment advice  This policy option combines two measures whic h will have complementary effects. The first 
measure consists in the limitation of the def inition of non-complex products which allows 
investment firms to provide execution only serv ices i.e. without undergoing any assessment of 
the appropriateness of a given product. The second measure consists in reinforcing the conduct 
of business rules for investment firms when prov iding investment advice, mainly by specifying 
the conditions for the provision of independent advice (for instance, obligation to offer products 
from a broad range of product providers). Furt her requirements concer ning the provision of 
investment advice (reporting requirements and annual assessment of recommendations 
provided) would be mainly introduced via impl ementing measures to complement these 
changes in the framework directive. 
8.4 Apply general principles to act 
honestly, fairly and professionally to eligible counterparties resulting in their 
application to all categories of clients 
and exclude municipalities and local public authorities from list of eligible 
counterparties and pr ofessional clients 
per se This options aims at reinforci ng the MiFID regime for non-retail clients by narrowing the list of 
type of entities that are de facto eligible co unterparties or professional clients. Further 
requirements would be modified in the implementing measures (deletion of the presumption that 
professional clients have the necessary level of experience and knowledge). 
8.6 Reinforce information obligations 
when providing investment services in 
complex products and strengthen periodic reporting obligations for 
different categories of products, 
including when eligible counterparties are involved This option aims at increasing the informat ion and reporting requirements to clients of 
investment firms, including eligible counterparties. In the case of more complex products, 
investment firms should provide c lients with a risk/gain and valuation profile of the instrument 
prior to the transaction, quarterly valuation dur ing the life of the product as well as quarterly 
reporting on the evolution of the underlying asse ts during the lifetime of the product. Firms 
holding client financial instruments should report to clients about material modifications in the 
situation of financial instruments concerned. Most of these detailed obligations would be 
introduced in implementing measures and should be calibrated according to the level of risk of 
the relevant product.  
8.7 Ban inducements in the case of 
investment advice provided on an 
independent basis and in the case of 
portfolio management The objective of this option is to strengthen the existing MiFID inducement rules by banning 
third party inducements in case of portfolio management and independent advice. These 
measures that would affect the Level 1 Directive would be complemented by changes in the 
Level 2 implementing acts where inducements ar e currently regulated; this will include the 
improvement of the quality of informat ion given to clients about inducements. 
8.9 Require trading venues to publish 
information on execution quality and improve information provided by firms on 
best execution This option consists in improvi ng the framework for best execution by inserting in the MiFID an 
obligation for trading venues to provide data on execution quality. Data would be used by firms 
when selecting venues for the purpose of best ex ecution. The implementing directive would 
clarify technical details of data to be published an d would reinforce the requirements relating to 
information provided by investment firms on  execution venues selected by them and best 
execution. 
5.9 Strengthen organisational requirements for investment firms 
9.2 Reinforce the corporate governance 
framework by strengthening the role of 
directors especially in the functioning of 
internal control functions and when defining strategies of firms and 
launching new produc ts and services. 
Require firms to establish clear procedures to handle clients' complaints 
in the context of the compliance 
function. This option strengthens and specifies the over all framework for corporate governance in the 
design of firms' policies, including the decision on products and services to be offered to clients 
(clear involvement of executive and non-executiv e directors), in the framework for internal 
control functions (reinforced independence, further def inition of role of the compliance function 
including handling with clients' complaints) and in the supervision by competent authorities 
(involvement in the assessment of the adequacy of members of the board of directors at any 
time and in the removal of persons responsible for internal control functions). In addition it will 
explicitly require that within the compli ance function clear proc edures have been developed to 
deal with clients' complaints. 
9.4 Require specific organisational 
requirements and procedures for the 
provision of portfolio management 
services and underwriting services This option introduces a more detailed, while still general framework for the provision of the 
services of portfolio management (formalization of investment strategies in managing clients' 
portfolios) and underwriting (information require ments concerning allotment of financial 
instruments, management of conflicts of interest situations). 
 
 157    9.6 Introduce a common regime for 
telephone and electronic recording but still leave a margin of discretion for 
Member States in requiring a longer 
retention period of the records and applying recording obligations to 
services not covered at EU level. This option aims at introducing a common r egime for telephone and electronic recording in 
terms of services covered (for instance, ex ecution and reception and transmission of orders, 
dealing on own account) and retention period (two years) while still leaving a margin of 
discretion to Member States in applying the same  obligation for other services (for instance 
portfolio management) and in requiring a longer re tention period (up to the ordinary 5 years 
period required for other records). This common regime would focus on the services which are 
the most sensitive from a supervisory point of view in terms of market abuse or investor 
protection and would be fully complaint in terms of retention period with the Charter of EU Fundamental Rights. 
 
 
 158    15. ANNEX 5: OVERVIEW OF COMPLIANCE COSTS  
15.1. Consolidated overview of compliance costs 
Detailed breakdown of compliance costs (€ millions) TOTAL INCREMENTAL COSTS 
  one-off on-going 
  low high low high 
Market structures          
Alignment and reinforcement of MTF / RM organisational 
and market surveillance requirements 1,0 10,0 0,0 0,0
Broker crossing networks & Organised Trading Facilities 4,2 11,3 0,6 3,2
Information pack to be provided to the Competent 
Authority 0,5 0,5 0,0 0,0
Monitoring of trading 3,7 10,8 0,6 3,2
Trading of OTC derivatives on organised trading venues 4,7 9,3 8,7 17,3
SME markets 0,0 0,0 0,0 0,0
Total market structure costs 9,9 30,6 9,3 20,5
          
New trading technologies ("automate trading")          
All HFT firms to be authorised 0,0 0,0 0,9 0,9Reinforce organisational requ. of firms involved in 
automated trading 1,0 1,0 0,0 0,0
Requirement for sponsoring firms to have robust risk 
controls 0,1 0,1 0,0 0,0
Reinforcement of organizational requirements for market 
operators 0,0 0,0 0,0 0,0
Total automated trading costs 1,1 1,1 0,9 0,9
          
Pre and post-trade transparency and data 
consolidation          
Equity markets 0,0 0,0 0,0 0,0
Equity transparency regime for MTF/OTF 2,0 2,0 0,4 0,4Non equities markets 5,5 9,2 8,9 12,7
Pre trade for MTFs/OTFs 0,4 0,8 0,2 0,3
Pre trade for market participants OTC 0,6 1,0 4,1 5,3Post-trade for MTFs/OTFs  0,4 0,8 0,2 0,3
Post-trade for market participants 4,1 6,6 4,5 6,8
Total transparency 7,5 11,2 9,3 13,1
APAs, single formats and cons olidated tape 30,0 30,0 3,0 4,5
Total reporting channels and data consolidation 30,0 30,0 3,0 4,5
Total transparency 37,5 41,2 12,3 17,6          Reinforce regulatory powers
         
Position oversight 0,0 0,0 2,0 4,0
Trading platforms     1,6 3,1
Market participants     0,4 0,9
Setting and monitoring position limits 8,2 12,9 7,5 16,3
Trading platforms with existing market surveillance in 
place 2,2 2,9 3,7 7,3
Trading platforms without existing market surveillance in 
place 6,0 10,0 3,8 9,0
Total regulatory powers costs 8,2 12,9 9,5 20,3
          
Transparency to regulators          
Total transaction reporting costs 65,4 84,1 1,6 3,0
 
 159    Extension to MTFs 0,7 1,1 0,1 0,1
Extension to OTC derivatives, excl. commodity 
derivatives 48,2 62,0 0,6 0,9
Extension to commodity derivatives 16,0 19,9 0,4 0,7
Extension to depositary receipts 0,7 1,1 0,5 1,3
Storage of orders     1,0 1,9
Total transparency to regulators costs 65,4 84,1 2,6 4,9
          
Commodity derivatives markets          
Position reporting by categories of traders 0,8 1,0 3,3 3,8
Publishing costs for regulated markets 0,0 0,0 0,3 0,3
MTFs 0,1 0,2 1,8 2,4Traders 0,6 0,8 1,1 1,1
Extension of MiFID to secondary s pot trading in EUAs 1,5 1,8 0,4 0,5
Platforms offering spot trading 1,5 1,8 0,4 0,5
Compliance buyers         Market intermediaries         
Total commodity derivatives costs 2,3 2,8 3,7 4,3
          
Broaden the scope of regulation
         
Harmonisation of Article 3 exemption - authorisation 
process 15 30     
Extension of MiFID to structured deposits 31 44 9 15
Total 46 74 9 15
          
Strengthening of conduct of business rules          
Reduction in the list of non complex products  0,1 0,2 0 0Strengthening conduct of business rules for investment 
advice 5,6 12,5 1 
34,3279,0
Extended suitability report     29,1 59,0 
Training 5,6 12,5     Reporting every 6 months     40,0 67,5 Annual request to update client's information     23,5 52,5 Advice in changed circumstances     41,7 100,0 
Adjustments to the eligible counterparty and professional 
client classification 2,3 2,9 16,0 16,0
Information on complex products 83,2 145,9 11,6 36,6
Risk-gain profiles 50,6 86,7 10,1 28,9 
Marketing materials 25,0 45,0     Quarterly reporting     1,5 7,7Material change systems 1,7 2,7     Material change review 6,0 11,6     
Banning of inducements in rel. to independent investment 
advice 41 41 24 28
Banning of inducements in relation to portfolio management 130,8 130,8 3,7 3,7
Trading venues - Execution quality 18,0 18,0 6,0 6,0
Total COB rules costs 280,9 351,2 195,6 369,3
          
Organizational requirements for investment firms          
Strengthening the role of the internal  control functions  5,0 5,0 24,0 32,0
Internal control functions - Report ing to the Board     24,0 32,0 
Launch of new products 5,0 5,0     
Organizational requ. - Portfolio management 2,8 4,2     
Organizational requ. - Underwriting 11,0 26,0 0,3 0,3
Review of existing procedures 9,0 22,0     
 
 160    New system 2,0 4,0     
Ongoing compliance monitoring     0,3 0,3
Harmonisation of the telephone and electronic recording 
regime 41,7 99,2 45,2 101,2
Total organizational requ. costs 60,5 134,4 69,45 133,45
          
TOTAL MiFID REVIEW COSTS 511,8 732,4 312,3 586,2
Total operating costs of investment firms 500.000,0 500.000,0 500.000,0 500.000,0
Total MiFID review costs as a % of total operating costs 0,10% 0,15% 0,06% 0,12%
          
Costs of the introduction of MiFID as a % of total 
operating costs 0,56% 0,68% 0,11% 0,17%
Administrative burden costs are highlighted in grey. 
15.2. Detailed analysis of compliance costs 
15.2.1.  Introduce a new category of Organised Tradi ng Facilities (OTF), besides Regulated 
Markets (RM) and MTFs to capture curren t (including broker crossing systems - 
BCS) as well as possible new trading prac tices while further a lign and reinforce the 
organisational and surveillance requirem ents of regulated markets and MTFs 
A number of MTFs consider that they are al ready complying with or ganisational requirements 
that are functionally equivalent (even if they are not identical per se) to those of regulated 
markets, and regulated markets believe that regula tions are similar. This view was not held by 
a regulated market in the UK taking the view th at to be considered equivalent requirements 
should be the same. On this basis, we can conclude that further aligning organisational 
requirements between MTFs a nd RMs would have a negligib le one-off and on-going cost 
impact on MTFs. 
Greater costs would be incurred in complyi ng with a reinforcement of the surveillance 
obligations. The onus were on tr ading venues to esta blish methods of co mmunication between 
themselves, costs would be substantially greater.  In such a scenario, trading venues may incur 
infrastructure costs as well as on-going costs but the magnitude of such costs would be 
heavily dependent on any amendm ents that would need to be made to data storage/sharing 
technologies in light of the fact  that trading venues may need to communicate sensitive data to 
each other. We estimate the range of potential  incremental costs to be between €1 and €10 
millions.  
They are nine crossing networ ks currently operating in Eur ope which would fall under the 
new definition of orga nised trading facility279. Three of them also operate a dark MTF. The 
full size of the other el ectronic trading platfo rms that are not MTFs and might fall under the 
scope of the OTF definition is not completely clear. However market participants interviewed by Europe Economics have identified 10–12 as a reasonable population estimate.  
We expect the compliance with the requirement s of the OTF definition would lead to one-off 
aggregate costs of €4.2–€11.3 million for the nine crossing system operators and the 
estimated 10 to 12 other electronic platforms,  with ongoing costs of €0.6-€3.2 million. The 
main costs would arise from the development of  tools to monitor trading considering the six 
crossing networks that do not have  or are not yet seeking MTF status
280. The remaining costs 
relate to the provision of required information to  regulators. This is unlikely to exceed €0.5 
million across all affected entities as this inform ation is usually already available for clients. 
 
 161    15.2.2.  Mandate trading of some OTC derivatives on Regulated Markets (RM), MTFs or 
OTFs  
Before turning to cost estimates, we describe briefly here what might be required by marker 
participants to engage in electronic trading.  
Depending on the platform model, it could be  relatively straightforward for buy-side 
participants to connect to electronic tradi ng platforms. They could access these through the 
internet or through trading scr eens provided by the platform, and be enabled with dealers of 
their choice (this would be eas ier if the buy-side firm alrea dy has a relationship with the 
dealers). The firm would be able  to see prices in real time th rough a request for quote system 
and would be able to trade easily. The costs of this access may be relatively significant, and 
could range from €50,000 to €100,0 00 for access per year, with a one-off cost of developing 
the links of between €4,000 and €9,000.  
Buy-side firms can also establish more detail ed links with the electronic platform (for 
example if they undertake a large amount of tr ading). Many large buy-side firms currently 
connect their internal order management and ac counting systems to trading platforms as this 
increased efficiency and can lead to cost sa vings Trades are sent from the firm’s order 
management system to the platform, wher e they are executed w ith an appropriate 
counterparty, and then passed on for confirmati on by the counterparties. Setting up these links 
involves substantial infrastructural requireme nts, estimated at between €1 million and €2 
million in one-off costs and approximately €100,000 in on-going costs. 
The costs for dealers could be significantly more involved, as  they would ha ve to connect 
their whole trading system (incl uding pricing engines and risk systems) to the platform which 
involves significant IT infrastruc ture investment. However, we assume that the majority of 
large and medium dealers are already connected to  electronic trading plat forms, and that these 
costs would only be incurred by smaller dealers not currently undertakin g electronic trading. 
Costs for these are likely to be smaller than for large firms, as are estimated at between 
€100,000 and €200,000 in one-off costs per firm, and between €10,000 and €20,000 in on-going costs. 
If we assume that the majority of existing electronic platforms will be able to adapt to the 
requirements of an organised trading facility, th en it is unlikely that a significant number of 
market participants will ha ve to link up to new trading platforms. However, as many 
platforms offer trading in only limited range of derivatives, it may be the case that a market 
participant currently operating electronically in on e market will be required, as a result of the 
policy, to link up to a new platfo rm to trade a different type of  product. We assume that the 
infrastructure linking dealers to new platforms will be similar to that required for existing platforms (estimated at one third of the original  cost), but that for the buy-side there will be 
less interoperability and thus costs of linking to new platforms will be three quarters of the original cost.  
There will also be costs to market participants who currently do not engage in any electronic 
trading at all. For sell-side participants this is estimated to be a relatively small number (40 
smaller dealers across the EU), and for buy-si de customers this is estimated at 150.  
– TABLE 13: Background assumptions for costs estimates of trading 
of OTC Derivatives 
 
 162    Background assumptions 
Number of buy-side firms not currently trading electronically 150
Number of large buy-side firms currently trading electronically 50
Number of smaller buy-side firms currently trading electronically 450Number of large dealers 14
Number of medium dealers 36
Number of smaller dealers not currently trading electronically 40
IT costs (staff per year) € 100.000
Number of weeks in year 46
Proportion of buy-side costs in linking to new platforms 0,75
Proportion of sell-side of linking to new platforms 0,3
Low High
One-off costs for large buy-side of linking whole trading systems to platform € 1.000.000 € 2.000.000
Ongoing costs for large buy-side € 100.000 € 200.000
One-off costs to smaller buy-side of internet/trading access -  establish data feed € 4.348 € 8.696
Ongoing- yearly subscription or acces
s € 50.000 € 100.000
Ongoing maintenance € 5.000 € 10.000
One-off costs to larger dealers of linking systems to platform € 300.000 € 500.000
Ongoing costs for large dealers € 30.000 € 50.000
One-off costs to smaller dealers of linking systems to platform € 100.000 € 200.000
Ongoing costs for smaller dealer s € 10.000 € 20.000 
The table below presents our cost estimates fo r a range of assumptions. Buy-side firms not 
already connected to electronic platforms are ass umed to be smaller firms that would adopt 
the model of accessing electronic platforms remo tely (i.e. through trading screens, and not 
linking up their whole systems). One-off costs to these firms would range from €0.6 million 
to €1.3 million. On-going costs are significantly  higher due to annual costs of accessing the 
systems, and range from €8.2 million to €16.5 m illion. One-off costs for sell-side firms not 
currently engaging in electronic trading range  from €4 million to €8 million, and on-going 
costs range from €400,000 to €800,000. One-off co sts in this case are higher due to more 
significant investment in infrastructure to link all systems to the platforms.  
If we assume that firms currently engaged in electronic trading and those new to this method 
would be required to link to more than on e trading platform, co sts would increase 
significantly. Costs for new firms now include the cost of acce ssing two platforms, and costs 
to ‘old’ firms include the cost of accessing one additional platform. If this assumption is held the total one-off costs for all market particip ants range from €47.6 million to €94.9 million, 
and on-going range from €37.5 million to €74.9 million.  
These costs represent an upper-boun d as they assume that all fi rms currently not engaging in 
electronic trading will be required to do so under the new policy. However, it may be the case that some firms currently trade derivatives that will remain purely OTC. 
– TABLE 14: Costs of electronic trading 
Only one platform Two platforms 
Costs to different market 
participants (€000s) Low High Low High 
Buy-side firms not connected      
 
 163    One-off costs € 652 € 1,304 € 1,141 € 2,283 
On-going costs € 8,250 € 16,500 € 14,438 € 28,875 
Sell-side firms not connected      
One-off costs € 4,000 € 8,000 € 5,200 € 10,400 
On-going costs € 400 € 800 € 520 € 1,040 
Buy-side firms already connected      
One-off costs   € 38,967 € 77,935 
On-going costs   € 22,313 € 44,625 
Sell-side firms already connected      
One-off costs   € 2,340 € 4,260 
On-going costs   € 234 € 426 
Total one-off costs € 4,652 € 9,304 € 47,649 € 94,877 
Total on-going costs € 8,650 € 17,300 € 37,504 € 74,966 
In conclusion, we assume that the majority of  existing electronic platforms trading derivatives 
do already meet or will be able  to adapt to the requirements of  an organised trading facility. 
But this option would entail incremental costs to  both dealers (sell-side ) and investment firms 
(buy-side) who currently do not e ngage in any electronic tradi ng at all, or who have to 
connect to more than one platform. Under the assumption that firms would have to connect 
only to one platform, this would give aggregated one-off costs of €4.7 to €9.3 million and ongoing costs €8.7 and €17.3 million.  
15.2.3.  Introduce a tailored regime for SME markets under the existing regulatory 
framework of MTF 
Regarding the development of a tailor made regime for SME markets, the main objective 
would be to facilitate the ac cess of SMEs to capital market s at a proportionate cost by 
improving visibility and therefore liquidity in SME stocks. Howeve r, to gain more visibility 
and increase liquidity would need a high level of investor protection avoiding – for instance – 
any market abuse such as insider dealing and market manipulation. Th erefore, cost burdens 
cannot simply be reduced but c ould feed into a SME market qua lity label. This should reduce 
the ratio of cost against the capit al gained in financial markets. All in all the impact would be 
that seeking equity in capital markets should become more attractive. The broader economic 
impact would be increased access to  capital for SMEs leading to a reduction of their cost for 
capital.  
15.2.4.  Regulate appropriately new trading technologies 
The overall costs impact of the a bove preferred policy op tions will be marginal given that we 
will essentially enshrine existi ng practice into legislation.  
 
 164    There are at present between 25 and 50 firms i nvolved in HFT in Europe with approximately 
a 50/50 split between HFT undertaken by firms th at are authorised and non-authorised under 
MiFID281. A far greater number of firms are invol ved in automated trading since all large 
bank brokers and broker dealers have algorithmi c trading suites which are widely used by 
their customers. This implies that there may be hundreds of firms involved in automated trading. We have assumed that 250 fi rms are active automated traders.  
We assumed that 25 HFT would require authorisation (so that  senior management were 
judged fit and proper and capital adequacy tests were passed). We estimate the on-going cost 
implication would be €0.9 million per annum in total.
282 
Based on feedback from market participants, fi rms involve in automated trading already have 
in place robust risk management controls to mitigate potential trading errors. The 
reinforcement of organisational requirements of investment firms involved in automated 
trading would mainly be codify ing existing practice and hence w ould have little cost impact. 
However there might be additional documentati on costs, notably if firms are required to 
notify their competent authority of the com puter algorithm they employ, including an 
explanation of its design, purpos e and functioning. These costs would be marginal and would 
amount to a total one-off cost of €1 million.283 
Firms that permit sponsored access require more sophisticated systems of filters and risk 
controls than do those that do  not. Based on interviews carried  out by Europe Economics with 
sponsoring firms with robust ri sk controls we estimate that  4–6 working weeks would be 
required in order to develop a suitably robust and sophisticat ed system. At an estimated 
annual cost of €100,000 per IT professional this works out at about €8,888–€13,333 per firm. 
An on-going cost below this level, at 1–2 wo rking weeks per firm per annum equates to 
€2,222–€4,444 per firm. If we assume that ten firms permit sponsored access, the aggregate 
cost implication of these proposals woul d be one-off costs of  €88,888–€133,333 and on-going 
costs would be approximately €22,222–€44,444.  
Trading venues already have syst ems of risk controls in pla ce, including stress testing and 
circuit breakers, and hence the impact of these proposals is likely to be limited. The 
Federation of European Stock Exchanges (FESE)  has conducted a survey of its members to 
gather information on the use of stress test ing and circuit breakers. A total of 20 FESE 
members responded to the survey, all of whom operate a regulated market and 11 of whom 
operate an MTF. One respondent was an Excha nge located outside the European Union. The 
results of this survey were in cluded in their answer to our public consul tation and led FESE to 
state that "a large portion of ex isting RMs and MTFs already have  such risk controls in place 
(such as circuit breakers and stress testing) . You will find below the FESE table summarising 
the current risk controls in place in the trading venues havi ng responded to its survey:  
– TABLE 15: Trading venues – Risk controls in place 
 
 165    
 
Of those that responded to the survey, 16 (80 per cent) stated th at circuit breakers are used on 
the regulated market and 8 stated that circu it breakers are used on it s MTF (73 per cent of 
MTFs). A lower proportion of respondents stated  that stress testing is used on regulated 
markets and/or MTFs. In partic ular, 9 (45 per cent) stated th at stress testing is used on 
regulated markets and 7 stated that it is used on MTFs (63 per cent of MTFs). 
Lastly it is noteworthy that some trading ve nues also have fee structures in place that 
discourage market participants from maintaini ng very high order-to-execution ratios.  The 
driving force behind these fee structures appear s to be the additional bandwidth requirements 
that are associated with high levels of cancelled orders rather than specific concerns about the 
potential adverse impact on the market and ot her market participants of high order-to-
execution ratios. However, to the extent that high order levels could create infrastructure 
challenges to the market’s data ha ndling capabilities such levies ar e a useful tool to ameliorate 
this form of systemic risk. 
In the following paragraphs, we describe arra ngements that are currently in place at the 
London Stock Exchange and Euronext LIFFE. 
London Stock Exchange    
The current London Stock Exchange (LSE) Trading Services Price List specifies an “order 
management surcharge” that appl ies in certain circumstances.284  The surcharge applies if the 
number of order events (defin ed as order entry, order modi fication and order deletion) per 
executed trade exceeds specified limits.  The applicable limits depend on the index in which a 
 
 166    security is listed and a different limit appl ies for Exchange Traded Funds (ETFs) and 
Exchange Traded Products (ETPs).  The fo llowing table shows the applicable limits. 
– TABLE 16:  Order events per trade limits at LSE 
Security Number of order events per electronic trade permitted 
before order management surcharge payable 
FTSE 100 and FTSE 250 Index securities 500 
Exchange Traded Funds and 
Exchange Traded Products 200 
All other securities No order management surcharge 
Source:  LSE (2011), “Trading Services (On- Exchange and OTC) Price List with  Effect From 1 April 2011”, Page 4 
The surcharge is 5p, except for qualifying order events in ETFs or ETPs which have a charge 
of 1.25p.  To qualify for the lower surcharg e available for ETFs and ETPs, “order book 
trading by the member firm must exceed £500 m illion by value or 10 per cent of the order 
book value traded in the product group over the billing period”.285 
The surcharge is assessed separa tely for each member firm in each  segment (i.e. each division 
of the market) on a da ily basis, with the exception of ETFs  and ETPs which are assessed daily 
for each member firm in each product group (i.e. ETFs or ETPs). 
NYSE LIFFE 
NYSE LIFFE applies an order-to-trade ratio ba sed bandwidth usage charge in relation to 
Euribor, Short Sterling and Euroswi ss Interest Rate Futures Contr acts.  The charge applies to 
all Individual Trading Mnemonics (“ITMs”) wi th the exception of Desi gnated Market Making 
ITMs. 
Charges do not apply to the firs t 5,000 order entries, modifica tions or deletions made by an 
ITM in each of the contracts.  If this limit is  exceeded in a single trading day, an order-to-
trade ratio of 2:1 applies and any order events that exceed the 2:1 ratio are charged at 17.5p. 
For all other products, NYSE LIFF E allocates bandwidth limits to each Member.  If these 
daily individual limits are exceeded the per-m essage charges shown in Table  are applied.  
– TABLE 17:  NYSE LIFFE charges for exceeding bandwidth limits 
Up to message allocation No charge 
Between 100% and up to 110% of message 
allocation £0.070 
Above 110% and up to 120% of message 
allocation £0.140 
Above 120% of message allocation £0.175 
 Source:  NYSE LIFFE “European Markets Subscriptions, fees and charges 2011”, Page 17 
15.2.5.  Increase trade transparency for market participants 
Concerning the costs and be nefits associated with the preferred options in the area of equity 
pre-trade transparency, the proposals mainly clar ify the status quo and seek to ensure uniform 
application of the waivers via a reinforced pr ocess involving ESMA. No incremental costs are 
 
 167    thus expected except for possible unquantifiable costs in terms of reduced information flows 
and a potential loss of liquidity from the obligation to make actio nable indications of interest 
(IOIs) pre-trade transparen t on a par with other orders, as ma rket participants could choose to 
use IOIs with less information, so as to avoi d their IOI being classed as actionable. Regarding 
post-trade transparency, system costs related to shorter publication delays seem to be 
insignificant according to the majority of market  participants. However, costs caused by firms 
having a shorter time to unwind a risky positio n might be substantial and would be passed on 
to clients. 
The costs of extending the equities-transparency  regime to shares traded only on MTFs or 
organised trading facilities is not expected to generate significant costs as MTFs are already 
expected to possess and disclose this information.  In addition some of the primary MTFs (e.g. 
AIM and First North) already ap ply the equity transparency re gime to their market. However 
we have taken a prudent approach and derived the possible cost impact from the overall one-
off implementation costs of the equity transpar ency regime when MiFID was first introduced. 
As per their past work on the FSAP Cost of  Compliance study, Europe Economics estimated 
the one-off cost of the IT and systems necessary  to support transparency requirements cost the 
financial services industry about €100 million in respect of equity trading under MiFID. The 
population of shares traded only on MTFs is dw arfed by the trading of shares on regulated 
markets. Europe Economics estimates that the volume of trading of shares only admitted to 
trading on MTFs is substantially below one cent of the existing vol ume of equity traded286. As 
a result, we consider a further one-off cost of around €2 million to be a reasonable estimate 
(2% of the one-off costs of the introduction of the initial equity regime). The incremental on-
going cost is estimated at about €0.4 milli on (being 20 per cent of the one-off cost). 
*** Concerning wholly new pre- and post-trade transpar ency requirements fo r non-equities, it is 
not possible to make complete cost-benefit asse ssments at this stage, as these will largely 
depend on the detailed requirements in terms of de lays and content by ty pe of instrument and 
venue to be developed in impl ementing legislation. However, some presumptive assessments 
can be made.  
The introduction of a transparen cy regime for non-equities is e xpected to generate overall 
one-off costs of €5.5 million to €9.2 million w ith yearly ongoing cots of €8.8 million to 
€12.7million.  
– TABLE 18 : Summary of estimated compliance costs to increase 
trade transparency for MTFs and market participants  
Costs (€000s) Pre-trade  Post-trade Total 
MTFs    
One-off €400 - €800 €400 - €800 €800 - €1,600 
On-going €160 - €320 €160 - €320 €320 - €640 
Market participants     
One-off €597 - €1,029 €4,124 - €6,574 €4,721 - €7,603 
 
 168    On-going €4,056 - 
€5,256 €4,518 - €6,838 €8,574 - 
€12,094 
Total    
One-off €997 - €1,829 €4,524 - €7,374 €5,521 - €9,203 
On-going €4,216 - 
€5,576 €4,678 - €7,158 €8,894 - 
€12,734 
Overall, the indirect benefits of improving pre- trade data flows in non-equity markets in terms 
of more efficient price forma tion, increased competition among dealers and grea ter certainty 
for investors in contrast to th e present context of available da ta across non-equity products is 
difficult to judge. Concerning th e requirement to publish pre-tr ade information on available 
and actionable trading interest  in a continuous manner, signi ficant compliance costs are not 
expected for venues which operate order-driven  trading systems which publish or at least 
possess the data in the required sense already.  Costs for venues which operate request-for-
quote or similar systems are estimated at between €400,000 and €800,000 in terms of total one-off costs and on-going costs of between €16 0,000 and €320,000 per year for all of the 46 
MTFs active in non-equities today in terms of extending data publication systems to meet the 
more stringent requirements. As for requiremen ts for investment firms to make their OTC 
quotes public, this implies mark et participants will  be required to conn ect to a platform 
through which such prices can be disseminated. Hence it is likely th at the main costs to 
market participants will be eith er in linking their automated pric ing engines to the platform, or 
establishing manual feeds. One-off costs would range from €597,000 to €1 million and 
include the cost of developing f eeds for dealers with automated pricing systems (estimated at 
between one and two weeks IT time per firm, for 88 firms)
287 and setting up secure 
connections for smaller firms with manual pric ing (estimates at betw een three days and 1 
week per firm, for 176 firms).288 It should be noted that these figures refer only to dealers in 
bond and derivative markets (as they are the ones affected by pre-trade transparency), 
ignoring the buy-side. We estimate that in th ere are 54 large and medium dealers in bond 
markets and 34 in derivatives (giving 88), a nd 100 smaller dealers in bonds and 76 smaller 
dealers in derivatives markets (including commodities). On-goi ng costs would range from €4 
million to €5.2 million and include maintenance a nd support of data feeds for large firms, and 
costs of manually entering pricing information fo r smaller firms (estimat ed at between 1 and 
1.5 hours a day per firm, across 176 firms). 
– TABLE 19: Costs to MTFs of increasing pre-trade price 
transparency  
Costs to MTFs (€000s) Low High 
Building on RFQ regime     
One-off costs €400 €800 
On-going costs €160 €320 
 
– TABLE 20: Costs to market participants trading in bonds and 
derivatives OTC of a central RFQ pre-trade regime 
 
 169    Costs of RFQ system for whole OTC market 
(€000s) Low High 
Dealers with automated pricing systems   
One-off costs €191 €383 
On-going €1,856 €1,951 
Dealers with manua l pricing     
One-off costs €405.57 €647 
On-going €2,200 €3,305 
Total one-off €597 €1,029 
Total on-going €4,056 €5,256 
Increasing post-trade transparency requirement s for regulated markets is unlikely to be 
significant in cost terms. Post-trade transparen cy requirements for MT Fs would be somewhat 
different as these platforms in general do not currently disseminate post-trade information on 
a multilateral basis (very often only the partie s to the trade are able to access such 
information). Costs to market participants va ry according to whether they would be large 
enough to link their trading systems directly to re porting platforms, of if they will have to 
enter trade information manually. Whilst infrastr ucture needed for diff erent products will be 
similar (e.g. bonds, structured finance products and derivatives), it is likely that separate 
systems will have to be developed for each. Furt hermore, reporting of de rivatives is likely to 
be more complex, leading to higher costs. Th e table below summarises the potential costs to 
both trading platforms and market participan ts in the three different product markets. 
In terms of compliance costs ar ising from post-trade transparen cy requirements, one-off costs 
across all 46 MTFs289 offering trading in non equity in struments are expected to range 
between €400,000 and €800,000 and on-going costs of  IT maintenance to range between 
€160,000 and €320,000 per year.  
For market participants required to develop data feed s from their front office systems to data 
platforms, one-off cost estimates for the w hole industry for all types of non-equity 
instruments (bonds, structured products, and derivatives) range from €4.1 million to €6.6 
million with on-going costs estimated at €4.5-6.8 million per year.  
• TABLE 21: Summary of estimated post-t rade transparency compliance costs  
for MTFs and market participants   
Costs (€000s) Bonds  Structures 
products Derivatives Total 
MTFs     
One-off €226 - €452  €174 - €348 €400 - €800 On-going €90 - €181  €70 - €139 €160 - €320 
 
 170    Market participants       
One-off €1,208 - 
€1,967 €1,208 - €1,967 €1,708 - 
€2,640 €4,124 - €6,574
On-going €1,476 - 
€2,330 €1,476 - €2,330 €1,566 - 
€2,178 €4,518 - €6,838
One-off costs across MTFs offeri ng trading in bonds (approximatel y 26) are expected to range 
between €226,000 and €452,000 and on-going costs of  IT maintenance to range between 
€90,000 and €181,000 per year. One-off cost estimates for MTFs offering trading in derivatives (approximately 20) would range  from between €174,000 and €348,000, with on-
going costs of between €70,000 and €139,000 per year.  
In the case of bonds, one-off cost estimates for ma rket participants range from €1.2 million to 
€1.9 million
290, with on-going costs ranging from €1.4 to €2.3 million per year.  
– TABLE 22: Costs to market participants of post-trade reporting  
Costs to market participants (€000s) Low High 
Firms with automated reporting   
One-off costs €975 €1,599 
On-going  €226 €452 
Firms with manual reporting     
One-off costs €233 €367 
On-going291 €1,250 €1,878 
Total one-off €1,208 €1,967 
Total on-going €1,476 €2,330 
We assume that similar additi onal one-off and ongoing costs to market participants would be 
required for structured fina nce products as for bonds.  
In the case of derivatives, we assume that th e process for post-trade re porting will be similar 
as for other non-equity products (in terms of time required to develop data feeds or manually 
enter trades), but that the time required would be greater due to  the additional complexity of 
derivative products. Estimates obtai ned from a post-data publishing  service for equities entail 
between 1 and 1.5 years of project time across the major firms to develop the data feed, as 
well as costs to the wider industry of adapti ng the feed protocols to their own systems 
(between 3 and 6 weeks IT tim e). On-going costs include IT maintenance and the costs to 
smaller dealers of manually entering trade de tails (assumed at between 1.5 and 2 hours a day 
per firm).292 One-off costs range from €1.7 to €2. 6 million, with on-going ranging from €1.5 
to €2.1 million per year.  
 
 171    – TABLE 23: Costs to market participants trading in derivatives of 
post-trade reporting 
Costs to market participants (€000s) Low High 
Firms with automated reporting systems   
One-off costs €1,530 €2,361 
On-going €139 €278 
Dealers with manual systems     
One-off costs €177 €279 
On-going €1,427 €1,900 
Total one-off €1,708 €2,640 
Total on-going €1,566 €2,178 
As mentioned above, the introductio n of a transparency regime fo r non-equities is expected to 
generate overall one-off costs of €5.5 million to  €9.2 million with year ly ongoing cots of €8.8 
million to €12.7million. This is significantly lower than the overall one-off implementation costs of the equity transparency regime when  MiFID was first introd uced (as per Europe 
Economics past work on the FSAP Cost of Compliance study). The main difference is the 
difference in the step change from existing pr actice implied. Request For Quote systems and 
the automated pricing systems to support RFQ are already in place (at least for larger dealers) 
making incremental costs low. If continuous  pricing was being adopted in pre-trade 
transparency for non-equities th en this would imply a much higher estimate. Another main 
difference is the lower number of participants affected is the non-equi ties markets compared 
to equities markets.  
*** The one-off compliance costs for EU authoris ed firms and APAs of conforming with and 
providing a fully standardised reporting format and content for post-trade data should note 
exceed one quarter of the original investment  in transparency systems when MiFID was 
implemented and are estimated at €30 million. Maintenance may be €3–€4.5 million per year, or 10-15% of this. Finally, co mpliance and operational costs for a commercial consolidator 
are considered to be entirely manageable (they already provi de similar solutions for the 
equities markets). 
Requiring venues and vendors to sell pre-and post -trade data in unbundled form, provided that 
the format and content of trade reports are fully  standardised, may be expected to reduce the 
cost of a European consolidated post-trade da ta feed by 80%, i.e. from €500 to €100 a month 
per user.  
Market data providers have estimated that a tota l fee for a full data set of pre- and post-trade 
data of all EU venues would cost about €500 pe r user per month. This is confirmed by the 
analysis conducted by Pricewater houseCoopers of the cu rrent cost of real time data across 
Europe. The table below shows that the sum of m onthly fees per user a nd per device in order 
to get a complete view of all European equity  markets is €497 at present. In comparison, the 
 
 172    cost of consolidated post-trade data in the US is US$ 70 (around €50) per user per month 
although it should be noted that  there are significant differences between the European and 
US market data regime (e.g. a competitive m odel in Europe compared to a monopoly in the 
US, a much higher number of trading ve nues and shares traded in Europe). 
– TABLE 24: Cost of Real-time data per user per month  
 Tradin g Venue Cost of Real-time L1  
BOAT € 40.00 € 40.00 (for Systematic Internalisers and Investments firms 
reporting to BOAT, see Question 1) 
LSE € 30.00 £ 26.51 = € 29.50
ENX Paris € 66.00 € 59.00  + € 7.00 for MiFID OTC = € 66.00
Xetra € 56.00 € 56.00 for Xetra and all German Re gionals
Chi-X € 0.00 € 0.00
Mercado € 13.00 € 13.51
Italy € 12.00 € 12.00
ENX Amsterdam € 0.00 Covered b y Euronext fee above
Stockholm € 22.00 € 22.00 for Nasda q OMX Nordic Data
BATS € 0.00 € 0.00
Turquoise € 0.00 € 0.00
Stuttgart € 0.00 Included in the packa ge for Xetra and German Re gionals data 
Helsinki € 0.00 Included in the packa ge for Nasda q OMX Nordic data
Copenha gen € 0.00 Included in the packa ge for Nasda q OMX Nordic data
ENX Brussels € 0.00 Covered b y Euronext fee above
Nasda q OMX Eur. € 0.00 € 0.00
Frankfurt € 0.00 Included in the packa ge for Xetra and German Re gionals data 
Athens € 7.00 € 7.00
Warsaw € 30.00 € 30.00
Vienna € 33.00 € 33.00
ENX Lisbon € 0.00 Covered b y Euronext fee above
Plus € 17.00 £ 15.00 = € 16.68
SIX Swiss € 10.00 CHF 15.00 = € 10.00
Liquidnet € 0.00 Included in BOAT data
TLX € 4.00 € 4.00
Irish € 12.00 € 12.00
Buda pest € 10.00 € 10.00
Johannesbur g € 16.00 $ 22.25 = € 16.00
Prague € 10.00 € 10.00
POSIT € 0.00 Included in BOAT data
NYSE Arca € 0.00 € 0.00
Burgundy € 0.00 € 0.00
Duesseldorf € 0.00 Included in the packa ge for Xetra and German Re gionals data 
Oslo € 42.00 NOK 342.00 = € 42.00
Smart pool € 0.00 Included in Euronext OTC data
Nomura NX € 0.00 Included in BOAT data
Munich € 0.00 Included in the packa ge for Xetra and German Re gionals data 
Hambur g € 0.00 Included in the packa ge for Xetra and German Re gionals data 
Xetra Intl Mkt € 0.00 Included in the packa ge for Xetra and German Re gionals data 
Bucharest € 10.00 € 10.00
Cyprus € 0.00 € 0.00
Berlin € 0.00 Included in the packa ge for Xetra and German Re gionals data 
Tallinn € 19.00 Nasda q OMX Baltic € 19.00
Equiduct € 0.00 € 0.00
Ljubjana € 0.00 € 0.00
Vilnius € 0.00 Alread y included in Nasda q OMX Baltic
Hannove r € 0.00 Included in the packa ge for Xetra and German Re gionals data 
Nordic Growth € 0.00 € 0.00
Bulgaria € 0.00 € 0.00
Luxembour g € 30.00 € 30.00
BlockCross € 0.00 € 0.00
Riga € 0.00 € 0.00
Bratislava € 8.00 € 8.00
Total € 497.00   
 
Source: PwC (2010), based on Thomson Reuters data 
If consolidated trade data were unbundled, we would expect that th e post-trade bundle would 
be available at less than half of the cost of the full consolidated tape. The rationale for this 
view is a comment reported in the PwC report th at from an exchange perspective “the value 
of a post-trade piece of the bundle is a smaller pe rcentage than the pre-trade”. The view is 
further supported by the fact that NYSE Eur onext, one of the few exchanges to offer 
unbundled data, charges €90 per month fo r its full order book bundled data.293 If this 
 
 173    difference held across trading venues, consolid ated post-trade data would be available at 
approximately 18 per cent of the cost of the fu ll consolidated tape. This means that requiring 
venues and vendors to sell pre-and post-trade data in unbundled form, provided that the 
format and content of trade reports are fully st andardised, may be expect ed to reduce the cost 
of a European consolidated pos t-trade data feed by about 80%, i.e. from €500 to €100 a month 
per user. However, the number of users and th e extent to which each is buying multiple data 
feeds are not known. An aggregated figure for th is potential saving is no t therefore calculable. 
However, by way of an illustration only, if  each firm authorised to conduct execution 
activities on average had one us er buying all tapes (or enough users each  buying one tape to 
achieve the same effect) this would mean 5,700 buyers of the consolidated tape now — on 
these heroic (but not wholly unreasonable) assumptions, the potential saving would be €27.9 
million per annum. 
15.2.6.  Reinforce regulators' powers and consistency of supervisor y practice at European 
and international levels 
The oversight of positions in derivative market s takes place in a number of jurisdictions both 
within and without the EU. A lthough position management is largely limited to commodity 
derivatives, some exchanges dealing with othe r derivatives also have the ability to set 
limits.294 Regulatory oversight of positions is mandated by the competent authority but 
usually carried out either  wholly or partially by the exchanges or MTFs  that offer derivative 
contracts. 
The table below summarises Europe Economics research into the use of position oversight 
among exchanges within and without the EU, i ndicating whether firm position limits or more 
flexible management is used, and whether the main rationale behind the oversight is the 
orderly functioning of the market (e.g. preven ting settlement squeeze and market abuse) or 
controlling excessive speculation. 
– TABLE 25: Position oversight in EU and Third Country 
Jurisdictions   
Country Main exchange and derivative 
products Position oversight Rationale 
Belgium NYSE Euronext. Liffe: 
agriculture, ETF and stocks  Firm position limits and 
flexible management. Market 
functioning 
France NYSE Euronext. Liffe: stocks 
and stock indexes  Firm position limits and 
flexible management. Market 
functioning 
Germany Eurex: agriculture, precious 
metals, energy and financial products; European Energy Exchange: natural gas, coal, power. Firm position limits for 
physically settled contracts. Position management for cash-settled. Market 
functioning 
Italy Borsa Italiana: stock and stock 
index futures and options No firm limits; flexible 
management. Market 
functioning 
 
 174    Spain Mercado Español de Futuros 
Financieros: government bonds, stocks and stock indexes  Firm position limits Market 
functioning 
UK NYSE Euronext. Liffe: 
agricultural; LME: metals; ICE Futures: mainly energy; EDX: equity and deposit receipt options and futures; European Climate Exchange: CO2 No firm limits; flexible 
management. EDX has provision for the use of limits but does not apply them. Market 
functioning 
    
Argentina ROFEX: agriculture, foreign 
exchange and interest rate  Firm position limits for all 
contract types (e.g. financial as well as agricultural derivatives) Market 
functioning 
Australia Australian Securities 
Exchange: equity, interest rate, energy and agriculture  Firm limits for options only Market 
functioning 
Brazil Brazilian Mercantile and 
Futures Exchange: agricultural, precious metal and financial products Firm limits  None given 
Canada ICE Futures Canada: 
agriculture Firm limits. Exemptions 
based of CFTC regulations. None given 
China Shanghai Futures Exchange: 
metals, rubber and oil  Firm limits on speculative 
positions Market 
functioning and excessive speculation 
Japan Tokyo Commodity Exchange: 
precious metals, rubber, aluminium and oil. Firm limits Excessive 
speculation  
US ICE US, Chicago Mercantile 
Exchange, NYSE Liffe, CBOT,  Position limits imposed by 
CFTC in agriculture markets. To be extended to energy and metals  Market 
functioning and excessive speculation 
Source: Desk-based research of regulator a nd exchange websites and interviews with EU 
exchanges 
The use of market surveillance for preventi ng market abuse and en suring orderly markets 
among other trading platforms is less widesp read. Research conducted by PwC and Europe 
Economics suggests that multilateral trading facil ities (MTFs) are required to undertake some 
trade monitoring to combat market abuse, but that position limits are not used, not is any 
 
 175    regular position reporting on the part of trader s required. Other electr onic trading platforms 
that are not authorised MTFs (and which repr esent OTC trades) do not appear to apply any 
market monitoring.  
The table below presents a summary of the main MTFs and electronic trading platforms 
offering trading in derivatives. According to PwC research, th ere are 29 derivative MTFs (13 
offering trading in commodity de rivatives and 16 in financial de rivatives). The same research 
estimates approximately ten electronic platforms that are not regulated as MTFs (although this 
figure could be larger if all larger banks’ electronic trading facilities are considered as 
electronic platforms). 
– TABLE 26: Market surveillance by MTFs and electronic platforms  
MTF/Electronic 
platform Country Instruments Position 
reporting Trading 
oversight 
Euronext Liffe Bclear Equities  UK Equity 
derivatives Yes  Same as Liffe 
exchange 
Euronext Liffe Bclear Commodities UK Commodity 
derivatives Yes Same as Liffe 
exchange 
ICE Creditex (MTF) UK CDS None  Monitoring of 
unusual trades 
ICE Energy UK Energy 
derivatives  Yes Position 
oversight similar to ICE exchange 
Powernext (MTF) France Energy 
derivatives  None apparent  None apparent  
Bluenext OTC 
(MTF) France CO2 None apparent  None apparent  
Tradeweb (MTF) UK Equity, interest 
rate and credit derivatives Trade logs 
available to the FSA but no official reporting obligation. Monitoring of 
unusual trades 
Bloomberg SwapTrader US Interest rate 
derivatives None apparent   
ICAP 
ETC/Brokertec platform (MTF) UK CDS None apparent  None apparent 
Source: PricewaterhouseCoopers (2010)  and Europe Economics research 
 
 176    Given the current level of position oversight w ithin the EU taking place through exchanges as 
per noted above, the additional impact of competent authorities being empowered to perform additional oversight is unlikely to  be significant. All Member St ates that authorise the main 
derivative exchanges, both those offe ring contracts in commodity derivatives
295 and financial 
derivatives296, mandate a degree of position oversight, either through setting and monitoring 
position limits, or operating more flexible positi on management that requires traders and end 
clients to provide continuous information about position levels.  
Stronger position oversight by competent aut horities of trading undertaken away from 
regulated markets, such as on MTFs and over th e counter, is likely to have a greater impact, 
as it appears that the reporting of informati on is not currently mandated through these trading 
venues or practices. For these MTF platforms that do not, we estimate on-going costs to be 
between €1.6 million and €3.1 million per year across the EU297.  
If all members of MTFs and electronic platforms are required to submit additional 
information about the contracts they enter in to then the on-going costs of doing so could 
range between €444,000 and €889,000 per year.298 Note that we only consider traders in non-
commodity derivative markets, as those in co mmodity markets will already be subject to 
position reporting under the section relation to commodity derivatives markets.299 300. 
The costs of implementing a system of ex ante  hard position limits will depend on the nature 
of what is currently undertaken by exchanges and other trading platforms. We assume that the 
incremental costs to exchanges of a requirement to set position limits will be negligible. This 
is because many exchanges already apply lim its, and those that do not already have 
sophisticated position management systems wh ich could adapt to th e introduction of limits. 
However, costs for other trading platforms, such  as MTFs and electronic platforms, will be 
higher. The costs to trading pl atforms of setting and monitori ng position limits would depend 
on whether existing market surveillance system s are in place. We know  that MTFs already 
undertake some monitoring of trades to combat market abuse. Additional costs of monitoring 
position limits would therefore include one-off co sts of setting up auto mated warning systems 
to monitor and warn against position levels , and on-going costs of  IT support and staff 
oversight. In the case of MTFs we estimate one-off cost to range from €2 million to €3 million, and on-going costs to be be tween €3.7 million to €7 million a year
301. In the case of 
electronic platforms where no surveillance sy stems are currently in place costs will be 
significantly higher, with one-off costs ranging from €6 million to €10 million, and on-going 
costs from €3.8 million and €9 million a year across the EU.302 This gives us for both MTFs 
and other electronic platforms consolidated one -off costs ranging from €8.2 million to €12.9 
million, and on-going costs to be between €7.5 million to €16.3 million a year. 
The table below summarises the costs of stronge r position oversight (inc luding the setting of 
position limits) for trading platforms other th an exchanges and ma rket participants: 
– TABLE 27: Costs of stronger oversight of positions   
Costs to MTFs, EP*s and market participants (€000s) Low High 
Requesting information on positions      
On-going costs for platforms €1,560 €3,120 
On-going costs for market particip ants (reporting traders only) €353 €588 
 
 177    On-going costs for market participants €444 €889 
Setting and monitoring positions limits (MTF)     
One-off costs €2,175 €2,900 
On-going costs €3,698 €7,250 
Setting and monitoring position limits (Eps)     
One-off costs €6,000 €10,000 
On-going costs €3,800 €9,000 
Total one-off costs €8,175 €12,900 
Total on-going costs €9,502 €20,259 
* Electronic platforms 
In conclusion, the costs of stronger oversight of positions, including the setting up of position 
limits, for both trading platforms and market pa rticipants are estimated to be between €8.2 
million and €12.9 million for one-off costs, and on-going costs to be between €9.5 million to €20.2 million a year. 
15.2.7.  Reinforce transparency towards regulators 
The scope of transaction reporting currently varies across the EU303. Only four countries 
collect OTC derivatives data (UK304, Ireland, Austria and Spain)305. In terms of instruments 
traded only on MTFs various Me mber States apply transacti on reporting already: Belgium, 
Denmark, Germany, Greece, Finland, Ireland, Romania and the UK. 
Based upon the above, and combined with estimates  of the number of tr ansactions currently 
within the transaction reporting regime, Euro pe Economics estimates the current annual 
recurring cost to firms of transaction re porting to be in the order of €55–€90 million.306 
Breaking this down, they estimate that about 20 per cent of this relates to on-going IT 
expenditure and about 55 per cent  being the labour i nput (put another way,  they believe that 
about 300–390 FTEs work on transaction reporting activity across the EU  at present). The 
remaining costs relate to data cleaning, payments to ARMs a nd so on. Again, based on their 
past work on the FSAP Cost of Compliance study,  they believe that th e cost of originally 
implementing the MiFID transaction reporting regime may have been at least €100 million 
across the EU.  
The extension of transaction reporting to instru ments only traded on an MTF or an organised 
trading facility would not significantly increa se the volumes of transactions processed, 
because the population of instruments traded on ly on an MTF is dwarfed by the trading of 
instruments traded on a regulated market anyway  and in some Member States, in particular 
the UK, have already mandated that instrume nts only traded on an MTF are transaction 
reported. On this basis, Europe Economics es timates the incremental change in volume of 
transactions to be less than 0.2 per cent of that currently processed307. As a result they 
calculate that the incremental recurring costs woul d be relatively trivial, perhaps as low as 
€0.1 million across the EU. The one-off cost s hould be reasonably low assuming that firms 
 
 178    would be able to achieve the necessary implem entation changes using internal IT department 
resources and would involve bui lding upon existing systems rather  than developing new ones. 
They expect that the one-off cost for set-up would be €0.7–1.1 million across the EU308 
The costs for including OTC instruments an d commodity derivatives would be more 
substantial. Notwithstanding that these are ca ptured for transaction reporting purposes by 
some Member States already (notably the UK and Spain which are estimated to account for 
76% of OTC trades within the EU309). This change could give rise to an estimated one-off 
cost of €43.8–€53.9 million, based on total numb er of derivatives dealers of 250 and an 
investment of between €60,000 and €1.75 milli on depending on the size of the dealer.310After 
taking into account those transact ions already reported, the volum e change of transactions to 
be processed would again not be very significant311. However but we understand that OTC 
derivatives may have additional complexities a nd (to the extent that transaction reporting is 
not everywhere yet) may have higher error rate s (e.g. due to the front-office) relative to 
equities. Hence we estimate the on-going cost to be €0.5–€0.7 million. If foreign exchange derivatives and credit derivatives that are relate d to an index (rather than a single issuer) are 
also brought within the scope of transaction reporting, we estima te the incremental set-up cost 
of this to be 10–15 per cent of the one-off costs described above, i.e. €4.4–€8.1 million. This 
is a little below the proportion of trades of th is type relative to t hose captured above — we 
assume some positive learning effect from th e implementation of single issuer credit 
derivatives. In this case, the on-going cost  would increase by a further €0.1–€0.2 million per 
annum
312. 
Turning to commodity derivatives, we apply comparable assumptions to those for OTC 
derivatives. We estimate that there are about 3.1 million commodity derivative transactions in 
the EU per annum.313 This gives us on-going costs of €0.4–€0.7 million.314 We have assumed 
that the one-off investment re quired would be: that 400 (thi s is higher than the assumed 
participants on financial derivatives to refl ect the specialist firms active in only some 
commodity markets) smaller ma rket participants would in vest €20–€25,000, 36 would invest 
€75,000-€100,000 and the largest around €0.4–€0.5 m illion. The product of these would be 
incremental one-off costs of €16.0–€19.9 million. This  is about 40 per cent of the equivalent 
figure for other (non-co mmodity) derivatives. 
However, it should be borne in mind that thes e costs result from a st raightforward extension 
of existing MiFID provis ions. However, these costs will vi rtually disappear when reporting 
requirements under EMIR meet the requirements of transaction reporti ng under MiFID. As a 
result, trade repositories can be approved as A pproved Reporting Mechanism. In that case, the 
waiving of a MiFID reporting ob ligation where an OTC trade ha s already been reported to a 
trade repository would allo w the saving of the majority of th e costs that would be associated 
with a straightforward extension of the transaction reporting regi me to OTC derivative trades 
described above (and indeed sa vings related to OTC derivativ e reporting that is already 
conducted in the UK and elsewhere). 
Data on the number of transactions in depositary  receipts are not readily available. However, 
the number of depositary receipts traded (i.e. wh ich is clearly a higher figure than the number 
of transactions in depositary  receipts, since each transactio n will include at least one 
depositary receipt) per annum in the EU and the value of that trading is better established,315 
being about 1 to 1.5 per cent of the equivalent figures for equity  trading. With this as our 
guide we estimate the recurring cost of extendi ng the regime to depositary receipts to be 
€0.5—€1.3 million (i.e. about 1-1.5 per cent of the current cost of transaction reporting). 
Again, we assume that one-off cost for set-up w ould be relatively low, and we estimate the 
costs as being equivalent to those required to bring MTF-onl y financial instruments into 
 
 179    scope: we believe €0.7–€1.1 million across affected firms to be a realistic estimate (again, we 
assume that this would involve building on existing systems rather than developing new 
ones). 
Overall the extension in scope of transaction reporting is estim ated to generate incremental 
one off costs ranging from €65.4 to €84.1million and yearly ongoing costs from €1.6 to €3.0 
million: 
– TABLE 28: Costs for extending the scope of transaction reporting  
Transaction reporting (€ millions)
low high low high
Extension to MTFs 0,7 1,1 0,1 0,1
Extension to OTC derivatives, excl. commodity derivatives 48,2 62,0 0,6 0,9
Extension to commodity derivatives 16,0 19,9 0,4 0,7Extension to depositary receipts 0,7 1,1 0,5 1,3
Total transaction reporting costs 65,4 84,1 1,6 3,0TOTAL INCREMENTAL COSTS
one-off on-going
 
The bulk of these costs relates to the ex tension to OTC instruments and commodity 
derivatives. However these costs will virtuall y disappear when reporting requirements under 
MiFID and EMIR are harmonised and trade repositories will be approved as Approved Reporting Mechanism.  
The costs associated with intr oducing a transaction reporting oblig ation on regulated markets, 
MTFs and any organised tradi ng facilities that offer access to firms not authorised as 
investment firms or credit institutions (see A nnex 9.4.(a)) have been subsumed within the 
above figures. We do not have data on the sub- set of trades that th is group of firms are 
responsible for. 
The cost of a requirement to store order data for five ye ars cannot be eas ily estimated. 
However, it appears to be standard practice for su ch data to be stored for some period. Indeed, 
interviews carried out by Europe Economics with  some trading platform s indicate that they 
have already in place order data storage capability in place. However we cannot assume this is universal practice and the retention period might differ as well. Hence, some marginal data 
storage cost could be implied. If we assume that a transaction has a storage size of 15–20kb 
(say equal to a small Microsoft excel spreadsheet, which appears a conservative estimate) then the cost of storing for five years all the transactions (note: tran sactions are used as a 
proxy for orders) that would be within the new scope of trans action reporting would be €1.2–
2.3 million per annum.
316 However, as we have noted, so me storage is standard practice 
already so the incremental would be below this level. We adopt addition al four years storage 
as a guiding assumption, giving €1–€1.9 million as the implied on-going incremental cost. 
 Third party transaction reporti ng is already being conducted through ARMs, notably in one 
large Member State i.e. the UK. This opti on will seek to harmonise the framework under 
which they operate and ensure oversight. The costs are therefore likely to be limited. 
15.2.8.  Increase transparency and oversight of commodity derivatives markets 
Set up a system of position reporting by catego ries of traders for or ganised trading venues 
trading commodities derivatives contracts 
 
 180    The introduction of position repo rting by categories of traders would entail costs for both the 
trading venues and the market participants wh ich overall are estimated at between €0.8 and 
€1.0 million for one-off costs and between €3. 3 and €3.8 million as yearly ongoing costs. 
Europe Economics estimates there to be in to tal 15 commodity derivative exchanges in the 
EU, with those not listed below being smaller ex changes in countries such as Romania, the 
Czech Republic, Hungary and Slovakia).317 The main commodity derivatives regulated 
markets in the EU have already some form of position reporting and/or oversight in place (see 
table 29). The degree of trading and position ov ersight, including posit ion reporting, among 
MTFs (see table 30), is less clear. However, it is likely that the majority do undertake some 
level of general trading oversight  to combat market abuse.  
– TABLE 29: Main commodity derivative exchanges and position 
reporting requirements 
Exchange Country  Position Monitoring Members 
regularly submit position reports Respond to 
requests for information, including positions 
Bluenext - CO2 France Position management Not explicit Yes 
Eurex - agriculture, precious metals, energy and financial products. Germany Firm position limits for 
physically settled contracts. Position management for cash-settled. Yes Yes 
European Energy 
Exchange Germany Firm position limits for 
physically settled contracts. Position management for cash-settled. Yes Yes 
ICE Futures Europe- 
energy, CO2* UK No firm limits except for 
contracts linked to US; otherwise flexible management. Yes Yes 
LME - metals UK No firm limits; flexible 
management. Yes Yes 
Mercado Español de 
Futuros Financieros - energy, government bonds, stocks and stock indexes  Spain Firm position limits Yes Not explicit 
NYSE Euronext Liffe 
London - agricultural UK No firm limits; flexible 
management. Yes Yes 
 
 181    NYSE Euronext Liffe 
Paris - Agricultural; stocks and stock indexes France Firm position limits and 
flexible management. Yes Yes 
* Note: CO2 derivatives formally traded through the European C limate Exchange, now 
owned by ICE 
Source: Research into website s and rulebooks of regulators a nd exchanges, and interviews 
with LME, ICE, Liffe and Eurex 
The degree of trading and position oversig ht, including position reporting, among other 
trading platforms such as MTFs is far less cl ear. Interviews with MTFs and research into 
websites and rule books presents (conducted both by Europe Economics and PwC318) suggests 
that these trading platforms do not require any position reporting by members and traders. 
However, it is likely that the majority do unde rtake some level of more general trading 
oversight to combat market abuse. PwC research presents a list of the 29 main MTFs trading 
derivatives in Europe. Of these, 25 are based in the UK where general monitoring of trades 
for market abuse is required.319 The table below presents a summary of the main derivative 
MTFs and electronic platforms and their level of position and trading oversi ght. Note that this 
table includes all main derivative MTFs and electronic platforms, no t just those trading 
commodity derivatives. In addi tion, we do not list all MTFs  trading commod ity derivatives 
(only the main ones for which information a bout position reporting and market oversight is 
readily available). According to  the PwC report there are a tota l of 13 MTFs offering trading 
in commodity derivatives.320 
– TABLE 30: Position oversight on MTFs and electronic platforms  
MTF/Electronic 
platform Country Instruments Position 
reporting Trading 
oversight 
Euronext Liffe Bclear Equities  UK Equity 
derivatives Yes  Position 
oversight similar to main exchange  
Euronext Liffe Bclear Commodities UK Commodity 
derivatives Yes  Position 
oversight similar to main exchange 
ICE Creditex (MTF) UK CDS None  Monitoring of 
unusual trades 
ICE Energy UK Energy 
derivatives  Yes Position 
oversight similar to ICE exchange 
Powernext (MTF) France Energy 
derivatives  None apparent  None apparent  
 
 182    Bluenext OTC 
(MTF) France CO2 None apparent  None apparent  
Tradeweb (MTF) UK Equity, interest 
rate and credit derivatives None Monitoring of 
unusual trades 
Bloomberg SwapTrader US Interest rate 
derivatives None apparent   
ICAP 
ETC/Brokertec platform (MTF) UK CDS None apparent  None apparent 
Source: PwC (2010) and Eur ope Economics research 
If position reporting already takes place (as in  the majority of commodity derivatives 
exchanges) then the additional costs of including  client categorisation will be negligible. The 
only cost that would be incurred would be on the part of the exchanges in compiling a COT report, estimated at about a quarter of a full- time equivalent employee per year. Applying this 
to the 15 commodity regulated markets across the EU
321 gives an on-going cost of €340,000 
per year322. For the members of the regulated market s (reporting traders) , including detail 
about the client categorisation in the existence of  a position-reporting regime  will be trivial, as 
this will only entail an extra field or two in the submission. 
For MTFs it is assumed that systems of positi on management or monitoring already exist, but 
that position reporting is not  included. Additional one-off costs of setting up reporting 
mechanisms for MTFs and electronic platfo rms are estimated at between €130,000 and 
€195,000 across the EU323. On-going costs will be greater, given the staff costs required to 
collate and analyse position information as well  as on-going IT maintenance costs, estimated 
at between €1.8 million and €2.4 million per year across the EU324.  
Costs to market participants (such as the reporting traders) will include the time taken to 
prepare position reports, which will depend on how  automated their systems are. We estimate 
that there are approximately 52 traders325 across the various commod ity derivative MTFs in 
the EU who would be re quired to report positions on behalf on their clients. One-off costs for 
these traders are estimated at  between €624,000 and €780,000, base d on a cost of developing 
reporting feeds of between €12,000 and €15,000 per trader. On-going costs of IT maintenance 
and a small staff cost are estimated at approximately €1.1 million per year.326 
– TABLE 31 : Costs of position reporting and client categorisation  
One-off and on-going co sts (€'000) Low High 
MTF costs   
One-off costs  € 130 € 195 
On-going costs  € 1,833 € 2,360 
Traders    
 
 183    One-off costs € 624 € 780 
On-going costs  € 1,102 € 1,118 
Publishing costs (exchanges that al ready require position reporting)   
On-going costs  € 340 € 340 
Total one-off  € 754 € 975 
Total on-going  € 3,275 € 3,818 
Review exemptions for commodity firms to excl ude dealing on own a/c with clients of the 
main business and delete the exempti on for specialist commodity derivatives   
Regarding the review of the exemptions, the number of firms benefiting from the MiFID 
exemptions under Articles 2(1)(i ) and 2(1)(k) is usua lly not known to regul ators because they 
are not usually required  to be authorised.  
However, in the UK the boundaries of regul ation are wider than  those under MiFID. 
Therefore some of the MiFID exempt firms in the UK - essentially trading arms of 
commercial firms who are acting as agent fo r the group - are author ised by the FSA and 
subject to a national regulator y regime. But there are UK fi rms dealing on own account in 
commodity derivatives that are inside the MiFID exemptions and exclusions from UK 
regulation and therefore not authorised by the FSA.  
According to the UK FSA, the number of authorised firms in the UK which undertake 
commodity derivatives business is about 90. Out of these 90 entities approximately 50 are 
regulated as financial firms as they undertake ot her investment services or are active in other 
financial instruments and 40 ar e specialist commodity derivatives firms, i.e. their main 
activity is in relation to commodity deriva tives. The 40 specialist commodity derivatives 
firms consist of 20 MiFID regulated firms an d 20 MiFID exempt firms subject to the UK 
"super equivalent" regime. The MiFID exempt  firms are entities owned by oil and energy 
companies. In most cases they have authorisat ions covering investment  advice, receiving and 
transmitting and execution of client orders. These  services are provided to companies within 
their group who are hedging their underlying  commercial risk. Th e companies who are 
hedging their risk do not have to be authorised in the UK for dealing on own account because 
their trading is done through the regulated en tity in the group. This superequivalent UK 
regime for MiFID exempt co mmodity firms consists of prudential requirements (although 
softer than the Capital Requirements Directive – some firms are only subject to a requirement 
to hold adequate financial resources), simila r MiFID organizational requirements and light 
conduct of business rules (reflecting the fact that  they do not deal with  retail clients) .  
The deletion of the exemption under Article 2(1)(k) for trading on own account and the 
narrowing down of the notion of trading on own account under Articl e 2(1)(i) should not 
impact most of the MiFID exempt commodity  firms the FSA regulates. These are mainly 
exempt by virtue of Article 2(1)(b) because they provide services  within their group. 
Commercial firms dealing on own account through MiFID exempt firms authorised in the UK 
would need to rely on ei ther the exemption under Ar ticle 2(1)(i) and/or Ar ticle 2(1)(d) if they 
were to remain exempt from MiFID. The same is  true for the small number of cases where the 
currently MiFID exempt firm is part of a larger commercial entity rather than being a separate 
 
 184    entity within the group . The impact in practice would de pend upon how narrow the exemption 
for dealing on own account as an ancillary  activity in Article 2(1)(i) became.  
The number of commercial entitie s providing investments services to the clients of their main 
business on an ancillary  activity is not know to the UK FS A as these MiFID exempt entities 
benefit from a domestic exemption as well and do not fall under the scope of the UK super 
equivalent regime. Hence the number of firms possi bly impacted by a strict application of the 
notion of ancillary activi ty cannot be assessed. 
Discussions with industry associations led by Eu rope Economics were inconclusive in this 
matter. Due to the uncertainties regarding the number of firms which might be affected, we have only estimated the costs on a per firm basis. Firms benefitting from exemption under Article 2(1)(k) would be most affected by the proposals, as they would not have the 
possibility of reorganising to reduce or avoid the burden of authorisat ion under MiFID, such 
as may be the case with firms benefitting fr om exemptions under Article 2(1)(i). These 
commodity specialist firms would have to ensure they are aut horised under MiFID and fulfil 
transaction reporting, record keeping and be st execution requirements. Firms which also 
provide ancillary investment se rvices would also have to co mply with Conduct of Business 
rules. Cost estimates for firms complying with MiFID for the first time from the FSA 
(2006)
327 reached median one-off costs of MiFID of around €12,000 for a small firm (defined 
as having up to 100 employees); around €295, 000 for a medium-sized firm (100-5,000 
employees); and just over €8 million for a large firm (over 5,000 employees). The cost to commodity or commodity derivatives trading houses will be lower than this if they do not provide any investment advice but will be a non-t rivial nonetheless.  
Extend the application of MiFID to secondar y spot trading of emission allowances 
Three categories of market players might be impacted by this measure: trading platforms 
offering spot trading in emi ssion allowances, compliance buye rs (i.e. energy and industrial 
companies which have a regulatory obligation to surrender emission allowances per emitted CO2 ton) and market intermediaries offering intermediation services in emission allowances. 
The first category impacted wo uld be trading venues. At present, three major carbon 
exchanges offering spot trading in emission allowances have a status of a regulated market 
and conform to the corresponding requirements se t out in the MiFID. A few other platforms 
are also making preparations to  apply for authorisation as a regulated market in accordance 
with the MiFID – these efforts are made in the context of the Auctioning Regulation
328 and 
the conditions for eligibility that Regulation establishes for candidate exchanges seeking 
appointment as an auction platform. As a resu lt, in the next few years most leading carbon 
exchanges active in the spot segment would anyhow  take steps to become a regulated market 
– irrespective of any changes foreseen to the scope of MiFID. Thus, the application of the 
MiFID to spot trading in emission allowances would predominantly affect smaller trading venues like national or regional energy or comm odity exchanges which consider emissions 
trading as complementary to their main lines of business. The application of the revised MiFID in their case would mean that in order to continue spot trad ing activity they would 
need to make necessary adaptations to their organisation and operations  in order to be in 
position to seek a MiFID authorisation. For the one-off adaptation costs and ongoing compliance costs to be proportionate to the scal e of their activity in the carbon markets, the 
applicant trading venues coul d consider between different types of MiFID authorisation 
available: a regulated market (most comprehe nsive but involving substa ntial costs), an MTF 
and an organized trading facility (most basic and least expensive). At present, the costs of obtaining a MTF authorisation by a trading venue are estimated at €300,000–€400,000 as a 
 
 185    one-off cost and €90–€100,000 on an on-going basis (including market surveillance costs)329. 
The costs of operating as an OTF for such en tities are estimated at €200,000 one-off with €40-
60,000 for on-going compliance per year330. It is worth noting that a number of venues are 
part of wider groups and should be able to leverage experien ce from these. Some are also 
already conducting market surveill ance (one of the major cost dr ivers) and thus may be able 
to incur lower adaptation costs. If we assume that there would be si x smaller trading venues 
that would have to get a Mi FID authorisation (3 MTF licen ces and 3 OTF licences), this 
would give rise to aggregated one-off cost s of € 1.5-€1.8 million (€900,000-€1.2 million for 
the 3 MTFs and €600,000 for the 3 OTFs). The aggregate ongoing co sts would amount to 
€390,000-€480,000 (€270,000-€300,000 for the 3 MTFs and €120,000-€180,000 for the 3 
OTFs). 
The second group impacted would be complia nce buyers. Should trading in emission be 
covered by MiFID, ETS compliance buyers partic ipants may observe an  increase in their 
transaction costs (including any post-trade un it costs). Any such increase, resulting from 
adaptation and new compliance cost s incurred by the trading platforms and – if applicable – 
intermediaries would be passed on to the ul timate buyers and sellers in the spot carbon 
market. At the same time, competition from carbon exchanges already authorised under the 
MiFID and offering spot trading would exert downward pressu re on any such fee increases. In 
addition, a limited number of ETS compliance buyers331 that currently have direct access to or 
membership in a spot carbon exchange may need to consider on a case by case basis 
substantial and occasionally cost ly changes to their organisati on and business model in order 
to continue with any such stat us following the authorisation of the exchange concerned under 
the MiFID. In some cases, such compliance buye rs may no longer be eligible to benefit from 
membership or direct access to the exchange, as  a result of revision of the rules on access and 
membership undertaken by that exchange to conform to the MiFID.  
The last category to be impacted would be ma rket intermediaries. On ly limited cost impacts 
for ETS market intermediaries which are financial market participants should be expected as a 
result of applying MiFID to spot  trading in emission allowances. Such entities have typically 
been covered by MiFID compliance duties before  and have already established arrangements 
and processes involving markets regulated und er the MiFID. The a dditional costs involved 
would be associated with increa sed direct access, membership and transaction fees charged by 
the carbon exchanges as a result of their adap tation and compliance e xpense triggered by the 
MiFID authorisation duty. On the other hand, full alignment of compliance duties across the 
different carbon market segments would allo w financial participants to keep largely 
unchanged own compliance costs associated with their activity on the spot carbon market. 
Finally, a substantial number of intermediaries currently not holding a MiFID authorisation for investment firms
332 would be required to ensure comp liance with applicable organizational 
and operational requirements of th e MiFID and to obtain such authorisati on in order to pursue 
activity in sec ondary spot market for emission allowan ces. The average costs of obtaining a 
MiFID authorisation by an inve stment firm are estimated at around €0.5 – 1.5m one-off cost 
and €150,000 on-going cost per year.333 For smaller firms (revenue lower than €3m) those 
average costs are expected to be significan tly lower at around €100,000 for one-off cost and 
€30,000 for on-going cost per year. 334  
15.2.9.  Broaden the scope of regulation on products , services and service providers when 
needed 
Leave the optional exemptions regime under article 3 for certain investment services 
providers but introduce additional principles for national regimes ai med at tightening and 
 
 186    further levelling investor protection standards acro ss jurisdictions irresp ective of the entities 
providing the services.  
We set out below the available information on th e number of type of firms to whom Member 
States have applied the Article 3 exemption.  
– TABLE 32: Summary of Application of Article 3(1) Exemption  
Member State Scope (services) Scope (instruments)Exempt s ervice 
provider numbers
Austria Both Transferable securities and UCITS 101
Belgium Transmission of orders only 6
Czech Republic Both Transferable securities and UCITS 9,059 investment 
agents (8,826 
individuals, 233 
companies)
France Both na 3,316
Germany Both UCITS only 80,000
Greece Both Transferable securities and UCITS 116 (only 14 
providing investment 
advice)
Ireland Both Transferable securities and UCITS 1,386
Italy Investment advice only na na
Lithuania Both Transferable securities and UCITS 3
Netherlands Both UCITS only 7,250
Poland Both UCITS only 66
Portugal Investment advice only Transferable securities and UCITS 7
Romania Investment advice only na 26  (22 individuals 
and 4 companies)
Slovakia Transmission of orders only UCITS only 2,032 (1913 
individuals, 110 
companies)
Sweden Both Transferable securities and UCITS 575 (only 456 active 
providing investment 
advice)
United Kingdom Both Transferable securities and UCITS 5,161
 
Source: National competent authoritie s and/or Governments, EE analysis. 
The financial information available on the size of  these firms is limited. It is understood that 
the majority are small firms or even individuals . The latest available data indicates that in 
Austria, the average annual reve nue from the relevant services is €105,000; in the UK the 
median firm generated €175,000 (with the av erage firm having re venue of €820,000 with 
some firms clearly well in exce ss of that). Furthermore, in a number of cases investment 
services represent a minority of income (so that , say, in Germany the majority of revenue is 
related to insurance and pension products) 
At table below we describe in summary form the current applicable national regimes in the 
relevant Member States.  
 
 187    – TABLE 33 Summary of Applicable National Regulatory Regimes 
Member State Authoris ationInformation to 
Clients Suitability Inducements Reporting to clients Acting in best 
interest of client
Austria Similar to that 
applicable under 
MiFIDSimilar to that 
applicable under 
MiFIDSimilar to that 
applicable under 
MiFIDSimilar to that 
applicable under 
MiFIDSimilar to that 
applicable under 
MiFIDSimilar to that 
applicable under 
MiFID
Belgium Similar to that 
applicable under MiFIDna na na na na
Czech Republic Similar to that 
applicable under MiFIDSimilar to that 
applicable under MiFIDSimilar to that 
applicable under MiFID, unless only 
providing IA Similar to that 
applicable under MiFIDSimilar to that 
applicable under MiFIDSimilar to that 
applicable under MiFID
France Similarities to that 
applicable under MiFID (fit and proper requirements)Similar to that 
applicable under MiFIDSimilar to that 
applicable under MiFIDSimilar to that 
applicable under MiFIDSimilar to that 
applicable under MiFIDSimilar to that 
applicable under MiFID
Germany Similar to MiFID, and 
proposed amendment to Trade Regulations 
Act will make more 
soGerman court 
decisions and banks for whom acting as 
agents may make 
similar to effect of MiFID but explicit regulation is lackingGerman court 
decisions and banks for whom acting as 
agents may make 
similar to effect of MiFID but explicit regulation is lackingGerman court 
decisions may make similar to effect of 
MiFID but explicit 
regulation is lackingGerman court 
decisions and banks for whom acting as 
agents may make 
similar to effect of MiFID but explicit regulation is lackingGerman court 
decisions and banks for whom acting as 
agents may make 
similar to effect of MiFID but explicit regulation is lacking
Greece Similarities to that 
applicable under MiFID (fit and proper requirements)na na na na na
Ireland Similar to that 
applicable under MiFIDSimilar to MiFID 
except that all clients assumed retailSimilar to MiFID 
except that all clients assumed retailSimilar to MiFID 
except that all clients assumed retailSimilar to that 
applicable under MiFIDAll clients assumed 
retail without categorisation but otherwise application is similar
Italy Similar to that 
applicable under 
MiFIDna na na na na
Lithuania Similar to that 
applicable under MiFIDFully the same as 
MiFIDFully the same as 
MiFIDFully the same as 
MiFID[Fully the same as 
MiFID][Fully the same as 
MiFID]
Netherlands Similar to that 
applicable under MiFIDSimilar to MiFID 
except that all clients assumed retailSimilar to MiFID 
except that all clients assumed retailAll clients assumed 
retail without categorisationSimilar to that 
applicable under MiFIDAll clients assumed 
retail without categorisation but otherwise application 
is similar
Poland Similar to MiFID Almost the same as 
MiFIDAlmost the same as 
MiFIDAlmost the same as 
MiFIDAlmost the same as 
MiFID[Almost the same as 
MiFID]
Portugal Similar to MiFID na na na na na
Romania Similarities to that 
applicable under MiFID (fit and proper requirements)na na na na na
Slovakia Similar to that 
applicable under MiFIDSame as MiFID Same as MiFID Same as MiFID Same as MiFID Same as MiFID
Sweden Similar to that 
applicable under 
MiFIDSame as MiFID Same as MiFID Same as MiFID Same as MiFID Same as MiFID
United Kingdom Same basic 
provisions apply, but may be as guidance rather than rulesSimilar to MiFID 
except that all clients must be assumed retailSame as MiFID, 
unless transmisison and receipt of orders onlyWhere investmnet 
advice is provided, will be aligned post-RDR[Same as MiFID] [Same as MiFID]
 
Source: National competent au thorities and/or Governments, FIDIN, Bundesverband 
Deutscher Vermögenberater e.V, EE analysis. 
As per the tables above, most of the 16 Memb er States that make use of the exemption 
already apply an authorisation pr ocess that is to a certain degr ee similar to the MiFID process. 
We expect that tightening the ru les for receiving an authorisa tion due to the additional time 
needed for completing the author isation process would imply a one-off cost across all of the 
affected service providers in  these countries of €15–30 million.335 
 
 188    As can be seen from the above, where informa tion is available, the applicable regulatory 
frameworks are relatively closely aligned (o r even explicit ly modelled) upon the provisions 
within MiFID, at least as far as the organisa tional and conduct of business rules selected for 
the minimum level of EU regulation are concer ned. The most notable exception to this is 
Germany where in some cases expl icit regulation is l acking (as opposed to th e de facto effect 
of decisions by the German court system). In addition by far the majority of exempt firms (ca 
80,000) are based in Germany so that we assume that 95 per cent of the costs resulting from a 
tightening of conduct of busine ss rules would occur there. We  assume that tightening the 
conduct of business requirements applicable to those firms in national legislation could lead 
to one-off costs equal to 0.45- 0.9 per cent of annual revenues (i.e. estimated annual revenue 
of €3.2 billion). It has to be borne in mind though that work is currently ongoing in Germany 
on a new statute already imposing stricter conduct of busin ess rules on those exempt firms.336 
Therefore, most of the adaptation costs may alr eady be triggered by that new national statute. 
Extend the scope of MiFID conduct of business and conflict of interest rules to structured 
deposits and other simila r deposit based products 
There are a number of forms that structured  products can take (t hese forms are called 
wrappers) such as funds, notes, bonds, certificat es and deposits. Whilst the focus here is on 
deposit-based structured products  (as these currently do not fall within the scope of MiFID), 
much of the market information relates to the structured reta il product industry as a whole. 
The total outstanding amount invested across the EU at  the end of 2008 was €678 billion, 
with total sales for 2008 reaching €179 billion.337 In terms of outstanding amounts invested at 
the end of 2008 Italy has the lead (at €167.7 b illion) followed by Germany, Spain, Belgium 
and France. Germany is the largest market in  the EU in terms of  annual sales (at €50.2 
billion), followed by It aly, Spain and France.338 Deposit-based products accounted for 
approximately 12 per cent (€22 billion) of total sales of structured pr oducts in 2008 across the 
European countries covered in the market inform ation. The penetration rate was higher than 
this in Ireland, Poland, Slovakia, Spain and th e UK. In terms of distribution, 92 per cent is 
sold by credit institutions,  i.e. €20.2 billion in 2008. Independ ent financial intermediaries play 
a notable role only in the UK and Ireland. 
The regulation of structured deposit-based produ cts is relatively light. It has been found that 
seventeen Member States which do not appl y any regulation similar to the MiFID selling 
rules. On the other hand, It aly and Slovakia’s existing regi mes are comparable to MiFID.339 
An extension of MiFID rules to the sale of such deposits would ther efore trigger adaptation 
costs for the credit institutions  involved in this business. Taki ng into consideration that some 
credit institutions already a pply the MiFID conduct of  business rules to the sale of these 
products on a voluntary basis we estimate a one-off imp act of €31-€44m with ongoing costs 
of €9-€15m on a yearly basis.340 To put this into further context, the one-off costs would be 
equivalent to 0.11–0.16 per cent of the estimated 2010 sales of these products by credit institutions
341. The recurring costs would be 0.03–0.05 per cent of 2010 sales.  
15.2.10.  Strengthen rules of business conduct for investment firms 
Reinforce investor protection by narrowing th e list of products for which execution only 
services is possible and stre ngthening conduct of business rules for the provision of 
investment advice by further detailing information requir ements and requiring the annual 
assessment of the advice initially provided  
Execution only services are typically provided in two ways: first, from standalone brokers or 
credit institutions offering ex ecution only as (typically) a standalone online service and 
 
 189    second, from off-line brokers. Europe Economics research indicates th at online provision is 
the dominant form342.  
Concrete data on the size of the execution only  market across Europe (i.e. in terms sales 
volume and sales value) are not available. Interviews Europe Ec onomics have had with 
banking associations based in Ge rmany, Italy and Luxembourg and two large universal banks 
based in Denmark (as well as desk-top research  in the UK) indicate that business models 
governing the provision of execution only services appear to differ relatively markedly across 
providers of these services both between and within countries in the Europe Union. The 
differences largely reside with the extent to which execution only services, i.e. dealing only in 
non-complex products and with no appropriate test s carried out, overlap with other forms of 
online brokerage and in terms of market penetrat ion. In general, the prevalence of execution 
only services tends to be larger in Northern th an in Southern European States. However, some 
specific examples of differences across Germ any, Denmark, Luxembourg and Italy were 
highlighted: 
• In Germany, an “execution only” service is ta ken as a broader concept than set out in 
MiFID. In general, “execution only services” is  used to describe bot h execution only trades 
in non-complex products (i.e. execution only in the strict sense where no tests of 
appropriateness are carried out) as well as on line brokerage more ge nerally in either 
complex or non-complex products where an appropriateness test is conducted. In 
Germany, the standard market practice is to apply a test of appropriateness irrespective of 
whether the product is non-complex — so that  the distinction betw een execution only and 
online brokerage more generally is far from sharp. Indeed, approximately 90-95 per cent of 
execution only services provide d by banks, where the product s involved ar e non-complex, 
will include the application of  a test of appropriateness. Ensuring maximum product choice 
for investors appears to be one of the key factors underlying this general preference of 
German banks not to differentiate between complex and non-complex products. It follows 
that the impact of this policy option would be significantly restricted in Germany. 
• In Denmark, all execution onl y trading occurs through online platforms. While the exact 
proportion of execution only within non-complex trades is not known, it was thought to be 
substantially above the 20 per cent mark (ind eed, for UCITS it is esti mated at about 35 per 
cent). The practices of execution only providers  in Denmark are significantly less uniform 
compared with Germany. Some banks will carry out all of its execution only services 
online and, like Germany, appropriateness tests are applied to trades involving non-
complex products. However, unlike Germany, th is is not standard market practice in 
Denmark and other providers do not apply an appropriateness test within the context of 
execution only.  
• Execution only in Italy is much more limite d in scope than in Denmark or Germany. A 
majority of execution only services in Italy also tend to be combined with a test of 
appropriateness. However, in Italy, this pract ice seems to have been driven more by the 
regulatory requirements of the Italian banking/financia l services supervisor. 
• Banks in Luxembourg apply a similar approach to those in Denmark. The view is that 
many clients (who know what they want to do) do not want ex cessive warnings.  
• In a recent report published by the UK FSA it was estimated that two thirds of all retail 
investment product sales between April 2008 and March 2009 were so ld on an advised 
basis.343 This implies that up to a third of all retail investment products sales in the UK 
 
 190    were carried out on a non-advi sed basis (which includes exec ution only and direct offer) 
over this period.  
Neither data on the products that embed a deri vative are available (nor is the share of 
execution only business within them). Howeve r, the retail bank op erators of execution 
services that Europe Economics interviewed spoke of UCITS as being the only packaged 
product being sold on an execution only basis — it indicates that volumes of complex 
products being executed in this way are probably not significant. 
A reduction of the scope of non-co mplex products that can be distributed via execution-only 
services would inevitably increase the number of appropriateness tests that  need to be carried 
out by investment firms for the products for which execution-onl y is not an option anymore. 
The costs for this should be marginal for thos e institutions already offering dual platforms for 
advised execution and executi on only. Providers currently  offering pure execution-only 
services would need to invest into IT, training and developing a nd filling out questionnaires to 
conduct appropriateness tests. Alternatively, th ese firms could simply offer a slightly limited 
range of products in the future as the reduction in scope only seems to affect a small minority 
of products and clients. As a result, we do not consider the overall costs of this option are 
likely to be very significant (because the universe of products and business prac tices affected 
do not appear to be significant) . We estimate the overall one-off costs for this transition to be 
in the region of €0.1—€0.15 million.344 
 The overall compliance costs resu lting from a strengthening conduc t of business rules for the 
provision of investment advice  for investment advisers woul d amount to a one-off cost of 
between €5.6 million and €12.5 million, and ongoing costs of between €134.3 million and 
€279.0 million. 
We estimate that there are about 40–45 million mass affluent or high net worth individuals 
within the EU
345. We consider two primary forms of advice — provision that  is independent 
of the product providers (such as that provided through indepe ndent financial advisers) and 
other provision (such as, ofte n, advice provided by banks).  The importance of such 
independent advisers is highest in Ireland, the Netherlands and the UK. In the UK, for 
example, about 55 per cent of UCITS sales are through independent advisers. The penetration 
in France, Italy and Spain is much lower (per haps five per cent). In Germany, independent 
brokers have grown in importance but remain clos er to the levels seen in the latter group.346 
We estimate that across the EU 7–7.5 million of the wealthy individuals are receiving advice 
on an independent basis (i.e. 16 and 18 per cent of the total). 
The obligation for investment fi rms providing advice on  the basis of an independent and fair 
analysis to assess the suitability of a suffici ently large number of financial instruments 
available on the market would lead to incr emental costs. The time taken to develop the 
suitability report is expected to  increase by 3–5 minutes in order to tailor product choice to the 
investor’s profile.347 Based upon interviews with bank-ba sed advisers, Europe Economics 
estimates that on average each client is rece iving advice on one occasion per annum. This 
means that 33–37.5 million occasions348 on which a suitability report is currently being 
provided. Based upon Europe Economics research , we consider the position in the UK and 
Germany to be sufficiently close such that the time required for advice would not need to be 
extended in the way described above. This re duces the number of bank -advised clients to 21–
25 million. With an average adviser cost estimat ed at €50,000 per annum, this implies an on-
going cost impact of €29–€59 million.  
 
 191    In addition, we would anticipate additional traini ng, again only for bank-based advisers. If we 
apply the “industry standard” of 150  clients per adviser and take the incremental training to be 
1-2 hours per adviser, then the incremental one-off training cost would be €6–€12 million. 
This is applied across the whole population including UK and German banks as some re-
modelling of processes would be  required across the board. 
Requiring intermediaries to provide bi-annual updates (as a minimum frequency) to inform 
investors on the fair market value of their investments and on whether there has been any 
material modifications would give rise to incremental costs. If we take the case of two reports 
per annum then the incremental cost of accessing  and delivering the valuation information is 
likely to be €1–€1.5 per client.349 This means one additional statement per annum over and 
above the annual statement from product providers . If we take it that each of the 40-45 million 
wealthy individuals described above then th is implies an on-going cost of €40–€67.5 million 
per annum.  
A requirement to annually request information updates from clients woul d have several costs 
associated with it: the initiati on of contact as well as  the updating of the investment adviser’s 
records. The costs of making such a request ma y be quite low. We a ssume that independent 
intermediaries send an information request  pack (costing €1–€2 per client) whereas non-
independent ones (typically banks) send a more generic request (e.g. for the customer to 
contact the local branch) at a lower cost of €0.5–€1 per client. This gives a cost impact of 
€23.5–€52.5 million since this would apply to all a dvised investors. However, in the event of 
a reply the investment adviser w ould potentially be required to re -work his or her estimates of 
suitability. We assume that only  a relatively small proportion of  clients — interviews carried 
out by Europe Economics with bank-based and independent advisers, and also a consumer 
representative group indicated that 5–10 per cen t would be a reasonable response rate to 
expect. An association of inde pendent advisers indicated th at the necessary review of 
circumstances would take at l east 90–120 minutes per client. Howe ver, in some proportion of 
cases it would be recommended by the adviser that some re-balancing of the investments 
should be done. Assuming that this was agre ed to by the client and was executed by the 
adviser then this would genera te revenue for the adviser and would pay for the time spent in 
reviewing the on-going suitability of the investments. Taking in to account these two factors, 
we believe that the proportion of total clients requesting a review (by identifying a change in 
circumstances) but not requiring a change in the investments made (i.e. the net effect of the 
changes was not significant) may be 2.5–4 per cen t. The implied on-going cost would then be 
€42–€100 million. 
Apply general principles to ac t honestly, fairly and professionally to eligible counterparties 
and exclude municipalities and local public authorities  from list of eligible counterparties and 
professional clients per se 
Based upon feedback with market participants acting honestly, fairly, professionally, being 
clear and not misleading is very much the standa rd practice of players in the industry whether 
the client are retail, professi onal or are eligible counterpart ies. Notwithstanding this, we 
consider the following drivers of cost impact. Fi rst the level of monitoring by internal control 
functions would increase. The number of all of those workers within credit institutions and 
investment firms dealing with eligible counterparties is no t known with prec ision. About 
200,000 people work in (largely wholesale) financial services  in the City of London and 
Canary Wharf.350 On the other hand, not everyone in w holesale finance is client-facing. As a 
working estimate we take this figure of 200,000 (this is against 2.7 million employees working in EU credit institutions ). In the past Europe Economics has found that a ratio of 
350–400 of workers to a compliance worker was rela tively typical with lo wer ratios applied in 
 
 192    investment banking or asset management, perh aps 100:1. Taking the ra tio of 100:1, this 
implies a total of 2000 compliance staff as of now . We assume that this change would result 
in the industry as a whole moving to a ratio of pe rhaps 90:1. This implies an on-going cost of 
about €16 million. 
Excluding municipalities fr om being classified as eligible  counterparties or professional 
clients would not involve any significant costs at all. Indeed, in some Member States — such 
as Germany — this re-classificat ion of municipalities as retail clients has already been done. 
Equally, in the UK and (from more  recently) Italy municipalities ar e restricted from trade in 
OTC derivatives. However the rest riction in the choice of products that ma y be traded without 
the application of a suitability or appropriaten ess test may increase the cost of transacting. 
However a municipality would be able to request treatment as a professional client subject to 
demonstrating experience and so on. 
Reinforce information obligations when provid ing investment services  in complex products 
and strengthen periodic reporti ng obligations for different ca tegories of products, including 
when eligible counterparties are involved 
Structured products (in the sens e of direct participation in asset backed securities) are 
typically traded by banks and brokerage houses , insurers and hedge funds. There is very 
limited retail participation, al though some presence in Italy and Spain is identified by IOSCO. 
The same can be said of OTC derivatives. Howe ver there is a broader category of structured 
products that are sold to retail investors. These include a mix of underlying assets: products 
linked to equities are the dom inant form, followed by products  linked to interest rates, 
hybrids, commodities and various other types. The value of these products was about €188 
billion across Europe351. Arete Consulting identifies 335,00 0 individual re tail structured 
products alone in the countries that it surveys. We consider  a reasonable estimate of the 
population of products potentially affected to be 350–400,000. Again building upon Arete’s 
analysis we consider that the population of unique product pr oviders is likely to be around 
250–300. 
We assume that the community of investor rele vant to this policy opti on are largely “high net 
worth” investors as well as those investors automatically ca tegorised as professional under 
Annex II of Directive 2004/39/EC . The retail and professional clients who deal in OTC 
derivatives or asset-backed securities appear to  be a relatively small community of investors. 
However robust data on the exact number are no t forthcoming. We adopt  a pan-EU figure of 
150-300,000 retail investors to assi st us in our analysis, the wi de range reflecting the degree 
of uncertainty. In terms of professional investor s as automatically cla ssified under Annex II of 
Directive 2004/39/EC, we adopt a figure of 15–20,000352. This gives 165–320,000 overall. 
The additional information to be provided to clie nts in relation in relation to complex products 
would include:  
• A risk/gain profile of the instrument  across different market conditions. 
• Quarterly (independent) valuations.  
• Quarterly reporting on structured finance produc ts on the evolution of the underlying assets 
during the lifetime of the products. 
• Timely informing of a material change modi fication in the situation of the financial 
instruments with an annual statement.  
 
 193    • Information on social and ethical criteria adopted. 
We would expect the overall one-off costs to between €82.7-146.2 million and yearly ongoing 
costs between €11.5-36.7 million. A main source of  cost would be the development of risk-
gain profiles and the related marketing materials costs. We would assume that the time required for that would be less than a day pe r product for a compliance official resulting in 
aggregate costs of €50-87m
353, with on-going costs assuming the same volume of business of 
€10-29m. In addition, we expect the prod uction and printing of related supporting 
documentation ("marketing materials") to re sult in a per provider cost of €100,000-150,000354 
which amount to an expected one-off imp act of €25-45m. With respect to quarterly 
valuations, this information could easily be provided by the back office who usually compiles 
this kind of information. Whether external in dependent valuation (i.e . provided by a third 
party) might be needed is difficu lt to assess at this stage. In addition market participants 
interviewed have been unable to provide Eur ope Economics with costs estimates for external 
valuation. For a switch to quarterly reporting in  the evolution of underlying assets we expect 
on-going costs of €1.5-7.7m355. The requirement to notify inve stors of material changes in 
circumstances will trigger system modifications  of product providers which we expect to 
cause one-off costs of €1.7-2.7m356. Furthermore, accessing the information necessary for 
determining the occurrence of such a material change would cause additional cost. Here we 
would estimate that a compliance officer w ould need an hour for each client for such 
determination resulting in one-off costs of €6-11.5m. On-going costs would inadvertently 
depend on the number of times such material change s occur but are likely to be relatively low, 
i.e. below €1m.  
Ban inducements in the case of investment advice provided on an i ndependent basis and in 
the case of portfolio management 
Requiring firms that claim to give advice on an independent and fair basis to offer a 
sufficiently broad universe of products to c lients and to prohibit them from accepting any 
inducements would lead advise rs currently operating as inde pendent to recoup inducements 
by charging fees upfront. In the UK where ther e is a substantial community of independent 
advisers the impact would be a one-off co st of €41m and on-going costs of €29.5-35.4m 
which would already be triggered by th e UK Retail Distribution Review (RDR)357. This 
review is broader in scope as it would prohibit third pa rty commission payments. Our 
proposal targets independent advice only.  
If firms outside the UK are to transition to a f ee-based structure we woul d expect the costs to 
be material. We estimate that the affected co mmunity of independent investment advisers 
outside the UK is broadly comparab le in scale (but slightly smaller) to that in the UK (this is 
due to the importance of this channel in the UK). As mentioned above we estimate the 
number of “mass affluent” and high net worth clients serviced by inde pendent advisers as 
being 7–7.5 million. Further assuming that th e 150 clients per adviser (derived from 
interviews with advisers) holds  widely across the EU then we  have a population estimate of 
50,000 independent advisers in tota l, with about 60 per cent of those in the UK. If we pro-rate 
the costs of the UK RDR based on a conservativ e ratio of 80 per cent , this gives us an 
estimate of the one-off costs of about €33 million and on-going costs of €24–€28 million. As 
this option targets only independe nt investment advice (i.e. this  is less wide-ranging than the 
DR), there is the distinct possibility that many advisers working ba sed on commissions now 
would simply cease to describe themselves as independent so that there would be no immediate transition costs. However, they woul d need to demonstrate to clients that their 
service is nonetheless valuable investment advice. There may also be some product re-design 
costs that would be borne by the product provi ders. These are estimated by the UK FSA at 
 
 194    about €12 million for MiFID-relevant products in the UK. Applying the same reasoning as 
with the impacts on advisers, this implies an €8 million one-off impact. 
As a rule of thumb, Europe Economics esti mates that EU portfolio management industry 
could have revenues of at least €25bn. This w ould equate to perhaps 17 million customers and 
an industry of over 150,000 people (i ncluding back office workers).358 Of the total assumed 
population of 150,000 affected employees, we assume  that none of those in the UK or Italy 
are affected.359 That leaves 90,000 potentially affected  employees (60,000 portfolio managers 
and 30,000 back office staff).360 Similarly, of the up to 17 million customers, proportionately 
up to 10.2m could be potentially affected. Due to a ban on inducements for portfolio 
managers we expect overall one-off cost im plications of about €131 million. Portfolio 
managers would require a half da y's training to expl ain matters such as new business models 
in respect of revenue raising (€280 per manager,  in total €16.8m). Th e next category of one-
off costs is the costs to draft letters to clients and edit cont racts (three days of time of one 
back-office employee, total €9m). Thirdly, given th at the nature of this industry is that of 
personal management of wealth, we estimate that a significant propor tion of clients (one 
quarter) would seek a personal explanation (three days of tim e per manager, total €105m). 
Finally, we would estimate additional on-goi ng internal monitoring  costs to amount to 
€3.7m.361  
We break down one-off costs below. 
– TABLE 34 : One-off costs relating to banning of inducements in 
relation to portfolio management  
 Nature Costs per 
employee (€) Numbers 
of employees involved Total cost 
(€m) 
Training costs (front-office) 0.5 days at €560
362 per 
day 280 60,000 16.8 
Contract renegotiation 
costs (back-office) 1 day at €300 per day 300 30,000 9.0 
Client explanation costs 
(portfolio managers) One quarter of clients 
seek explanation or renegotiation, 40 minutes per client = 3.125 days 1750 60,000 105.0 
Total    130.8 
  
Require trading venues to publish informati on on execution quality and improve information 
provided by firms on best execution 
An obligation on trading venues to publish data  regarding execution qua lity would require 
labour costs at the trading ve nue concerned which we estima te as amounting to €150,000 per 
venue one-off and as €50,000 pe r venue on an on-going basis363. Based on the number of 
 
 195    trading venues affected364, the one-off costs would be estimated as €18m and the on-going 
costs as €6m. We do not envisage  material changes to execution policies of firms. As these 
already do need to be reviewed on an annual basi s we would not expect a cost impact at the 
level of the firm. 
15.2.11.  Strengthen organisational require ments for investment firms 
Reinforce corporate governance framework by stre ngthening the role of directors especially 
in the functioning of internal control functions and when launc hing new products and services  
As can be seen from the above the compliance fu nction typically has a di rect report ing line to 
Board-level executives, either as a group or through reporting to  a designated individual.  
– FIGURE 13 : The Nature of Compliance Function Reporting Lines  
 
Source: Data gathered by Europe Economics in the development of its 2009 study on the 
“Cost of Compliance with Selected FSAP M easures” for DG MARKT. This chart is based 
upon analysis of responses from 57 discrete financial services firms (credit institutions and 
asset management firms). 
If we take as our guide those firms that do not currently incor porate direct re porting to the 
Board or to someone at Board le vel as the sub-set th at would be affected, then this implies 
that (given about 5,000 inve stment firms and 8,000 credit institutions) a bout 1600 firms 
would be making a change in formal reporting lin es (i.e. 12.3 per cent from our sample). An 
enhanced profile for the compliance department is likely to result in either churn in the individuals responsible for it (with  more senior managers coming in ) or in an enhanced ability 
for the incumbents to demand higher remuneration then this may result in an increased cost 
burden. Following this line of argument, if we take a salary  uplift of €7,500–€10,000 per 
affected individual compliance head  as an illustrative scale of the impact then the implied on-
going incremental cost impact would be €12–€16 million across the EU. A cost impact on the 
risk management function should be limited as th is is already associated with a high profile. 
 
 196    However we could assume similar incrementa l costs of €12-€16 million for the internal 
control function, giving an overall ongoing co sts impact of €24-€36 million across the EU. 
Regarding additional organisational requirement s for the launch of new products, operations 
and services there is evidence that compliance functions with in firms are already actively 
involved in new product a nd service development: 
– FIGURE 14:  Characterisation of the Involvement of the Compliance Function in the 
Development of New Products and Services  
 
Source: Data gathered by Europe Economics in the development of its 2008 study on the 
“Cost of Compliance with Selected FSAP M easures” for DG MARKT. This chart is based 
upon analysis of responses from 38 discrete financial services firms (credit institutions and 
asset management firms). 
Therefore we would not expect a significant co st impact by implementing these measures. 
However we expect all firms pr oviding investment services (about  9,500) to need two days 
for the re-assessment of protocols for the launc h of new products resulting in an incremental 
one-off cost of €5m.  
Require specific organisational requirements a nd procedures for the provision of portfolio 
management services and underwriting services 
We do not expect a major cost impact by the m easures envisaged in re lation to the provision 
of the service of portfolio management. The me ssage that we have from portfolio managers 
and associations representing them  (or at their parent banks) is  that there is a very strong, 
documented audit trail in terms of investment strategy and portfolio selection. However firms 
providing these services (about 4,900365) would need to carry out a review of existing client 
handling protocols that w ould likely take two or three days translating into a one-off cost of 
€2.8-4.2m.  
For the measures envisaged regarding the provi sion of underwriting and placing services one 
cost driver would be th e necessary review of existing proce dures (the cost of such a review 
 
 197    has been estimated at €24,000 to €60,000 per firm366). More material co sts would be incurred 
in those firms requiring actual ad justment to processes. Past wo rk has indicated costs of €1.2–
€2.4 million per firm.367 From the interviews with invest ment banks that Europe Economics 
has conducted, we would not antici pate that these costs would be  applicable within the firms 
operating internationally. Let us assume, however, that all firm s not operating internationally 
do undertake such a review (i.e. 360 firms368). This implies one-off costs of €9–€22 million. 
Finally some (i.e. not all) firms in Central and Eastern Europe focused on a “cost-effective 
implementation of MiFID rather than a comprehensive one”369 could incur additional costs 
linked to system changes. The specific rules proposed might indeed force a switch from the 
former type of implementation to the latter im plying system changes gi ving rise to a one-off 
cost of €2-4 million370. In terms of recurring cost, we assume an additional quarter FTE 
compliance officer per firm to monitor on-goin g activities. This would imply an additional 
recurring cost of perhaps €0.25 million per annum. 
Introduce a common regime for telephone and electro nic recording but still leave a margin of 
discretion for Member States in requiring a longer retention period of the records and 
applying recording obligations to serv ices not covered at EU level  
The proposal would harmonise th e telephone and electr onic record-keeping requirements in 
terms of media covered and stipulate a minimu m retention period. To assess the incremental 
costs impact of a harmonised recording regime , it is important to recognise that such 
recording already apply to a ma jority of Member States anyway. The following table outlines 
the current national recording requirements  in place in different Member States: 
– TABLE 35 : National legislative or supervisory recording 
requirements in EU member states 
Country Legal / 
supervisory recording requirement? Mobile 
phones included? Duration of 
retention of records (years) 
Austria No No - 
Belgium No No - Bulgaria No No - Czech 
Republic Yes Yes 10 
Cyprus Yes Yes 5 
Denmark No No - Estonia Partially Yes 5 France Yes Yes 0.5 Finland Yes Yes 2 Germany Partially Yes 0.25 
 
 198    Greece Yes Yes 1 
Hungary Yes Yes 1 Italy Yes Yes 5 Ireland No No - Latvia Yes Yes 10 Lithuania Yes ? 10 Luxembourg No No - Malta No No - Netherlands No No - Poland Yes Yes 5 Portugal Yes Yes 5 Romania Yes Yes 5 Slovakia Unknown  Unknown Unknown Slovenia Unknown Unknown Unknown Spain Yes Yes 5 Sweden Yes No 5 UK Yes No 0.5 
Source: CESR Technical Advice to the Europe an Commission in the Context of the MiFID 
Review – Investor Protec tion and Intermediaries 
Fifteen of the EU Member States that respon ded to CESR’s consulta tion have a recording 
requirement which is incorporated in nati onal legislation or rules, whilst 10 do not.
371 The 
costs for those Member States who do not cu rrently have any recording requirements are 
likely to be significantly larger than those who already fulfil the expected measures by their 
current practice. In the absen ce of detailed information on Sl ovakia and Slovenia, we have 
assumed that no recording require ment is currently in place. 
The cost of this option would be the incremen tal cost of the recording and storage. The 
magnitude of this cost would depend on a numb er of factors related to the implementing 
details of the obligation in this  field such as the types of media covered and the retention 
period. We have taken the assumption that al l media (fixed telephone lines, mobile telephone 
voice calls, text messages (SMS) from mobile  phones, multimedia messages (MMS) from 
mobile phones, video communicat ions using mobile phones, pi n to pin messages (used in 
BlackBerry to BlackBerry communication), (secu re) instant messaging services (IM), and e-
mail) would be covered and that th e retention period would be 2 years.372 
 
 199    To obtain aggregate cost estimates for th e EU, we make the following assumptions: 
(a) Member States with no current legislati on for recording requirements will face full 
costs for all of their employees (i.e. we assume that there is  no voluntary recording 
by firms).  
(b) Those Member States with existing record ing requirements will only face costs if the 
current required duratio n of the retention of records is less than two years (such as in 
France, Germany, Italy and the UK) or if no provision is  currently in place for the 
recording of some of the media (e.g. mobile phone c onversations in Sweden). 
(c) The percentage of total financial sector employees that would re quire recording is the 
same in the UK as the rest of the EU. Th e FSA estimated the number of individuals 
in the UK requiring fixed line reco rding as between 55,000 and 70,000373 – so 
between 4.6 and 5.8 per cent of financial sector employees. We estimate that around 
30 per cent of employees with recorded fi xed lines would also  conduct relevant 
communications on a mobile device and th erefore need recording of mobile 
communication channels as well.374 We recognise that in the UK wholesale finance 
is a larger proportion of the to tal financial sector than the average for the EU and that 
a large part of those needi ng recording may well be situated in wholesale finance. 
Therefore, the percentages of EU employees  requiring recording as  calculated from 
the UK proportions will provide an upper bound. 
(d) The split of small to large financial institut ions is the same in the EU as in the UK. 
So the assumed distribution of phone lines th at would be required to be taped across 
firm categories (by firm size) is as follo ws: Small: 9 per cent, Medium: 9 per cent 
and Large: 82 per cent. (The cost data avai lable has been organised by size of firm). 
– TABLE 36: Affected Financial Sector Employees by Member 
State, 2008 
Number of 
employees requiring recording Country Number of 
employees 
Low 
estimate High 
estimate Percentage 
still needing fixed line recording Percentage 
still needing mobile recording 
Austria 136,100 6,219 7,915 100% 30% 
Belgium 156,900 7,169 9,124 100% 30% 
Bulgaria 54,900 2,509 3,193 100% 30% Cyprus 18,500 845 1,076 0% 0% Czech 
Republic 92,800 4,240 5,397 0% 0% 
Denmark 87,400 3,994 5,083 100% 30% 
Estonia 10,000 457 582 50% 15% 
 
 200    Finland 49,300 2,253 2,867 0% 0% 
France 806,700 36,860 46,913 0% 0% 
Germany 1,179,900 53,913 68,616 50% 15% Greece 106,500 4,866 6,193 0% 0% Hungary 81,200 3,710 4,722 0% 0% Ireland 89,500 4,089 5,205 0% 0% Italy 544,200 24,866 31,647 100% 30% Latvia 19,400 886 1,128 0% 0% Lithuania 19,900 909 1,157 0% 0% Luxembourg 21,000 960 1,221 100% 30% Malta 6,100 279 355 100% 30% Netherlands 242,700 11,090 14,114 100% 30% Poland 299,800 13,699 17,435 0% 0% Portugal 90,000 4,112 5,234 0% 0% Romania 108300 4,948 6,298 0% 0% Slovenia 23,400 1,069 1,361 100% 0% Slovakia 44,200 2,020 2,570 100% 0% Spain 454,500 20,767 26,431 0% 0% Sweden 90,800 4,149 5,280 0% 30% UK 1,203,700 55,000 70,000 0% 30% 
Source: Eurostat – Ifsa_eegen2 - Employees by sex, age groups and economic activity, NACE 
code F (Financial and insurance activ ities) Downloaded 19th November 2010. 
Based on the estimated number of employees th at would be affected per Member State, as 
estimated above, we come to the following totals across the EU: 
– TABLE 37: Estimated Employees affected by Different Aspects of 
Potential EU-wide Recording Regulation  
 Number still needing 
fixed line recording Number still needing 
mobile recording 
Company size Low High Low High 
 
 201    Small 8,000 10,000 4,000 5,000 
Medium 8,000 10,000 4,000 5,000 
Large 72,000 91,000 35,000 45,000 
Total EU27 87,000 111,000 43,000 55,000 
Based on previous work undertaken by Europe Economics estimating the cost to authorised 
firms of implementing a recording requirement, the following estimated costs per user were 
obtained: 
– TABLE 38:  One-off Cost per User, €   
Small company Medium company Large company 
  Low cost High 
cost Low cost High 
cost Low cost High 
cost 
Fixed telephone 93  3,080 236 489 189  255
Voice from 
mobile 112  1,291 100 245 201  94 
SMS -  47 - 47 -  47 
MMS 77  77 71  71 59  59 
Video 112  112 100 100 89  89 
Pin to pin 77  77 71  71 59  59 
IM 77  77 71  71 59  71 
Email 77  77 71  71 59  59 
Source: Consideration of a Mobile Phone R ecording Requirement - Final Report by Europe 
Economics to the Financial Services Author ity and Consideration of a Discretionary 
Recording Requirement - Report by Europe Economics. 
– TABLE 39: On-going Costs per User, Six Month Retention Period, € 
Small company Medium company Large company 
  Low cost High cost Low cost High cost Low cost High cost
Fixed telephone -  760 24 171 19  87 
Voice from 
mobile 189  985 177 334 98  452 
SMS 71  581 71 277 71  215 
 
 202    MMS 118  118 106 106 94  94 
Video 354  354 307 307 283  283 
Pin to pin 59  59 53 53 53  53 
IM 59  59 53 53 53  53 
Email 94  94 89 89 89  89 
Source: Consideration of a Mobile Phone R ecording Requirement - Final Report by Europe 
Economics to the Financial Services Author ity and Consideration of a Discretionary 
Recording Requirement - Report by Europe Economics. 
These costs relate to a retention period of six months for voice from mobile, SMS, MMS, 
video pin to pin, instant messa ging and e-mail recording, and a retention period of any length 
for fixed telephone recording (as storage and re trieval are included in  the package for new 
solutions). 
Regarding fixed telephone recording, we can make  some estimate of the additional cost that 
would be incurred if th e required retention period for reco rdings were increased. Evidence 
shows that the price of the re tention of records is typically included within the cost of 
installing a fixed line recording system for the first time. Ther efore, for those Member States 
which currently have no requirement in place for recording fixed line telephone conversations 
the incremental on-going cost is only neglig ibly influenced by the length of the retention 
periods. However, for those companies with recording systems already in place for fixed 
lines, our past work indicates that some incremental on-going costs will be required to 
increase the retention period above the level currently sustained.  
This is an important distinc tion — on-going costs are a function of the length of the retention 
period only where the requirement for a recordi ng system is already in place. The following 
data give costs for changing the retention peri od when companies already have a system of 
recording in place. 
– TABLE 40: Additional On-going Costs per User with a Retention 
Period of Six months Increasing to One or Three Years, € 
Additional on-going costs per user currently recorded   
 Small company Medium company Large company 
One year retention 
period 6.5 6.5 41.3 
Three years retention period 17.7 17.7 122.7 
Source: Own figures as used in Considerati on of a Discretionary R ecording Requirement - 
Report by Europe Economics. 
Based on the assumption that the costs of holding records for an additional year are linear, we 
estimate that increasing the retention period would cost €5.60  per user in an SME and €40.70 
per user in a large firm. 
 
 203    Again, no additional costs (o ne-off or on-going) were found for voice from mobile in 
increasing the retention period of recordings when this system was implemented from scratch. 
We assume the magnitude of cost for storage and retrieval comparable to that for fixed line calls would be experienced in increasing the re tention period for thos e already with mobile 
recording systems in place. 
The following incremental on-going costs can be estimated for different choices of retention 
duration: 
– TABLE 41: Incremental on-going costs for EU27 of Implementing 
Different Retention Periods for Telephone Recordings of longer 
than Six Months, € millions   
One year Three years Five years Retention period 
Low High Low High Low High 
Fixed line 
telephones 2.3 2.6 11.1 13.9 20.0 25.2 
Mobile telephones 0.4 0.5 1.9 2.4 3.5 4.4 
Due to the small size of the f iles for SMS (maximum sizes of  around 0.1kB) compared to the 
size of a voice conversation (a 2 minute convers ation would require ap proximately 140kB to 
store, i.e. over a t housand times more than an SMS) we do not make any changes to the on-
going costs of recording SMS for a longer reten tion period. The other media (“pin to pin” 
recording, MMS, Instant Messaging, e-mail and video) are not current ly commonly in place 
in the EU. Therefore we have assumed that in  effect all would be in the “from scratch” 
category of building a re cording requirement.  
For fixed line recordings, currently Finland,  France, Germany, Greece, Hungary and the UK 
already have recording requirements but with retention period requirements of less than two 
years, so will still be impacted if a retention pe riod of two years is legislated at EU level. All 
other Member States with existing recordin g requirements for fixed line telephone calls 
require retention for at least fi ve years. The picture for mobile  phone recording is similar, as 
the UK is the only country  with a current recording requirement of le ss than five years where 
the legislation does not include mobile phone calls. So UK employees are removed from the 
numbers. 
The following table gives the number of employees  that will be affected as the retention 
period required is lengthened: 
– TABLE 42  Number of Employees in the EU with Additional On-
going Costs with the Retention Period of Fixed Line Recordings 
Increased 
Length of retention period 
1 year 2 year 3-5 year 6-10 year 11+ year Number 
of employees affected (000’s) Low High Low High Low High Low High Low High 
 
 204    Fixed line 
telephones 112 143 127 162 130 165 182 232 189 240 
Mobile 
telephones 34 43 38 49 39 50 39 50 39 50 
– TABLE 43 Estimated Total EU costs of Introducing Harmonised 
Recording Requirements with a Retention Duration of Two Years 
 
Low High Low High
€m €m €m €m
Fixed telephone 16.1 58.9       8.2         25.5       
Voice from mobile 5.6 7.3         5.5         19.1       
SMS 1.4 1.6         2.2         8.6         
MMS 1.9 2.1         3.0         3.3         
Video 2.8 3.1         8.9         9.8         
Pin to pin 1.9 2.1         1.6         1.8         
IM 1.6 2.5         0.9         1.9         
Email 10.4 21.6       15.0       31.3       
41.7      99.2       45.2       101.2      Europe Economics costings
One-off Ongoing
 
Note: The low total cost estimates are calcul ated using the lower population estimate and the 
lower per unit estimates. The high total co st estimates are calculated using the higher 
population estimate as well as the higher per unit estimates. 
In conclusion, based on the assumption that al l media (fixed telephone lines, mobile telephone 
voice calls, text messages (SMS) from mobile  phones, multimedia messages (MMS) from 
mobile phones, video communicat ions using mobile phones, pi n to pin messages (used in 
BlackBerry to BlackBerry communication), (secu re) instant messaging services (IM), and e-
mail) would be covered and a re tention period of 2 years, we have estimated the range of 
incremental aggregated one-off costs to be  €41.7-99.2 million and ongoing costs to be €45.2-
101.2 million for the whole of the EU. 
 
 205    16. ANNEX 6: OVERVIEW OF ADMINISTRATIVE BURDEN  
16.1. Description of the Model 
The EU Standard Cost Model (SCM) is a model presented in the Annex 10 to the EU Impact 
Assessment Guidelines375 as the preferred method of assess ing the net costs of information 
obligations or administrative co sts imposed by EU legislation. Administrative cost is defined 
as: 
“the costs incurred by enterprises, the voluntar y sector, public author ities and citizens in 
meeting legal obligations to provide information on their action or produc tion, either to public 
authorities or to private parties.” 
On the basis of this definition of administra tive costs only the compliance cost aspects of 
certain of the preferred options  described in this IA are re levant in cons tructing the SCM 
estimate. The measures classified as giving rise  to information obligations are as follows: 
• Pre-and post-trade transparency (both equity and non-equity). 
• Data consolidation 
• Commodity derivatives — position reporting 
• Transaction reporting 
• Investor protection — the info rmation obligations when offe ring investment services in 
complex products and the enhanced informa tion to be published by trading venues on 
execution quality and the information give n to clients by firms on best execution 
• Further convergence of the regulatory framew ork — telephone and el ectronic recording of 
client orders 
• Supervisory powers — position oversight. 
There are two important distinctions to be made in considering costs: 
(a) Recurring/on-going versus one-off — one -off costs are costs incurred only once, 
while on-going costs reflect th e recurring costs associated  with running the business. 
(b) Business-as-usual costs ve rsus administrative burdens — this distinguishes between 
costs that result from collecting and proces sing information that would be incurred in 
the absence of the legislation and the ad ministrative burdens associated with the 
additional costs that result from  processes undertaken solely due to the legislation. In 
each case costs can be divided into one-off and on-going costs. 
In terms of estimating the SCM both the one-off costs and on-going costs must be considered, 
but only in so far as they are incremental to busin ess-as-usual costs. It is therefore clear that 
the SCM can draw directly upon the results of the cost-benef it analysis that we have 
conducted. We have only considered the increm ental cost impacts in our work and we have 
also identified where these are one-off in  nature or else r ecurring impacts.  
 
 206    The core concept of the SCM is that costs shou ld be calculated as the average cost of the 
administrative activity (price) times the tota l number of activities performed per year 
(quantity). The price is calculated by multiply ing the time required for performing that action 
with the average tariff rate for workers that perform that action,  and the quantity is calculated 
by multiplying the number of actions required by their frequency. 
16.2. Estimating the SCM 
The standard step by step procedure set out in  the guidance is descri bed in brief below: 
• Step 1 — identify the information obligations  and classify them according to a typology376 
published in Annex 10.  
• Step 2 — for each type of information require d, identify the type of  action required based 
on the typology377 published in Annex 10. 
• Step 3 — obtain a picture of the target groups , which may be classifi ed by size, type and 
location. 
• Step 4 — identify of the frequency of the re quired actions, i.e. on average the number of 
times per year an action is required to be taken.  
• Step 5 — identify the relevant cost paramete rs, i.e. the time spent performing the action 
and the hourly pay of those performing the ac tion. In addition, there could be costs of 
equipment and supplies where the parameters  would be (i) acquisi tion cost and (ii) 
depreciation period. Lastly, th ere could be outsourci ng costs, where the parameter is what 
the service provider charges on average per in formation obligation per entity per year. 
• Step 6 — estimate the average time spent on a task and the average hourly wage of those 
performing the task, based on information for all entities after removing any outliers.  
• Step 7 — estimate of the number of  entities in each target group. 
• Step 8 — extrapolate data to EU level. 
The results of this exercise are pres ented in the standard summary format.378 
16.3. Assumptions Made to Reflect Nature of the Policy Options 
In constructing out estimate we have made a number of assumptions. These are described 
below. 
Step one 
We categorise the information ob ligations as set out below.  
Policy option giving rise to an 
information obligation Type of obligation 
Pre-and post-trade transparency (both 
equity and non-equity). Non-labelling information for third 
parties 
 
 207    Data consolidation Non-labelling information for third 
parties 
Commodity derivatives — position reporting Cooperation with aud it and inspection by 
public authorities, including maintenance of appropriate records 
Transaction reporting Cooperation with audit and inspection by 
public authorities, including maintenance of appropriate records 
Investor protecti on — investment 
services in complex products  Non-labelling information for third 
parties  
Investor protec tion — enhanced 
information to be published by trading venues on execution quality and the information given to clients by firms on best execution Non-labelling information for third 
parties  
Further convergence of the regulatory framework — telephone and electronic recording of client orders Cooperation with aud it and inspection by 
public authorities, including maintenance of appropriate records 
Supervisory powers — position oversight. Inspection on behalf of public authorities 
Step two  
In terms of the administrative actions required to fulfil the information obligations set out 
above the most relevant for both one-off costs and on-going co sts are as follows: Training 
members and employees about the informa tion obligations; Buying (IT) equipment & 
supplies; Designing information material (l eaflet conception etc) ; and Inspecting and 
checking (including assistance to  inspection by public authorities). These are more fully 
detailed in the attached completed templates. 
Step three 
We have discretely identified the target groups (investment firm s; investment advisers; MTFs, 
etc) within the compliance costs chapter and do not repeat that analysis here. 
Steps four to six 
For one-off costs we have assumed that the ac tions would only have to be undertaken once 
(i.e. once per year and for one year only). For on-going costs we have used the same 
assumptions in terms of the fre quency of the actions per year as identified in the compliance 
costs analysis. For example, in terms of transa ction reporting we have used the total number 
of transactions underlying the number.  
For wages (or “tariff per hour” as set out in the template), we have used the hourly labour 
costs derived from the annual al l-in annual cost estimates iden tified in Appendi x 11 detailing 
our underlying main costs assumptions. 
 
 208    Since the only asset acquisition identified for the purposes of our estim ates relate to IT 
systems we have not included a depreciation period. We have a ssumed that the system would 
continue until the company updated their IT as a na tural part of their future development (i.e. 
unrelated to the introduc tion of the proposed rules). The one-o ff cost of the in itial acquisition 
has, therefore, not been adjusted for depreciation. 
Using this information we have  estimated an average cost per type of company for each 
action. 
Step seven 
The number of entities in the EU as a whole for each of the target groups has, in the main 
part, been estimated as part of our analysis specific to each policy option. Where this has not 
been available we have used the total number of investment firms and credit institutions 
providing investment services id entified in Appendix 16 as c onducting a relevant investment 
service (or any investment service) as appropriate. 
Step eight 
As we have noted already, the SCM estimates ha ve been derived from the cost estimates used 
in the analysis of compliance costs. . The re port’s cost estimates ar e based upon a number of 
more or less detailed (typically “bottom-up”) assumptions which are detailed in the respective 
paragraphs relating to compliance costs. These cost estimates have then been applied to a 
“whole of EU” population for the purposes of esta blishing the cost impact  of specific policy 
options. It follows that further extrapolat ion for the purposes of the SCM would be 
inappropriate.  
To note again, the administrative burden estimated equates to the administrative costs. This is 
because the cost estimates are on an incrementa l basis, i.e. excluding any costs that they 
would incur in the absence of th e regulation. As such we did not  need to include any estimate 
of the Business as Usual costs. 
16.4. Results 
We present below the detailed tables. We provide low and high es timates for both on-going 
and one-off costs. 
 
 209    – TABLE 44 : Administrative burden costs - One-off costs (low) 
Review of the Market in Financial Instruments Directive 
  Tariff 
(euros 
per 
hour)  
TIme 
(hours) Price 
(per  
action) Freq  
(per  
year) Nbr  
of  
entities Total 
number of 
actions Equipment 
costs  
(per entity 
& per year) Outsourcing 
costs  
(per entity 
& per year) Total 
Administrative 
Costs Business  
As Usual  
Costs 
(% of 
AC) Total 
Administr a
tive 
Burdens 
(AC - BAU )
No. Art. Orig. 
Art. Type of 
obligation Description of required 
action(s) Target 
group                       
1 Equity pre-
trade transparency   Non 
labelling information for third 
parties  Familiarising with the 
information obligation Investment 
firms and credit institutions 0 0   1 600 600     0 0% 
0
2 Equity post-
trade transparency   Non 
labelling information for third 
parties  Familiarising with the 
information obligation Investment 
firms and credit institutions 0 0   1 600 600     0 0% 
0
3 Transparency 
for shares traded only on 
MTFs / OTFs   Non 
labelling information 
for third 
parties  Buying (IT) equipment 
& supplies  Investment 
firms and credit 
institutions 0 0   1 600 600 3.333    1.999.800 0% 1.999.8
0
0
4 Non-equity 
pre-trade 
transparency for MTFs   Non 
labelling 
information for third parties  Buying (IT) equipment 
& supplies  Execution 
venues 
(MTFs)       1 46 46 8.696   400.016 0% 400.01
6
 5 Non-equity 
pre-trade transparency for Market participants OTC   Non 
labelling information for third parties  Buying (IT) equipment 
& supplies  Investment 
firms and credit institutions       1 264 264 2.261   596.869 0% 596.86
9
6 Non-equity 
post-trade 
transparency - 
costs to MTFs   Non 
labelling information for third 
parties  Buying (IT) equipment 
& supplies  Execution 
venues (MTFs)       1 46 46 8.696   400.000 0% 400.00
0
7 Non-equity 
post-trade 
transparency - 
costs to 
market 
participants   Non 
labelling information for third 
parties  Buying (IT) equipment 
& supplies  Investment 
firms and credit institutions       1 380 380 10.853   4.123.999 0% 4.123.9
9
9
8 Data 
consolidation - 
APA   Other Buying (IT) equipment 
& supplies  Investment 
firms, credit 
institutions and APAs 0 0   1 600 600 50.000   30.000.000 0% 30.000.
0
00
 
 210    9 Data 
consolidation - Consolidated tape   Other Adjusting existing data MTFs and 
exchanges 0 0   1   0     0 0% 
0
10 Commodity 
derivatives markets - position 
reporting 
requirements for exchanges/MTF not currently 
requiring 
position reporting   Non 
labelling information for third 
parties  Buying (IT) equipment 
& supplies  MTFs and 
exchanges 
0 0,00   1 13 13 10.000   130.000 0% 130.00
0
11 Commodity 
derivatives 
markets - 
position reporting requirements for traders not currently 
engaged in 
position reporting   Notification 
of (specific) 
activities or 
events  Buying (IT) equipment 
& supplies  Investment 
firms and 
credit 
institutions 
0 0,00   1 52 52 12.000   624.000 0% 624.00
0
12 Transaction 
Reporting - extension in scope to equities primarily 
issued on an 
MTF   Cooperatio
n with audits & inspection by public authorities, 
including 
maintenance of appropriate records  Buying (IT) equipment 
& supplies  Investment 
firms and credit institutions 
0 0   1 600 600 1.092   655.000 0% 655.00
0
13 Transaction 
Reporting - extension in scope to depositary receipts   Cooperatio
n with audits & inspection by public authorities, 
including 
maintenance of appropriate records  Buying (IT) equipment 
& supplies  Investment 
firms and credit institutions 
0 0   1 600 600 1.092   655.000 0% 655.00
0
 
 211    14 Transaction 
Reporting - 
extension in 
scope to OTC 
derivatives   Cooperatio
n with 
audits & 
inspection 
by public 
authorities, 
including 
maintenanc
e of 
appropriate 
records  Buying (IT) equipment 
& supplies  Investment 
firms and 
credit 
institutions 
0 0   1 250 250 192.720   48.180.000 0% 48.180. 0
00
15 Transaction 
Reporting - extension in scope to commodity derivatives   Cooperatio
n with audits & inspection by public authorities, 
including 
maintenance of appropriate records  Buying (IT) equipment 
& supplies  Investment 
firms and credit institutions 
0 0   1 450 450 35.444   15.950.000 0% 15.950.
0
00
16 Investor 
Protection: Informing on Complex Products - 
risk-gain 
profiles   Non 
labelling information for third parties  Adjusting existing data Investment 
firms and credit institutions 36 4 144 1.400 250 350.000     50.555.556 0% 50.555.
5
56
17 Investor 
Protection: Informing on 
Complex 
Products - risk-gain profiles   Non 
labelling information 
for third 
parties  Designing information 
material (leaflet conception…) Investment 
firms and credit 
institutions       1 250 250   100.000 25.000.000 0% 25.000.
0
00
18 Investor 
Protection: 
Informing on Complex Products - material change   Non 
labelling 
information for third parties  Buying (IT) equipment 
& supplies  Investment 
firms and 
credit institutions       1 250 250   6.667 1.666.667 0% 1.666.6
6
7
19 Investor 
Protection: Informing on Complex Products - 
material 
change   Non 
labelling information for third parties  
Familiarising with 
the information obligation Investment 
firms and credit institutions 36 1 36 17 9.537 165.000     5.958.333 0% 5.958.3
3
3
 
 212    20 Investor 
Protection: Execution quality reporting   Non 
labelling information for third parties  Buying (IT) equipment 
& supplies  Execution 
venues (MTFs)       1 120 120 150.000   18.000.000 0% 18.000.
0
00
21 Convergence 
of Supervisory Powers - Electronic 
recording   Cooperatio
n with audits & inspection 
by public 
authorities, including maintenance of appropriate 
records  Buying (IT) equipment 
& supplies  Investment 
firms and credit institutions 
      1 9.537 9.537 4.372   41.700.000 0% 41.700.
0
00
22 Reinforcement 
of Supervisory Powers - 
Position 
oversight for MTFs with some existing oversight   Inspection 
on behalf of public 
authorities  Buying (IT) equipment 
& supplies  Execution 
venues (MTFs) 
0 0 0 1 29 29 75.000   2.175.000 0% 2.175.0
0
0
23 Reinforcement 
of Supervisory 
Powers - Position oversight for Eps with no existing oversight   Inspection 
on behalf of 
public authorities  Buying (IT) equipment 
& supplies  Execution 
venues 
(EPs) 
0 0 0 1 10 10 600.000   6.000.000 0% 6.000.0
0
0
             Total 
administrati
ve costs (€) 254.770.240  
 
 213    – TABLE 45 : One-off costs (high) 
Review of the Market in Financial Instruments Directive 
  Tariff 
(euros 
per hour)  
TIme  
(hours) Price 
(per  
action) Freq  
(per year) Nbr  
of  
entities Total 
number 
of 
actions Equipment 
costs  
(per entity 
& per year) Outsourci
ng  
costs  
(per entity 
& per year) Total 
Administrative 
Costs Business  
As Usual  
Costs 
(% of 
AC) Total 
Administr a
tive 
Burdens 
(AC - BAU )
No. Art. Orig. 
Art. Type of 
obligation Description of required 
action(s) Target 
group                       
1 Equity pre-
trade transparency   Non 
labelling information for third 
parties  Familiarising with the 
information obligation Investment 
firms and credit institutions 0 0   1 600 600     0 0% 
0
2 Equity post-
trade transparency   Non 
labelling information for third 
parties  Familiarising with the 
information obligation Investment 
firms and credit institutions 0 0   1 600 600     0 0% 
0
3 Transparency 
for shares traded only on 
MTFs / OTFs   Non 
labelling informatio
n for third 
parties  Buying (IT) equipment & 
supplies  Investment 
firms and credit 
institutions 0 0   1 600 600 3.333    1.999.800 0% 1.999.8
0
0
4 Non-equity 
pre-trade 
transparency for MTFs   Non 
labelling 
information for third parties  Buying (IT) equipment & 
supplies    
      1 46 46 17.391   799.986 0% 799.98
6
 5 Non-equity 
pre-trade transparency for Market participants OTC   Non 
labelling information for third parties  Buying (IT) equipment & 
supplies  Investment 
firms and credit institutions       1 264 264 3.899   1.029.217 0% 1.029.2
1
7
6 Non-equity 
post-trade 
transparency - 
costs to MTFs   Non 
labelling information for third 
parties  Buying (IT) equipment & 
supplies  Execution 
venues (MTFs        1 46 46 17.391   800.000 0% 800.00
0
7 Non-equity 
post-trade 
transparency - 
costs to 
market 
participants   Non 
labelling information for third 
parties  Buying (IT) equipment & 
supplies  Investment 
firms and credit institutions       1 380 380 17.300   6.574.000 0% 6.574.0
0
0
8 Data 
consolidation - 
APA   Other Buying (IT) equipment & 
supplies  Investment 
firms, credit 
institutions and APAs 0 0   1 600 600 50.000   30.000.000 0% 30.000.
0
00
 
 214    9 Data 
consolidation - Consolidated tape   Other Adjusting existing data MTFs and 
exchanges 0 0   1   0     0 0% 
0
10 Commodity 
derivatives markets - position 
reporting 
requirements for exchanges/MTF not currently 
requiring 
position reporting   Non 
labelling information for third 
parties  Buying (IT) equipment & 
supplies  Execution 
venues (MTFs) 
0 0,00   1 13 13 15.000   195.000 0% 195.00
0
11 Commodity 
derivatives 
markets - 
position reporting requirements for traders not currently 
engaged in 
position reporting   Non 
labelling 
informatio
n for third parties  Buying (IT) equipment & 
supplies  Investment 
firms and 
credit 
institutions 
0 0,00   1 104 52 15.000   780.000 0% 780.00
0
12 Transaction 
Reporting - extension in scope to equities primarily 
issued on an 
MTF   Cooperati
on with audits & inspection by public 
authoritie
s, including maintenance of appropria
te records  Buying (IT) equipment & 
supplies  Investment 
firms and credit institutions 
0 0   1 600 600 1.884   1.130.556 0% 1.130.5
5
6
13 Transaction 
Reporting - extension in scope to 
depositary 
receipts   Cooperati
on with audits & inspectio
n by 
public authorities, including maintena
nce of 
appropriate records  Buying (IT) equipment & 
supplies  Investment 
firms and credit institutions 
0 0   1 600 600 1.884   1.130.556 0% 1.130.5
5
6
 
 215    14 Transaction 
Reporting - 
extension in 
scope to OTC 
derivatives   Cooperati
on with 
audits & 
inspectio
n by 
public 
authoritie
s, 
including 
maintena
nce of 
appropria
te records  Buying (IT) equipment & 
supplies  Investment 
firms and 
credit 
institutions 
0 0   1 250 250 247.940   61.985.000 0% 61.985. 0
00
15 Transaction 
Reporting - extension in scope to 
commodity 
derivatives   Cooperati
on with audits & inspectio
n by 
public authorities, including maintena
nce of 
appropriate records  Buying (IT) equipment & 
supplies  Investment 
firms and credit institutions 
0 0   1 450 450 44.222   19.900.000 0% 19.900.
0
00
16 Investor 
Protection: 
Informing on Complex Products - risk-gain profiles   Non 
labelling 
information for third parties  Adjusting existing data Investment 
firms and 
credit institutions 36 6 217 1.333 300 400.00
0     86.666.667 0% 86.666.
6
67
17 Investor 
Protection: Informing on Complex Products - risk-gain 
profiles   Non 
labelling information for third parties  Designing information 
material (leaflet conception…) Investment 
firms and credit institutions       1 300 300   150.000 45.000.000 0% 45.000.
0
00
18 Investor 
Protection: Informing on 
Complex 
Products - material change   Non 
labelling informatio
n for third 
parties  Buying (IT) equipment & 
supplies  Investment 
firms and credit 
institutions       1 300 300   8.889 2.666.667 0% 2.666.6
6
7
21
9 Investor 
Protection: 
Informing on Complex Products - material change   Non 
labelling 
information for third parties  
Familiarising with the 
information obligation Investment 
firms and 
credit institutions 36 1 36 34 9.537 320.00
0     11.555.556 0% 11.555.
5
56
 
 216    20 Investor 
Protection: Execution quality reporting   Non 
labelling information for third parties  Buying (IT) equipment & 
supplies  Execution 
venues (MTFs)       1 120 120 150.000   18.000.000 0% 18.000.
0
00
21 Convergence 
of Supervisory Powers - Electronic 
recording   Cooperati
on with audits & inspectio
n by 
public authorities, including maintena
nce of 
appropriate records  Buying (IT) equipment & 
supplies  Investment 
firms and credit institutions 
      1 9.537 9.537 10.402   99.200.000 0% 99.200.
0
00
22 Reinforcement 
of Supervisory 
Powers - Position oversight for MTFs with some existing oversight   Inspectio
n on 
behalf of public authorities  Buying (IT) equipment & 
supplies  Execution 
venues 
(MTFs) 
0 0 0 1 29 29 100.000   2.900.000 0% 2.900.0
0
0
23 Reinforcement 
of Supervisory Powers - Position oversight for Eps with no 
existing 
oversight   Inspectio
n on behalf of public authorities  Buying (IT) equipment & 
supplies  Execution 
venues (EPs) 
0 0 0 1 10 10 1.000.000   10.000.000 0% 10.000.
0
00
 
       
   
  Total 
administra
tive costs 
(€) 402.313.004  
 
 217    – TABLE 46  Ongoing costs (low) 
Review of the Market in Financial Instruments Directive 
  Tariff
(euros 
per 
hour)  
TIme  
(hours) Price 
(per 
action) Freq 
(per 
year) Nbr  
of  
entities Total 
number 
of actions Equipment 
costs  
(per entity 
& per 
year) Outsourcing  
costs  
(per entity  
& per year) Total 
Administrative 
Costs Business  
As Usual  
Costs 
(% of 
AC) Total 
Administrative 
Burdens 
(AC - BAU) 
No. Art. Orig. 
Art. Type of 
obligation Description 
of required 
action(s) Target 
group                       
1 Equity pre-trade 
transparency   Non 
labelling 
information for third parties  Familiarising 
with the 
information obligation Investment 
firms and 
credit institutions       1 600 600     0 0% 0 
2 Equity post-
trade transparency   Non 
labelling information for third parties  Familiarising 
with the information obligation Investment 
firms and credit institutions       1 600 600     0 0% 0 
3 Transparency 
for shares traded only on MTFs / OTFs   Non 
labelling information for third parties  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions       1 600 600 667    400.200 0% 400.200 
4 Non-equity pre-
trade transparency for MTFs   Non 
labelling information for third 
parties  Buying (IT) 
equipment & supplies  Execution 
venues (MTFs)       45 46 2.070 77   159.990 0% 159.990 
5 Non-equity pre-
trade transparency 
for Market 
participants OTC   Non 
labelling information 
for third 
parties  Buying (IT) 
equipment & supplies  Investment 
firms and credit 
institutions       45 264 11.880 341   4.055.654 0% 4.055.654 
6 Non-equity 
post-trade 
transparency - 
costs to MTFs   Non 
labelling 
information for third parties  Buying (IT) 
equipment 
& supplies  Execution 
venues 
(MTFs)       1 46 46 3.478   160.000 0% 160.000 
7 Non-equity 
post-trade 
transparency - 
costs to market 
participants   Non 
labelling information for third parties  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions       1 380 380 11.889   4.517.999 0% 4.517.999 
8 Data 
consolidation - APA   Non 
labelling information for third 
parties  Buying (IT) 
equipment & supplies  Investment 
firms, credit institutions 
and APAs       1 600 600 5.000   3.000.000 0% 3.000.000 
 
 218    9 Data 
consolidation - Consolidated tape   Non 
labelling information for third parties  Adjusting 
existing data MTFs and 
exchanges 
          0         0 
10 Commodity 
derivatives markets - position reporting 
requirements 
for exchanges/MTF not currently requiring position reporting   Non 
labelling information for third parties  Retrieving 
relevant information from existing 
data Execution 
venues (MTFs) 
44 3.150,00 ###### 1 13 13     1.820.000 0% 1.820.000 
11 Commodity 
derivatives markets - 
position 
reporting requirements for exchanges/MTF not currently 
requiring 
position reporting   Non 
labelling information 
for third 
parties  Buying (IT) 
equipment & supplies  Execution 
venues (MTFs) 
44 22,50 1.000 1 13 13     13.000 0% 13.000 
12 Commodity 
derivatives 
markets - position reporting requirements for traders not 
currently 
engaged in position reporting   Notification 
of (specific) 
activities or events  Retrieving 
relevant 
information from existing data Investment 
firms and 
credit institutions 
44 450,00 ###### 1 52 52     1.040.000 0% 1.040.000 
13 Commodity 
derivatives markets - position reporting 
requirements 
for traders not currently engaged in position reporting   Non 
labelling information for third parties  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
44 27,00 1.200 1 52 52     62.400 0% 62.400 
 
 219    14 Commodity 
derivatives markets - publication of COT report   Non 
labelling information for third parties  Retrieving 
relevant information from existing data Execution 
venues (MTFs) 44 450,00 ###### 1 17 17     340.000 0% 340.000 
15 Transaction 
Reporting - extension in scope to 
equities 
primarily issued on an MTF   Cooperation 
with audits & inspection by public 
authorities, 
including maintenance of appropriate records  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
      1 600 600 29   17.326 0% 17.326 
16 Transaction 
Reporting - extension in scope to equities 
primarily issued 
on an MTF   Cooperation 
with audits & inspection by public authorities, 
including 
maintenance of appropriate records  Inspecting 
and checking (including assistance 
to 
inspection by public authorities) Investment 
firms and credit institutions 
56 0,00027 0,015 5.201 600 #######     47.286 0% 47.286 
17 Transaction 
Reporting - extension in scope to equities primarily issued 
on an MTF   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Filing the 
information Investment 
firms and credit institutions 
      1 600 600   31 18.725 0% 18.725 
18 Transaction 
Reporting - extension in scope to depositary receipts   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
      1 600 600 186   111.391 0% 111.391 
19 Transaction 
Reporting - 
extension in scope to depositary receipts   Cooperation 
with audits & 
inspection by public authorities, including maintenance 
of 
appropriate Inspecting 
and 
checking (including assistance to inspection 
by public 
authorities) Investment 
firms and 
credit institutions 
56 0,00027 ###### 33.442 600 #######     304.015 0% 304.015 
 
 220    records  
20 Transaction 
Reporting - extension in scope to 
depositary 
receipts   Cooperation 
with audits & inspection by public 
authorities, 
including maintenance of appropriate records  Filing the 
information Investment 
firms and credit institutions 
      1 600 600   201 120.390 0% 120.390 
21 Transaction 
Reporting - extension in scope to OTC 
derivatives   Cooperation 
with audits & inspection by public 
authorities, 
including maintenance of appropriate records  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
      1 150 150 753   112.995 0% 112.995 
22 Transaction 
Reporting - extension in scope to OTC derivatives   Cooperation 
with audits & inspection by public authorities, 
including 
maintenance of appropriate records  Inspecting 
and checking (including assistance 
to 
inspection by public authorities) Investment 
firms and credit institutions 
56 0,00055 ###### 67.846 150 #######     308.393 0% 308.393 
23 Transaction 
Reporting - extension in scope to OTC derivatives   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Filing the 
information Investment 
firms and credit institutions 
      1 150 150   271 40.708 0% 40.708 
 
 221    24 Transaction 
Reporting - extension in scope to OTC derivatives (credit index 
derivatives)   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
      1 150 150 244   36.670 0% 36.670 
25 Transaction 
Reporting - extension in scope to OTC derivatives (credit index derivatives)   Cooperation 
with audits & inspection by public authorities, including maintenance 
of 
appropriate records  Inspecting 
and checking (including assistance to inspection 
by public 
authorities) Investment 
firms and credit institutions 
56 0,00055 ###### 22.018 150 #######     100.082 0% 100.082 
26 Transaction 
Reporting - 
extension in scope to OTC derivatives (credit index derivatives)   Cooperation 
with audits & 
inspection by public authorities, including maintenance 
of 
appropriate records  Filing the 
information Investment 
firms and 
credit institutions 
      1 150 150   88 13.211 0% 13.211 
27 Transaction 
Reporting - data 
storage   Cooperation 
with audits & 
inspection 
by public authorities, including maintenance of 
appropriate 
records  Buying (IT) 
equipment 
& supplies  OTFs, 
MTFs and 
RMs 
      1 100 100 9.968   996.809 0% 996.809 
28 Transaction 
Reporting - 
extension in 
scope to commodity derivatives   Cooperation 
with audits & 
inspection 
by public authorities, including maintenance of appropriate 
records  Buying (IT) 
equipment 
& supplies  Investment 
firms and 
credit 
institutions 
      1 150 150 677   101.496 0% 101.496 
 
 222    29 Transaction 
Reporting - extension in scope to commodity derivatives   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Inspecting 
and checking (including assistance to 
inspection 
by public authorities) Investment 
firms and credit institutions 
56 0,00055 ###### 60.942 150 #######     277.008 0% 277.008 
30 Transaction 
Reporting - extension in scope to commodity derivatives   Cooperation 
with audits & inspection by public authorities, including maintenance 
of 
appropriate records  Filing the 
information Investment 
firms and credit institutions 
      1 150 150   244 36.565 0% 36.565 
31 Investor 
Protection: 
Informing on Complex Products - risk-gain profiles   Non 
labelling 
information for third parties  Adjusting 
existing 
data Investment 
firms and 
credit institutions 36 0,80 29 1.400 250 #######     10.111.111 0% 10.111.111 
32 Investor 
Protection: Informing on Complex Products - 
quarterly 
reporting   Non 
labelling information for third parties  Retrieving 
relevant information from existing 
data Investment 
firms and credit institutions       5.940 250 #######   5.940 1.485.000 0% 1.485.000 
33 Investor 
Protection: Execution 
quality reporting   Non 
labelling information 
for third 
parties  Buying (IT) 
equipment & supplies  Execution 
venues (MTFs)       1 120 120 50.000   6.000.000 0% 6.000.000 
34 Convergence of 
Supervisory 
Powers - Electronic recording   Cooperation 
with audits & 
inspection by public authorities, including maintenance 
of 
appropriate records  Buying (IT) 
equipment 
& supplies  Investment 
firms and 
credit institutions 
      1 9.537 9.537 4.739   45.200.000 0% 45.200.000 
 
 223    35 Reinforcement 
of Supervisory Powers - Position oversight for MTFs with 
some existing 
oversight   Inspection 
on behalf of public authorities  Buying (IT) 
equipment & supplies  Execution 
venues (MTFs) 
44 6 268 28 29 812     217.500 0% 217.500 
36 Reinforcement 
of Supervisory Powers - Position 
oversight for 
MTFs with some existing oversight   Inspection 
on behalf of public authorities  Inspecting 
and checking (including 
assistance 
to inspection by public authorities) Execution 
venues (MTFs) 
44 96 4.286 28 29 812     3.480.000 0% 3.480.000 
37 Reinforcement 
of Supervisory 
Powers - 
Position oversight for Eps with no existing oversight   Inspection 
on behalf of 
public 
authorities  Buying (IT) 
equipment 
& supplies  Execution 
venues 
(EPs) 
44 48 2.143 28 10 280     600.000 0% 600.000 
38 Reinforcement 
of Supervisory Powers - Position oversight for Eps with no 
existing 
oversight   Inspection 
on behalf of public authorities  Inspecting 
and checking (including assistance to 
inspection 
by public authorities) Execution 
venues (EPs) 
44 257 11.429 28 10 280     3.200.000 0% 3.200.000 
39 Reinforcement 
of Supervisory Powers - Position 
oversight for all 
execution venues i.t.o requesting information   Inspection 
on behalf of public authorities  Inspecting 
and checking (including 
assistance 
to inspection by public authorities) Execution 
venues (Eps and MTFs) 
44 32 1.429 28 39 1.092     1.560.000 0% 1.560.000 
 
 224    40 Reinforcement 
of Supervisory Powers - Position oversight for all market 
participants not 
currently monitored   Other Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
44 8 356 5 250 1.250     444.444 0% 444.444 
             Total administrative 
costs (€) 90.510.368   
 
 225    – TABLE 47 : Administrative burden costs - Ongoing costs (high) 
Review of the Market in Financial Instruments Directive 
  Tariff
(euros 
per 
hour)  
TIme 
(hours) Price 
(per  
action) Freq 
(per 
year) Nbr  
of  
entities Total 
number  
of actions Equipment 
costs  
(per entity 
& per 
year) Outsourcing  
costs  
(per entity  
& per year) Total 
Administrative 
Costs Business  
As Usual  
Costs 
(% of 
AC) Total 
Administra t
Burden s
(AC - BA U
No. Art. Orig. 
Art. Type of 
obligation Description 
of required 
action(s) Target 
group                       
1 Equity pre-trade 
transparency   Non 
labelling information for third 
parties  Familiarising 
with the information obligation Investment 
firms and credit institutions 0 0   1 600 600     0 0% 
2 Equity post-
trade transparency   Non 
labelling information for third 
parties  Familiarising 
with the information obligation Investment 
firms and credit institutions 0 0   1 600 600     0 0% 
3 Transparency 
for shares traded only on 
MTFs / OTFs   Non 
labelling information 
for third 
parties  Buying (IT) 
equipment & supplies  Investment 
firms and credit 
institutions 0 0   1 600 600 667    400.200 0% 400.
2
4 Non-equity pre-
trade 
transparency for MTFs   Non 
labelling 
information for third parties  Buying (IT) 
equipment 
& supplies  Execution 
venues 
(MTFs)       45 46 2.070 155   320.001 0% 320.
0
5 Non-equity pre-
trade transparency for Market participants OTC   Non 
labelling information for third parties  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions       45 264 11.880 442   5.256.199 0% 5.256.
6 Non-equity 
post-trade 
transparency - 
costs to MTFs   Non 
labelling information for third 
parties  Buying (IT) 
equipment & supplies  Execution 
venues (MTFs)       1 46 46 6.957   319.999 0% 319.
9
7 Non-equity 
post-trade 
transparency - 
costs to market 
participants   Non 
labelling information for third 
parties  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions       1 380 380 17.995   6.838.001 0% 6.838.
0
8 Data 
consolidation - 
APA   Other Buying (IT) 
equipment 
& supplies  Investment 
firms, 
credit institutions and APAs       1 600 600 7.500   4.500.000 0% 4.500.
0
 
 226    9 Data 
consolidation - Consolidated tape   Other Adjusting 
existing data MTFs and 
exchanges       1   0       0% 
10 Commodity 
derivatives markets - position 
reporting 
requirements for exchanges/MTF not currently requiring 
position 
reporting   Non 
labelling information for third 
parties  Retrieving 
relevant information from 
existing 
data Execution 
venues (MTFs) 
44 4.050,00 180.000 1 13 13     2.340.000 0% 2.340.
0
11 Commodity 
derivatives 
markets - 
position reporting requirements for exchanges/MTF 
not currently 
requiring position reporting   Non 
labelling 
information 
for third parties  Buying (IT) 
equipment 
& supplies  Execution 
venues 
(MTFs) 
44 33,75 1.500 1 13 13     19.500 0% 19.
5
12 Commodity 
derivatives markets - position reporting requirements 
for traders not 
currently engaged in position reporting   Notification 
of (specific) activities or events  Retrieving 
relevant information from existing data Investment 
firms and credit institutions 
44 450,00 20.000 1 52 52     1.040.000 0% 1.040.
0
13 Commodity 
derivatives markets - position 
reporting 
requirements for traders not currently engaged in position 
reporting   Non 
labelling information for third 
parties  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
44 33,75 1.500 1 52 52     78.000 0% 78.
0
 
 227    14 Commodity 
derivatives markets - publication of COT report   Non 
labelling information for third parties  Retrieving 
relevant information from existing data Execution 
venues (MTFs) 44 450,00 20.000 1 17 17     340.000 0% 340.
0
15 Transaction 
Reporting - extension in scope to 
equities 
primarily issued on an MTF   Cooperation 
with audits & inspection by public 
authorities, 
including maintenance of appropriate records  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
      1 600 600 45   27.071 0% 27.
0
16 Transaction 
Reporting - extension in scope to equities 
primarily issued 
on an MTF   Cooperation 
with audits & inspection by public authorities, 
including 
maintenance of appropriate records  Inspecting 
and checking (including assistance 
to 
inspection by public authorities) Investment 
firms and credit institutions 
69 0,00034 0,024 5.201 600 3.120 .862     73.884 0% 73.
8
17 Transaction 
Reporting - extension in scope to equities primarily issued 
on an MTF   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Filing the 
information Investment 
firms and credit institutions 
      1 600 600   62 37.450 0% 37.
4
18 Transaction 
Reporting - extension in scope to depositary receipts   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
      1 600 600 435   260.724 0% 260.
7
19 Transaction 
Reporting - 
extension in scope to depositary receipts   Cooperation 
with audits & 
inspection by public authorities, including maintenance 
of 
appropriate Inspecting 
and 
checking (including assistance to inspection 
by public 
authorities) Investment 
firms and 
credit institutions 
69 0,00034 0,024 50.162 600 #########     712.534 0% 712.
5
 
 228    records  
20 Transaction 
Reporting - extension in scope to 
depositary 
receipts   Cooperation 
with audits & inspection by public 
authorities, 
including maintenance of appropriate records  Filing the 
information Investment 
firms and credit institutions 
      1 600 600   602 361.169 0% 361.
21 Transaction 
Reporting - extension in scope to OTC 
derivatives   Cooperation 
with audits & inspection by public 
authorities, 
including maintenance of appropriate records  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
      1 150 150 1.177   176.555 0% 176.
5
22 Transaction 
Reporting - extension in scope to OTC derivatives   Cooperation 
with audits & inspection by public authorities, 
including 
maintenance of appropriate records  Inspecting 
and checking (including assistance 
to 
inspection by public authorities) Investment 
firms and credit institutions 
69 0,00068 0,047 67.846 150 #########     481.864 0% 481.
8
23 Transaction 
Reporting - extension in scope to OTC derivatives   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Filing the 
information Investment 
firms and credit institutions 
      1 150 150   543 81.416 0% 81.
4
 
 229    24 Transaction 
Reporting - extension in scope to OTC derivatives (credit index 
derivatives)   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Buying (IT) 
equipment & supplies  Investment 
firms and credit institutions 
      1 150 150 382   57.297 0% 57.
2
25 Transaction 
Reporting - extension in scope to OTC derivatives (credit index derivatives)   Cooperation 
with audits & inspection by public authorities, including maintenance 
of 
appropriate records  Inspecting 
and checking (including assistance to inspection 
by public 
authorities) Investment 
firms and credit institutions 
69 0,00068 0,047 22.018 150 3. 302.720     156.379 0% 156.
3
26 Transaction 
Reporting - 
extension in scope to OTC derivatives (credit index derivatives)   Cooperation 
with audits & 
inspection by public authorities, including maintenance 
of 
appropriate records  Filing the 
information Investment 
firms and 
credit institutions 
      1 150 150   176 26.422 0% 26.
4
27 Transaction 
Reporting - data 
storage   Cooperation 
with audits & 
inspection 
by public authorities, including maintenance of 
appropriate 
records  Buying (IT) 
equipment 
& supplies  OTFs, 
MTFs and 
RMs 
      1 100 100 18.772   1.877.230 0% 1.877.
2
28 Transaction 
Reporting - 
extension in 
scope to commodity derivatives   Cooperation 
with audits & 
inspection 
by public authorities, including maintenance of appropriate 
records  Buying (IT) 
equipment 
& supplies  Investment 
firms and 
credit 
institutions 
      1 150 150 1.057   158.587 0% 158.
5
 
 230    29 Transaction 
Reporting - extension in scope to commodity derivatives   Cooperation 
with audits & inspection by public authorities, including 
maintenance 
of appropriate records  Inspecting 
and checking (including assistance to 
inspection 
by public authorities) Investment 
firms and credit institutions 
69 0,00068 0,047 60.952 150 9. 142.756     432.896 0% 432.
8
30 Transaction 
Reporting - extension in scope to commodity derivatives   Cooperation 
with audits & inspection by public authorities, including maintenance 
of 
appropriate records  Filing the 
information Investment 
firms and credit institutions 
      1 150 150   488 73.130 0% 73.
31 Investor 
Protection: 
Informing on Complex Products - risk-gain profiles   Non 
labelling 
information for third parties  Adjusting 
existing 
data Investment 
firms and 
credit institutions 36 2,00 72 1.333 300 400.000     28.888.889 0% 28.888.
8
32 Investor 
Protection: Informing on Complex Products - 
quarterly 
reporting   Non 
labelling information for third parties  Retrieving 
relevant information from existing 
data Investment 
firms and credit institutions       12.800 300 3.840.000   25.600 7.680.000 0% 7.680.
0
33 Investor 
Protection: Execution 
quality reporting   Non 
labelling information 
for third 
parties  Buying (IT) 
equipment & supplies  Execution 
venues (MTFs)       1 120 120 50.000   6.000.000 0% 6.000.
0
34 Convergence of 
Supervisory 
Powers - Electronic recording   Cooperation 
with audits & 
inspection by public authorities, including maintenance 
of 
appropriate records  Buying (IT) 
equipment 
& supplies  Investment 
firms and 
credit institutions 
      1 9.537 9.537 10. 611   101.200.000 0% 101.200.
0
 
 231    35 Reinforcement 
of Supervisory Powers - Position oversight for MTFs with 
some existing 
oversight   Inspection 
on behalf of public authorities  Buying (IT) 
equipment & supplies  Execution 
venues (MTFs) 
44 8 357 28 29 812     290.000 0% 290.
0
36 Reinforcement 
of Supervisory Powers - Position 
oversight for 
MTFs with some existing oversight   Inspection 
on behalf of public authorities  Inspecting 
and checking (including 
assistance 
to inspection by public authorities) Execution 
venues (MTFs) 
44 193 8.571 28 29 812     6.960.000 0% 6.960.
0
37 Reinforcement 
of Supervisory 
Powers - 
Position oversight for Eps with no existing oversight   Inspection 
on behalf of 
public 
authorities  Buying (IT) 
equipment 
& supplies  Execution 
venues 
(EPs) 
44 80 3.571 28 10 280     1.000.000 0% 1.000.
0
38 Reinforcement 
of Supervisory Powers - Position oversight for Eps with no 
existing 
oversight   Inspection 
on behalf of public authorities  Inspecting 
and checking (including assistance to 
inspection 
by public authorities) Execution 
venues (EPs) 
44 643 28.571 28 10 280     8.000.000 0% 8.000.
0
39 Reinforcement 
of Supervisory Powers - Position 
oversight for all 
execution venues i.t.o requesting information   Inspection 
on behalf of public authorities  Inspecting 
and checking (including 
assistance 
to inspection by public authorities) Execution 
venues (Eps and MTFs) 
44 64 2.857 28 39 1.092     3.120.000 0% 3.120.
0
 
 232    40 Reinforcement 
of Supervisory 
Powers - 
Position 
oversight for all 
market 
participants not 
currently 
monitored   Other Buying (IT) 
equipment 
& supplies  Investment 
firms and 
credit 
institutions 
44 8 356 10 250 2.500     888.889 0% 888.8
             Total administrative 
costs (€) 190.474.286  
 
 233    17. ANNEX 7: DETAILED UNDERLYING COSTS ASSUMPTIONS  
MARKET PARTICIPANTS      Assumptions     
           
Bonds/equities  No. large players  25    
  No. medium players  75    
  No. small players 500    
      600    
Notes:  Highest number of participants in any exchange is 325. 
If all participants unique (i.e. no overl ap), FESE data imply 1551 participants 
600 seems reasonable middle-ground   
           
Breakdown for non-equity 
transparency           
  Large dealers (with automated 
pricing)   14 G14 Large dealers  
  Medium dealers (with automated pricing) 40 Based on information from electronic platforms about total number of dealers  
  Small dealers (with automated 
pricing)   100 Based on information from electronic platforms about  proportion of dealers that have manual pricing 
systems  
  Large buy-side firms   50    
  Others   396    
      600    
Derivatives (excl commodity 
derivatives)           
  No. large players / associated cost 14    
  No. medium players / associated cost  36    
  No. small players / associated cost 200    
      250    
Notes 
 Highest number of participants in any exchange-based  derivatives market is 83. 
If all participants unique (i.e. no overlap), FESE data impl y 383 participants, but missing UK where most specialist firms are 
At least 67 participants OTC from ISDA survey 
250 looks reasonable middle-ground assumption  
           
Commodity derivatives           
  No. large players / associated cost 14    
  No. medium players / associated cost  36    
  No. small players / associated cost 400    
 
 234          450    
           
  Total derivatives - but  likely to be some 
overlap between commodity and other 
derivatives (esp large dealers), but not so 
much with smaller ones. So total of around 
600 market players 700    
           
Breakdown           
  Number of large buy-side firms 50 Based on info from MTF about the total number of bu y-side clients (500) and proportion likely to be large  
  Number of smaller buy-side firms  450 Based on info from MTF about the total number of bu y-side clients (500) and proportion likely to be small  
  Number of large dealers 14 G14 dealers  
  Number of medium dealers 20 Based on information from electronic platforms about total number of dealers  
  Number of smaller dealers  76 Based on information from electronic platforms about  proportion of dealers that have manual pricing 
systems  
      610    
           
EMPLOYEE COSTS 
ASSUMPTIONS     Annual Per Day  
           
IT worker     € 100.000 € 444,44  
           
Compliance & back-office workers Medium-level staff   € 60.000 € 266,67  
  Senior staff   € 80.000 € 355,56  
           
Portfolio managers     € 125.000 € 555,56  
           
Transaction reporting Low estimate  € 100.000 € 444,44  
  High estimate  € 125.000 € 555,56  
 
 235    18. ANNEX 8: ESTIMATE OF IMPACT IN TERMS OF INDIRECT ECONOMIC EFFECT  
18.1. Trading of clearing eligible and suffi ciently liquid derivatives on organised 
trading platforms 
Trading derivatives on exchanges,  MTFs or electronic platform s should result in  operational 
efficiencies for traders (both buy- and sell-side), reduce the occurrence of front and back 
office errors and provide a clear and easily accessed audit trail. The increased transparency on 
such platforms, as well increased competition between dealers, is also likely to reduce the bid-ask spreads in the relevant market s provided that liquidity is not reduced. It is likely that part 
of this reduction would stem from reduced search costs — co sts savings made by dealers in 
finding eligible counterparties for trades and unw inding such trades (ass uming that liquidity 
on an organised platform would be greater an d ease of doing business will increase), as well 
as cost savings from operational efficiency ; and part should also come from downward 
pressure on prices from increased competition and transparency.  
Spreads decrease represents a benefit to the ma rket as a whole, but an opportunity  cost to 
(particularly sell-side) dealer s of operating on an organised trading platform rather than 
bilaterally over the counter. In order to bett er understand how this ma y affect dealers, we 
describe here the trading ‘lif e cycle’ of a derivative product.
379 
The market for a derivative pr oduct will typically start out ve ry small. The product will be 
traded only bilaterally (e.g. voice) OTC and w ill be relatively bespoke and non-standard. Over 
time, as more market participants trade in the product, it can become increasingly 
standardised (or ‘commoditised’), with comm on features emerging (e .g. popular maturity 
rates etc). The increasing number of players will increase competition among dealers. Each 
trade will become less and less profitable for dealers, but this can often compensated for by 
the significant increase in volume, a nd well as increasing ease of trades. 
The role of an electronic platform or exchange  lies somewhere along this  path. Such platforms 
will not launch a product at the beginning of its life, and will instead wait until it has reached a certain level of standardisation and attracts a certain level of tr ading interest. The interest of 
at least four or five dealers (depending of th e platform) will be required. If a product launch is 
successful, then more dealers join as a result of customer demand (if a customer is trading 
with four out of their five dealers over a platform , it will be in the interest of the fifth dealer to 
join to maintain his share of business). When a product is traded on a platform the level of 
standardisation increases, trading volumes in crease, trading costs decrease and liquidity 
increases. Once on a platform th e growth in the market for a product will generally increase 
more quickly than usual given these reinforcing factors.  
The diagram below provides a simple  illustration of this life cycle.
380 The variables on the y-
axis are various factors that lead to the tr ading of a product on a platform. As mentioned 
elsewhere all of these factors are important (e.g . a product needs to be standardised and have a 
sufficient volume and trading interest). As can be seen, the launch of the product on a 
platform would only occur once th e product is already sufficiently  developed. It  is stressed 
that there is nothing automatic in the developm ent of a product on this cycle — some products 
will simply not achieve the necessary critical  mass to migrate to an electronic platform. 
 
 236    – FIGURE 15 Life Cycle of a Derivative  
Electronic 
platform launch 
TimeProduct standardisation; 
trading volume; liquidity 
  
When a product is launched for trading on an el ectronic platform the willingness of dealers to 
move to the platform can be mixed. From an  interview with an MTF, it is typically the 
smaller or newer dealers in the market who are the most interested, as this presents a means 
by which they can capture market share and e xploit trading efficienci es. In addition, the 
associated reduction in spread s would not pose as big an opportunity cost to them. Later 
adopters tend to be the large incumbent dealers who require relatively larger trading volumes 
and efficiencies to attract them to the platform.  
Despite the fact that spreads ar e tighter for products traded on electronic trading venues, it 
must be emphasised that this represents an ex isting trend in the life cy cle of the product and 
that according to the descrip tion of product life cycle in tim e a decrease in spreads would 
have occurred anyway (although possibly over a longer period of  time). Therefore assessing 
the opportunity costs to deal ers of mandating a move towa rds electronic trading is 
complicated by the possibility of  what would have happened anyway (both in terms of the 
general life cycle of a product in the absence of an electronic pl atform, and in terms of dealers 
moving to an electronic platfo rm without being mandated to do so). If the move is mandated 
before a natural point in the life cycle of the produc t, then it is likely th at dealers will suffer an 
incremental decrease in profits from  ‘prematurely’ reduced spreads.  
A report by Morgan Stanley and Oliver Wyman in  the context of US OTC derivative reform 
indicates that they expect the OTC derivative  markets to be significantly reshaped by the 
reforms (which include similar central cleari ng requirements to the EMIR legislation in 
addition to exchange trading of derivatives). In re lation to spreads, they assume that “the sell-
side margin erosion will be la rgely offset by increased volumes , improved cost structure and 
balance sheet efficiency.” However, they do al so emphasise that an unintended consequence 
of enforced exchange trading in terms of a seve re loss in liquidity is a distinct possibility.381 
It is also possible th at mandating a move of derivative tr ading to electronic platforms and 
exchanges may increase competition between thes e venues. Although the scale of such an 
impact — even its likelihood — is uncertain, on e could anticipate downward pressure from 
this on exchange/platform fees. Should this be  the case, it would cont ribute to offsetting a 
decline in dealers’ revenue from tighter margins.  
 
 237    According to our interviews, on ce a product is launched on a platform it can take a number of 
years before liquidity has built up sufficiently to observe decreasing spreads, and by then 
comparison with the pre-platform spreads is clouded by changing market conditions in the 
intervening years. It follows th at robust measurement of the po ssible decline in spreads is not 
possible as we have no indicati on of how spreads respond now, le t alone in the more complex 
conditions that would apply in th e context of a mandated switch.  
It could be that if a move is mandated then the uptake of the electronic trading will be more 
rapid than under normal circumstances. Dealer s would suffer from reduced spreads but may 
be compensated by rapidly increasing volumes a nd trading efficiencies. However, it is not 
possible to know what the balan ce of these factors would be. In  order to contextualise the 
impacts of a shift to electronic trading on dealer s’ profits, we have investigated the revenue 
from OTC derivative trading for the largest gl obal dealers. In 2009 revenue from global OTC 
derivative trading across  the nine largest derivative trad ing banks amounted to $55 billion (see 
figure below). The proportion of total revenu es is represented by global OTC derivative 
trading.382 About 60 per cent of global OTC trading is  within the EU, giving us $33 billion, or 
€27.7 billion.383 384 
– FIGURE 16 Estimated revenues from OTC derivative trading 
 
Source: Citi Investment Res earch and Analysis (2010) 
 
 238    – FIGURE 17 Share of OTC derivative trading in total bank revenue  
  
Source: Citi Investment Res earch and Analysis (2010) 
According to the Financial Times, Tabb Group es timates that in 2010 there was $40 billion in 
annual revenues in global OTC derivatives, excludi ng credit derivatives, in play for the top 20 
dealers.385 This figure is broadly in line with that of Citi Research given that credit derivatives 
make up approximately 18 per cen t of all deriva tive revenues.  
To the extent that a mandated move to electroni c trading reduces spreads, these revenues will 
fall. However, it must be kept in mind that in creases in volumes and trading efficiencies may 
offset losses, as described above. It must also be noted that th e scope of OTC derivatives that 
may be mandated to trade on electronic platfo rms will be less –– possibly significantly less –– 
than the total universe (as only those that ar e clearing eligible and considered sufficiently 
liquid will be included), and th erefore the full revenues depicted  above will not be affected. 
In 2006 JPMorgan estimated that FSA propos als for a benchmark model would place 
significant pressure on fixed income dealers’ ma rgins due to increased market transparency 
and potential price competition, and from enfo rcing best execution practices with respect to 
pricing and trading cost. Whilst this proposal did not come to pass, the analysis is a 
reasonable analogue in that it focuses on the impact on margin s (spreads) and increases in 
transparency and price competition should also  occur under greater electronic platform 
trading of derivatives. 
JPMorgan’s analysis is based around interest rate derivatives, fixed income and money market 
business (‘vanilla trading revenues’) as it assu med that a benchmark model for more tailored 
products would not be realistic. Whilst we ar e not considering fixed income (bonds) here we 
could assume that only standardised vanilla interest rate  and money market  products would 
fall under the scope of manda ted derivativ e trading. 
JPMorgan estimated that the impact on margins would equate to a three per cent decline in 
affected revenues. We stress that JP Morgan modelled what we consider an analogous change 
(rather than this  policy option). In addition, the pr oportion of revenues described above 
 
 239    relating to applicable products remains an unknown;  we also must take into account that of 
the total OTC trading referred to above, some of it will already be  taking place on an 
electronic platform (here we assume that the de finition of OTC includes everything that is off-
exchange). 
As an illustration, information received from an electronic trading platform indicates that 
approximately 30 per cent of trades they pr ocess are conducted thr ough a hybrid of voice and 
electronic methods (whilst the ot her 70 per cent are either alrea dy fully electroni c, or fully 
voice).386 If we take this sample (30 per cent) as th e most likely to be mandated to trade fully 
on an electronic platform, we could estimate th e proportion of tradin g revenues affected by 
the policy, and apply the reducti on of three per cent to this. 
Taking the global revenues from in terest rate derivatives ($11 billion or €7.9 billion) and 
multiplying by 60 per cent to reach a figure for trades within Europe, and a further 30 per cent to reflect only the proportion of trading th at would move onto elec tronic platforms, a 
reduction in three per cent is approximatel y €43 million. Applying a similar methodology to 
foreign exchange derivatives results in a reduc tion in revenue of €85 m illion. Given the fact 
that a very large proportion of cr edit derivatives are already trad ed on electronic platforms, we 
apply a similar methodology to the credit deri vative figure but use a figure of 15 per cent 
instead of 30 per cent to represent the possi ble volume that would migrate to electronic 
platforms. This results in a corresponding reduction in revenue of approximately €19 million. We stress again that these figures are highly indicative and will depend on the proportion of 
derivative trading that is mandate d to move to electronic platform s. It must also be kept in 
mind that it is likely that margins on deriva tives (and thus associated revenues) that are 
considered sufficiently standardised and liquid to be traded on a platform will already be 
relatively lower, and the incremental decline in revenues may be lower. 
18.2. Extend the equities transparency regime to shares traded only on MTFs or 
organised trading facilities 
The analysis of the impact on the liquidity (m easured as the average bid-ask spread) of this 
proposal is based on the econometric model bu ilt up by Europe Economics. Their results are 
based on the experience of the UK Alternative Investment Market (AIM), which is regulated 
as a MTF and is part of the London Stock Exchange Group (LSE).  
Since the introduction of MiFID th e AIM complies with the same transparency regime as the 
main LSE market. Hence the im pact of MiFID on the AIM shoul d be similar to the impact 
that would be observed in othe r primary market MTFs if the more detailed transparency 
regime for shares admitted to trading on a regulat ed market were to be applied. It should be 
noted, however, that some other primary market MTFs, such as First North, already comply 
with the same transparency obligations as th e respective main market and hence additional 
benefits of this regulation would apply onl y to a subset of pr imary market MTFs.  
The results presented by Europe  Economics show that bid-ask spreads were approximately 1 
euro cent lower in the post-MiFID period for AI M stocks, a decrease of  approximately 16 per 
cent relative to the average bid-ask spread in the pre-MiFID period. This is a significant 
impact on transaction costs and hence investor s may benefit from the application of the 
detailed trade transparency regime to primary market MTFs that do no t already comply with 
such measures. 
 
 240    18.3. Post-trade transparency in non-equities 
There are a number of potential positive impacts of increased post-trade transparency. The 
impacts discussed here are theore tical, or drawn from the analysis  of other markets. Much of 
the evidence supporting post-trade transparen cy comes from analysis of the post-trade 
reporting system in the U.S, TRACE. Please see Annex 18 for a summary of the TRACE 
initiative and the main findings of the three seminal studies analysing the impacts of the 
initiative. 
18.3.1.  Reduce transactions costs (narrow spreads) 
Reduce market-maker rents. It is suggested that opaque markets tend to benefit relatively well 
informed dealers in their negotiations with cu stomers. Increased transparency may improve 
customers’ ability to control and evaluate trad e execution costs and protect themselves against 
unfair pricing.387 Green et al. (2004) and Harris and Piwowar (2005) examine trade in US 
municipal bonds, and both find th at small trades pay much larg er percentage trading costs 
than large trades. Schultz (2001) finds that th e bid-ask spreads on US corporate bonds also 
decline with trade size.388 Each set of authors conclude that this may occur because small 
investors cannot easily evaluate the tradi ng costs they pay in the opaque market. 
Decrease market-making costs: increased tran sparency in a dealer market may improve 
inventory risk sharing, thus d ecreasing inventory carrying costs.389 In an opaque market, the 
lack of transparency can encourage strategi c behaviour, whereby liquidity suppliers will 
slowly unwind a large trad e with further step-by-step trades with different dealers at different 
points in time, seeking to minimise the price im pact. This will reduce the overall risk sharing 
gains from trade in the market place and, in that  sense, its liquidity. In a transparent market, 
on the other hand, such strate gic behaviour is not possible (as al dealers will know if a 
supplier is trying to unwi nd a trade) and thus risk  sharing can be greater . In reality, however, 
increased transparency appears to  increase dealers’ risk as they  find it much more difficult to 
unwind their trades when the market ha s the ability to move against them. 
All three studies390 examining the impacts of TRACE fi nd that TRACE significantly reduced 
transaction costs (spreads). W ith the exception of a few trade size groups, the spreads of all 
bonds whose prices become transparent under TRACE decline by more than those of the 
control groups. Goldstein et al. find that this effect is stro ngest for small and intermediate 
trade sizes (between 101 and 250 bonds). These re sults are consistent w ith investors’ ability 
to negotiate better term s of trade with dealers once they have access to broader bond-pricing 
data. These results suggest that public traders benefit significantly from pr ice transparency. If 
transactions costs are a deterrent to retail interest , it can be expected that retail interest should 
increase with lower transaction costs associated  with transparency. In addition, Bessembinder 
et al. find this effect evident even  with large institutional trades. 
Increased transparency can re duce transactions co sts and improve liquidity if customers 
originally (in the opaque market) paid a search  cost to find out quote prices from different 
dealers. Transparency in this case will reduc e information asymmetries, increase competition 
between dealers, narrow spreads and increase  the number of inve stors in the market. 
The view from market participants in mixed.  Approximately 40 per cen t of respondents (buy-
side, sell-side and repo) to ICMA’s survey  on corporate bond market s felt that bid-offer 
spreads would be positively impacted by higher tr ansparency, but a greater majority felt that 
this would not be the case.391  
 
 241    18.3.2.  Increase liquidity 
Some argue that increased transparency in the bond market will facilitate better deterrence 
and detection of fraud and manipulation and wi ll improve pricing efficiency and competition 
in bond markets, leading to lower transactions costs. 
Greater transparency may reduce adverse selec tion and encourage uninformed investors to 
enter the trading arena. This of course depends  on the scale of retail investors in the market 
(and likelihood that this increases). For exam ple, in the US municipal bonds are more 
attractive to retail investors than corporate bonds as they are tax free and offered in more 
numerous, smaller issues. EU corporate bond market s have relatively low re tail participation, 
even with the exis tence of retail-focused initiatives. 
Just under 60 per cent of respondents to ICMA’s survey on transparency and liquidity in bond 
markets felt that greater post-trade transparen cy would improve liquidity in the corporate 
bonds market. 392 This was lower than the proporti on in favour of gr eater pre-trade 
transparency. Other factors that were felt woul d contribute more to in creased liquidity were 
greater volume transparency, larger  issue size and grater electronic trading. It must be kept in 
mind, however, that the nature and structure of the post-trade transparency regime was not 
specified in the survey, and ther e is significant concern about liquidity relating to relatively 
stringent post-trade transparency requirements. 
18.3.3.  Liquidity externality  
Transaction reporting for some bond issues may also improve the market quality for other 
issues. Amihud et al. (1997) report that an impr ovement in the trading mechanism used for a 
subset of Tel Aviv Stock Exchange securities led to an enhanced liquidity not only for the 
affected stocks, but also for correlated st ocks with no change in trading mechanism. 
Bessembinder et al. (2006) suggest that a liquid ity externality is particularly plausible for 
corporate bonds, since market practitioners often estimate the value of non-traded bonds on 
“matrix” pricing that incorporates bond charact eristics and observed prices for bonds that do 
trade.393  
18.3.4.  Reduce information gathering 
An increase in transparency could reduce the bene fits to market makers of collecting superior 
information, which could adversely affect incen tives for traders to incur costs in order to 
become more informed. This could in turn a ffect the informational efficiency of the bond 
market. 
As reported in the CESR report (2009), a number of sell-side market participants are of the 
opinion that different market part icipants has access to different  types of price information, 
and that the existence of such di fferences is not a market failure  per se. Differences in trading 
information may effectively exist if participants  who stand to benefit for the information feel 
they are benefitting more than they are comp ensating the person gathering the information. 
Mandatory transparency, without  appropriate compensation, ma y remove the incentive to 
generate information.  
18.3.5.  Valuation practices 
A report by the Institute of International Fina nce indicates that post-trade information about 
prices and volumes in the bonds market is critic al to the reinforcement of valuation practices 
for credit instruments and as supplementary info rmation on the scale of risk transfers. Post-
 
 242    trade transparency is ke y for the price discovery and valuat ion of specific st ructured products. 
In some cases, where the underlying assets are sufficiently liquid, the primary valuation often 
does not entail the use of a valuation model, but  rather rely on market quotes (both at the 
underlying asset and the stru ctured products level).394. 
In the current financial situation, it is held  by some that the Cred it Default Swap (CDS) 
market is no longer a reliable indicator for bond price valuation –– whilst ordinarily some 
market participants say that the CDS market is useful as a means to obtain some price 
information, in the current financial turmo il the link between prices provided by CDS and 
prices for cash bond have uncoupled so that the CDS market is no longer considered to be a 
reliable indicator for bond pric e valuation. In light of th is, among other issues, some 
respondents to CESR maintained that additiona l post-trade transparency in the bond market 
could assist in valuing portfolios more accurately395. 
A large number of respondents to  the CESR consultati on agreed that a greater amount of post-
trade information would assist  in properly valuing European  corporate bonds. Regarding the 
role of post-trade transparency  for valuation in distressed ma rket conditions, most respondents 
considered that post-trade transparency might be helpful for valuation purposes, e.g. in a 
situation where there are more pa rticipants with more  access to see the pr ices where bonds are 
trading, their confidence to trade an d investor confiden ce will both improve.396 
Lack of transparency may contribute to market failure or reduce the efficiency of the market. 
For example, some market participants may ha ve limited access to trading information, or 
find it prohibitively expensive to obtain, which may in turn affect their ability to determine a 
fair price at which to trade. In the case of i nvestment firms acting on be half of clients, this 
may reduce their ability to obtain best execution for their clients. Some market participants 
may be able to exploit these differences in access to information in a systematic way, earning rents at the expense of less informed participants.  
The CESR report suggests that even though market transparency is less essential for bonds as 
there is more information available to assess thei r intrinsic value, it could help to “correctly” 
price this kind of assets which could mean that portfolios are more  accurately valued.  
Evidence from TRACE has shown that TRACE has directly benefitted investors and traders 
by increasing the precision of corporate bond va luation and consequently decreasing the bond 
price dispersion. Research indica ted that at the individual bond le vel, regardless of rating or 
issue size, pricing marks across a fund became much tighter once TRACE was implemented.  
18.3.6.  Applying TRACE to EU markets 
Mapping the impacts of TRACE on th e US market to the EU market  is not something that can 
be done easily, if at all. There are important differences between the two markets, such as 
greater competition between dealer s and historically tighter bid- ask spreads in the EU market. 
Trading activity is more highly concentrated in US markets, with a handful of banks or 
dealers controlling the major ity of the trading and syndication. Client intermediation, 
particularly in the less liquid segments of the market, appears to be performed increasingly on 
an agency basis in the US, without  dealers committing their own capital.397 The added value 
of more transparency in the EU is therefore likely to be less th an experienced in the USA. In 
addition, negative consequences to liquidity resulting from deal ers who act as principals and 
commit capital being less able to easily unwi nd large trades in th e face of increased 
transparency are likely to be more  of an issue in EU markets.  
 
 243    Other differences between the two markets in clude the fact that EURO denominated bonds 
are traded more frequently th an US bonds, suggesting that th e former was relatively more 
liquid than the latter before the financial cris is. However, as noted by CESR, post financial 
crisis the spread gap in the US  market in comparison to the EU corporate bond markets is less 
obvious than before, especially fo r higher grade corporate bonds.  
18.3.6.1.  Bond Data analysis 
Europe Economics undertook their own analysis of bond data to examin e the potential impact 
of increased post-trade transparency on trading costs. This was the most cited benefit of 
TRACE in the U.S. Given that the policy options refer to post -trade transparency for bonds 
trades both on exchanges and OTC, they have conducted two sets of analysis.  
18.3.6.2.  Exchange-traded Bond Transparency  
It is widely accepted that RM s and MTFs generally apply tr ansparency requirements to non-
equity products as they do to other products. However, the requirements for non-equities may 
be less rigorous, and currently there are only relatively high level transparency obligations 
with respect to exch anges listing non-equity  products as part of their organisational 
requirements.398 
Information from CESR’s report on Options and Discretions399 describes the formal 
transparency requirements for bond markets in EU Member States. A number of Member 
States have exercised the Option under Recita l 46 of MiFID to exte nd MiFID transparency 
requirements for equities traded on exchange s and MTFs to non-equities. Other Member 
States, while not exercising th is option, have neverthele ss introduced some form of 
transparency.  
The table below summarises the information regarding transparency requirements for non-
equities traded on exchanges. 
In order to collect data on corporate bonds traded on these exchanges and MTFs, Europe 
Economics researched the number of exchanges and MTFs within each country. There are 
many stock exchanges and even more MTFs w ithin Member States. Their criteria for 
including exchanges were that they are includ ed in Bloomberg’s database and list a large 
number of bonds (for example,  Bloomberg includes the Stoc k Exchange of Antwerp where 
only one bond is listed). 
Their research also found that if MiFID tran sparency regime was extended under Recital 46 
then this includes regulated markets and MTFs.  
They created an indicative ‘transparency score’  based on the degree of  formal transparency, 
with the following categories: 
– 1 = similar to equities traded on regulated markets;  
– 2 = no Recital 46 but other requirements;  
– 3 = no apparent transparency. 
– TABLE 48: Transparency requirements in bond markets in EU 
Member States 
 
 244    Member state Main stock 
exchanges400 Transparency of exchange-
traded bonds401 Inde
x402 MiFID Level 2 
implementation
403 
Austria Vienna Stock 
Exchange Option under recital 46 of 
MiFID has not been exercised. Current transparency unknown 3 01/11/07 
Belgium Euronext Brussels R ecital 46 of MiFID has not 
been exercised. Regulated markets however include in their rule books some level of post-trade transparency requirements. 2 01/11/07 
Bulgaria Bulgarian Stock 
Exchange   01/11/07 
Cyprus Cyprus Stock 
Exchange   1-2/11/07 
Czech 
Republic Prague Stock 
Exchange   01/07/08  
Denmark NASDAQ OMX 
Copenhagen Option under recital 46 of 
MiFID has been exercised inasmuch as there is a post-trade transparency requirement for mortgage bonds, covered bonds, corporate bonds and UCITS. 1 
  01/11/07 
Estonia NASDAQ OMX 
Tallinn   19/11/07 
Finland NASDAQ OMX 
Helsinki Option under recital 46 of 
MiFID is partly implemented. Pre- and post-trade transparency requirements are applied to other instruments than shares. Only operators of regulated markets and MTFs are required to disclose appropriate information of trades concluded on a regulated market or an MTF.  1-2 
  01/11/07 
France Euronext Paris The General Rulebook of the 
Autorité des Marches Financiers provides for pre- and post-trade transparency requirements for financial instruments other than shares admitted to trading on a regulated market or on an MTF. 2 
 01/11/07 
 
 245    Germany Berlin Stock 
Exchange 
Dusseldorf Stock 
Exchange 
Stuttgart Stock 
Exchange 
Frankfurt Stock 
Exchange 
Hamburg Stock 
Exchange 
Munich Stock 
Exchange The option under recital 46 of 
MiFID has been exercised by extending the transparency requirements to depository receipts in respect of shares. The information available with respect to the trading of corporate bonds includes the data which is generally required for all financial instruments admitted to trading on regulated markets. These transparency requirements for corporate bonds are also applicable to corporate bonds traded on MTFs operated by an RM. 1-2 
 01/11/07 
Greece Athens Stock 
Exchange Option under recital 46 of 
MiFID has not been exercised. However, under national secondary law, regulated markets should specify in their 
rulebook the pre- and post-trade 
transparency information to be made public in respect of all financial instruments admitted to trading in their systems. 2 
 01/11/07 
Hungary Budapest Stock 
Exchange Option under recital 46 of 
MiFID has not been exercised.  
Information on transactions 
completed through the electronic trading system of the BSE is available on-line for BSE subscribers and with delay of 15 minutes free of charge for the public. 2 01/12/07 
Ireland Irish Stock 
Exchange Option under recital 46 of 
MiFID has not been exercised. 3 01/11/07 and 
21/11/07 
Italy Italian Stock 
Exchange Option under recital 46 of 
MiFID has been exercised. See the section about Italy. 1 1-2/11/07 
Latvia NASDAQ OMX 
Riga Option under recital 46 of 
MiFID has not been exercised. 3 18/05/07 
08/11/07 16/11/07 
 
 246    Lithuania NASDAQ OMX 
Vilnius   01/11/07 
Luxembourg Luxembourg Stock 
Exchange Option under recital 46 of 
MiFID has not been exercised.  
The Luxembourg Stock 
Exchange disseminates information (pre- and post-trade data) on all financial instruments admitted to trading on its regulated market or on its MTF. 2 01/11/07 
Malta Malta Stock 
Exchange Pre- and post-trade transparency 
for corporate and sovereign bonds is equivalent to that for equities on the Regulated Market.
404 1 01/11/07 
Netherlands Amsterdam Stock 
Exchange Option under recital 46 of 
MiFID has not been exercised. 
However, there is a real time 
pre- and post-trade transparency for on-exchange trading of listed bonds. 1-2 01/11/07 
Poland Warsaw Stock 
Exchange Option under recital 46 of 
MiFID has been exercised. There is no difference in pre- and post-trade transparency requirements for all financial instruments that are admitted to trading on a re gulated market 
and an MTF. 1 01/05/08 
Portugal Euronext Lisbon Option under recital 46 of 
MiFID has not b een exercised 
regarding corporate bonds. 3 01/11/07 
Romania Bucharest Stock 
Exchange Option under recital 46 of 
MiFID has been exercised. The 
transparency requirements are identical both for shares and bonds traded on a regulated market. 1 28/02/07 
Slovakia Bratislava Stock 
exchange   01/11/07 
Slovenia Ljubljana Stock 
Exchange   11/08/07 
22/11/07 
 
 247    Spain Barcelona Stock 
Exchange 
Madrid Stock 
Exchange Option under recital 46 of 
MiFID has not been exercised. The Fixed Income Electronic Market uses the same electronic platform as the stock market and it provides pre-trade information on best bid and as ks prices and 
volumes in real time. Circular 3/1999 from the CNMV states certain level of post-trade transparency. 2 17/02/08 
Sweden NASDAQ OMX 
Stockholm Option under recital 46 of 
MiFID has been exercised. For other financial instruments than bonds, the requirements are similar to the MiFID requirements for shares admitted to trading on a regulated market. Transparency requirements for government bonds are less strict and there is currently a discussion with market participants to what extent the similar requirements are applicable to corporate bonds. 2-3 01/11/07 
UK London Stock 
Exchange Option under recital 46 of 
MiFID has not been exercised. Exchanges do provide pre- and post-trade transparency similar to that required for equities, but this does not apply to MTFS. Other publicly available post-trade data is limited to the information currently captured by the ICMA self-regulatory initiative. 2 
 01/11/07 
Source: CESR (2009) “Transpare ncy of corporate bond, structur ed finance produc t and credit 
derivatives markets” 
The tale below presents the Member Stat es within each of their categories.  
– TABLE 49:  Transparency rating  
(1) Option under Recital 46 
exercised (2) Other transparency 
requirements (3) No apparent transparency 
 
 248    Denmark; Finland; Germany; 
Italy; Malta; Poland; Romania;  Belgium; France; Greece; 
Netherlands; Spain; Sweden; UK Austria; Ireland; Latvia; 
Portugal;  
Notes: Although the Option under R ecital 46 has been exercise d in Sweden, corporate bonds 
are currently subject to lighter transparency requirements and thus Sweden is classified as 2 
here. 
I t  m u s t  b e  n o t e d  t h a t  i n  I t a l y transparency requirements did exist for financial instruments 
other than shares traded on regulated markets before the introduction of MiFID. These 
requirements were characterised by a flexible  approach which did not prescribe specific 
transparency requirements for trading venues in terms of timing and content of information to 
be made available to the public. Trading venues c ould design their transparency rules, taking 
into account the market microstructure, the nature of the financial instrument and the type of market participants involved. Whilst it is not clear how the transparency requirements have 
changed since the exercising of the option under Recital 46, we assume that the regime has 
become more formalised and that the level of transparency has increased. Furthermore, some 
platforms previously not included in transpar ency requirements have now been brought into 
the scope. 
They downloaded from Bloomb erg daily information on cor porate bonds listed on the main 
exchanges within each country (as opposed to bonds  issued in particul ar countries, as we 
assume that transparency requirements will ma tter more according to where a bond is traded 
than where it is issued ). Information includes: 
(a) average daily bid price; (b) average daily ask price; (c) average daily mid price; They calculated the rela tive spread for each bond at each day as (Aski,t −Bidi,t)/Midi,t and 
then compared the evolution in the spreads for bonds in the ‘Intervent ion Group’ (those listed 
on exchanges with MiFID-like transparency - Category 1) and the ‘Control Group’ (those 
listed on exchanges with Recital 46 no t exercised – Category 2 and 3).  
The statistical analysis presented below is base d on daily observations from the fourth quarter 
of 2006 (pre-MiFID) and the fourth quarter of 2009 (post- MiFID). They chose these date 
ranges to compare the change in spreads befo re and after the adoption of MiFID and the 
increase in transparency. They have not in cluded 2007 and 2008 to avoid the effects of the 
volatility of the financial crisis , and also because the exercising of Recital 46 in the relevant 
countries may have occurred at some time after the introduction of MiFID.  
The figure below shows the evol ution of relative bid-ask spr eads in corporate bonds between 
the end of the last quarter of 2006 and th e beginning of the last quarter of 2009. 
 
 249    – FIGURE 18  
0.00%0.05%0.10%0.15%0.20%0.25%0.30%0.35%0.40%
10/02/2006
10/13/200610/26/2006
11/08/2006
11/21/200612/04/200612/15/200612/28/200610/12/200910/23/200911/05/2009
11/18/2009
12/01/200912/14/200912/25/2009Control group Intervention group 
Source: Bloomberg and EE analysis  
As can be seen, relative spr eads increased signif icantly between 2006 and 2009, although this 
is almost certainly a result of the financial crisis and not the introduction of MiFID. The main 
explanations for this include a withdrawal of liquidity provisi on by market makers and banks, 
overall market volatility and sharply reduced risk appetite. Other lik ely factors were the 
widespread lack of confidence, the reduction in the number of market counterparties and 
increased uncertainties regarding credit spreads  
Despite the widening of spreads in  all markets, it is clear that  bonds traded on exchanges with 
a higher degree of transparency did not increase as much as bonds traded on other exchanges. 
Using the student's t test and taking into account unequal sample sizes  and unequal variances 
in post and after MiFID periods, they could conc lude that the increase in relative bid-ask 
spread is significantly lower for the intervention group compared with the control group on 
any sensible significance level. This suggests th at applying MiFI D transparency regulations to 
corporate bond markets helps to lo wer the relative bid-ask spread.405 
The gap in spreads between the intervention and control groups widened after MiFID by an 
average of 0.0809% across the period, which is equi valent to eight basis points. It is possible 
that the relative reduction in sp reads in the intervention group was not all due to post-trade 
transparency. However, for simplicity’s sake if we  assume that it was, th en the effects of post-
trade transparency can be viewed as a reduc tion in eight basis point of relative bid-ask 
spreads. 
Data relating to the va lue bonds transactions conducted on EU exchanges406 enables them to 
estimate the value of this reduction in bid-ask spreads. Assuming that exchanges in countries 
 
 250    in the control group (i.e. t hose without the Opti on under Recital 46 exercised) could 
experience a similar reduction in relative bid-ask spreads after introducing post-trade 
transparency, then th is could amount to €8 million euro a year.407 It must be emphasised, 
however, that these calculations are very r ough estimates, and serve only to indicate the 
potential scale of trading cost reducti ons arising from post-trade transparency. 
Whilst this spread analysis re lates only to corporate bonds, we could apply the same rationale 
to government bonds. However, government bonds ma rkets are widely held to be far more 
liquid and transparent th an corporate bond markets,408 and thus the impacts of additional 
transparency requirements are like ly to be significantly lower. 
18.3.6.3.  Bonds Traded OTC 
The vast majority of corporate and government  bonds are traded over the counter (estimated 
at 89 per cent of all trades).409 Furthermore, in terms of post- trade transparen cy bonds traded 
OTC are likely to be less transparent than bonds traded on regulated markets (even though 
Recital 46 of the MiFID options  and discretions has only been  applied in nine countries) 
given high-level transparency requirements for the majority of regulated markets. 
In order to assess the potential impact of gr eater post-trade transparency on the indirect 
transactions costs of bonds (e.g . bid-ask spreads), Europe Econo mics compared the spreads of 
OTC bonds from Member States for which a post-t rade transparency regi me already exists to 
some degree. 
In most cases the Recital option discussed above was exercised only in relation to non-
equities traded on exchanges and MTFs. However,  in some countries po st-trade transparency 
was also extended to OTC trades. Italy and, to a lesser extent, Denmark, are two such counties 
where post-trade transparency al ready exists in OTC markets. 
Italy 
Post-trade transparency in OT C corporate bonds has existed in  Italy since before MiFID. 
According to CONSOB, prior to MiFID implementation there existed obligations for investment firms to report off-market transactions in financial instruments (admitted to trading on regulated markets) to regulated market s. This transparency regime is characterised 
by a flexible approach, and firms are able to benefit from work done already for transaction 
reporting purposes. 
Investment firms are obliged to make public th e information concerning the date and time of 
the transaction, the details of the financial instrument  involved, and the pr ice and quantity of 
the transaction. The obligations apply to transactions below or equal EUR500,000. For 
transactions exceeding this thre shold, investment firms are al lowed not to publish the quantity 
and instead provide an indicati on that the transaction exceeds the threshold. In terms of 
timing, the information has to be published with reference to each transaction by the end of the working day following conclusion of th e transaction (i.e. the following day).
410 411 The 
fact that the information is reported at the end of the following da y enables the firms to 
overlap (to some extent) this trade reporting obligation with tr ansaction reporting obligations, 
which are also done at the end of the day. 
These levels of transparency were formalised  after MiFID through Leve l 3 guidance issued by 
CONSOB in relation to areas not covered by MiFID (such as OTC trading obligations), and 
the nature of the transparency did not change significantly.412 Even though Level 3 guidance 
 
 251    is not full law, CONSOB main tains that their recommendations  have been met with support 
among market participants. The two main associations for ba nking and investment (ABI and 
Assosim) have issued industry guidance (ratified by CONSOB) th at closely reflects 
CONSOB’s recommendations. 
Very little analysis of the transparency regime  has been undertaken in Italy. According to 
CONSOB, based on the information available to them, the transparency regime is working 
well, without any negative impacts on liquidity  and investment stra tegies. Other Italian 
commentators also agree that the regime is successful. However, given the important timing 
delay, no analysis in terms of  liquidity effects ha s been possible. Furthermore, it has been 
highlighted by the LSE Group (of which Borsa It aliana is a member), that the Italian bond 
market has different characteristics to the rest of  Europe (in particular a larger retail investor 
base, which developed be fore any transparency was introdu ced) which suggests more inherent 
liquidity and transparency. In terms of the form alised transparency arrangements after MiFID 
under the Level 3 guid ance, CESR is of the opini on that it is too early to accurately  assess the 
impact of the these requirements on Italian bond markets.413 However, given that little has 
changed it is not likely that significant impacts will be seen. 
Denmark  
Post-trade transparency requirements exist in  the OTC bond market in Denmark, but only 
apply to bonds listed on the NASDAQ OMX CPH that are traded OTC. Trade reporting is 
done through the OTC Publication Service, and all users of the OTC Publication Service must 
have appropriate technical connections with NASDAQ OMX.414 
The information to be included in the post- trade reporting of OTC trades is Order book 
identification; buyer/seller; pr ice; volume; counterparty; tr ade type; and time of trade 
(agreement). Trades that take place during opening hours must be reported/published no later 
than three minutes from the time of the agreement.415 
18.3.6.4.  Data used 
The dataset analysed by Europe Economics cons ists of information regarding amount issued, 
bid and ask spreads, maturity, credit rating,  sector and country for 914 corporate and 
government bonds for the last day of April, Ju ly and September of 2010,  provided by Markit 
from their Evaluated Bond data.416 Whilst it is not possible to state exactly how the coverage 
of their dataset reflects the overall corpor ate and government bond market in the EU, they 
consider it to be clos ely representative.  
A significant aspect of their data set, however, (t his is also the case with data sets used in 
other studies) is that it repres ents the more liquid and frequently traded bonds in the EU, as 
these are the bonds for which the most informatio n is available. In addition, because they 
required bonds with available pricing information in order to carry out our bid/offer spread 
analysis, the bonds included are by definition more  liquid and frequently traded (so that this 
information is available for each bond on a conti nuous basis). The greater liquidity of their 
sample must be kept in mind wh en viewing our results. Increases  in transparency could have a 
greater effect on less liquid bonds  due to the lack of current in formation. On the other hand, 
negative effects on liquidity are likely  to be greater for less liquid bonds. 
 
 252    18.3.6.5.  Transparency analysis 
In order to assess the potential impact of pos t-trade transparency on bid-ask spreads they 
adopted two methods. 
The first involves comparing average spreads per country in order to see if more transparent 
countries (Italy and Denmark) exhibit lower sp reads. The impact of increased post-trade 
transparency on corporate bonds di d not appear to be strong. 
Their second method of examining the impact of  increased transparency  involves the use of 
their indicative transparency sc ore used in the anal ysis of exchange-traded bonds above. Even 
though this transparency variable relates to ex change-traded bonds, they believe it can reflect 
an overall level of tran sparency for the same bonds traded OTC. Comparing the bonds in their 
OTC data set with data available on Bloomber g shows that nearly all the bonds within their 
OTC sample are also traded on exchanges. It must be kept in mind, however, that trades 
conducted on exchanges are likely to be far smaller than trades conducted over the counter, and thus price information obtained from exch ange trading may only have a limited effect on 
the spreads of bonds traded OTC. This data set includes both government bonds and corporate 
bonds within the same regime. 
The figures below indicate that spreads ar e lower for OTC corporate and government bond 
trades in countries with higher exchange-bas ed post-trade transparency. This takes into 
account issue size, and ensures th at the spread-reducing effect s of large issue size do not 
interfere with the effect of post-trade transparency. 
– FIGURE 19 : Corporate bond Average Spreads by Issue Size and Transparency Score 
0.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%1.60%1.80%2.00%
< 500 501 - 1000 > 1001High Medium Low 
Source: Markit Evaluated Bonds data and EE analysis  
 
 253    The figure above presents a very  interesting result. Transpar ency of exchange-traded bonds 
(measured by our transparency score) appears to influence (or at least to be correlated with) 
the trading costs of bonds tr aded over the counter , as average spreads for OTC bonds are 
lower, particularly for smaller issue sizes, in  Member States where post-trade transparency 
exists for regulated markets. This result is far stronger than our an alysis of spreads in 
Members States that have transparency par ticular to OTC markets. This suggests that 
improvements in exchange-based post-trade tr ansparency could have a positive effect on the 
OTC bond market. This result could be related to  the concepts of a liquidity externality, 
whereby increased transparency in one segment of the bonds market affects the spreads of 
other, non-transparent bonds.  
– FIGURE 20 : Government Bond Average Spreads by Issue Size and 
Transparency Score 
0.00%0.20%0.40%0.60%0.80%1.00%1.20%
< 500 501 - 1000 > 1001High Medium Low 
Source: Markit Evaluated Bonds data and EE analysis  
The effects of exchange-based transparency for government bonds  are much less convincing. 
They believe this is likely to be related to th e fact that government bon ds, particularly those 
traded on exchanges, are already significantl y more transparent an d more liquid than 
corporate bonds, making the impact of fo rmal transparency far less noticeable. 
18.3.6.6.  Impacts on liquidity  
The possible negative impacts on liquidity resu lting from increased post-trade transparency, 
in particular whether it is to be in real-time or at end of da y, have been raised as a very 
significant concern of market pa rticipants and industry associat ions. However, assessing the 
impact of increased post-trade transparency on the liquidity of European markets is made 
difficult given both the lack of information on trading volumes, trading activity and spreads, 
 
 254    and evidence of liquidity impacts from other tr ansparency regimes such as TRACE or Italy’s 
bond market.417 This section provides an analysis of the possible impacts of post-trade 
transparency, setting out possible ways in which liquid ity could be affected  and the potential 
universe of trades affected. 
Any analysis of the impacts of transparency on liquidity rests on the definition of liquidity. 
This includes a number of components such as  market depth (i.e. the market's ability to 
sustain relatively large market orders without impacting the price), trade volume, resilience, 
trading costs as well as the ease of transacting.418 Europe Economics provides us with an 
analysis of these factors separately. 
Trading costs Trading costs include direct cost s to market participants of trading (e.g. exchange fees, the 
costs of linking to electronic pl atforms, front and back office costs), indirect costs covering, 
for example, search costs (inc luded in bid-ask spreads) a nd market impact costs (the 
opportunity cost resultin g in movements in market price be fore a trade has been completed), 
which can also be reflected in the bid-ask sp reads as dealers seek to protect themselves 
against trading at an informational disadvantage.  In terms of the liquidity debate, indirect 
costs and market impact costs are the most relevant.  
Dealers that provide liquidity in markets and act as principals in trades (commit their own 
capital when enabling a trade be tween two counterparties) need to be compensated for this 
service, not least due to the risk they face when taking the trade onto their own order books 
and unwinding it at a later stage.  This risk premium forms part of the bid-ask spread. The 
authors of an ECB paper on the impacts of transparency on liquidity provide a simple 
analytical framework for considering liquidity.
419 In this framework, this risk premium 
consists mainly of credit and liquidity premia.420 The liquidity premium is the additional yield 
investors demand as compensation for the potentia l reduction in price they may have to accept 
if they need to sell or unw ind a bond immediately, compared  with the price they would 
receive if they could afford to wait until a buyer willing to pay the ‘market price’ appears. The 
authors identify two main driver s of the liquidity premium: 
• Search liquidity, which represen ts the costs in terms of ti me, information asymmetries, 
capital, funding and research costs required for a trader to locate a willing buyer for a stock 
he has recently purchased. Search liquidity is likely to be the main driver during ‘quiet 
times’, and is likely to be improved through in creased trade transpar ency. If traders are 
aware of the activities and ava ilability of other buyers or sellers then the search costs of 
finding suitable counterparties should be reduced. 
• Systemic liquidity is a more suitable concept in times of market stre ss when investor risk-
appetite has fallen and buyers are both less co mmon and prices are lowe r. A trader buying 
stock (or providing liquidity to a trade) will therefore require a greater compensation for the risk that he will have to  unwind the trade in the face of  falling prices and fewer buyers. 
The driver of this liquidity is the behaviour of market participants, and is related to how 
homogenous they are (for example, if investors are homogenous in their information, valuation and risk management they will all react in a similar way to signals thus causing a possible wide-spread redu ction in liquidity). 
Systemic liquidity can be affected by increased transparency. After large trades in transparent 
markets, liquidity suppliers can be in a difficu lt bargaining position to unwind their inventory, 
as competitors will have observed the initial tr ade and will be aware of the former supplier’s 
 
 255    need to resell, and could ‘act together’ and offer lower prices. These movements in the market 
could increase the margin that liquidity suppliers  will require from investors to offer liquidity 
initially. 
It is possible to see a tension between syst emic liquidity and sear ch liquidity, whereby 
increased transparency undermines the role of market-makers and reduces search costs 
(increasing search liquid ity) but at the same time exposes d ealers to the behaviour of market 
participants through increasing th e homogeneity of information, risking for them a move in 
the market upon acquisition of a large trade which will have to be unwound (decreasing 
systemic liquidity). Therefor e, although observed decreases in  transaction costs (bid-ask 
spreads) may indicate an increa se in search liquidity, it may be  possible that a reduction in 
systemic liquidity is occurring alongside resulting in negative market impacts. 
For example, in some large transparent market s there is evidence of an increasing frequency 
of liquidity black holes (short te rm unavailability of liquidity),  combined with declining bid-
ask spreads.421 
The three seminal papers on the impacts of TR ACE point to a tightening of spreads in the 
corporate bonds market.422 This is discussed in more detail above in the section on benefits. 
Viewed in terms of our liquidity framework,  this could suggest (among other things) an 
increase in search liquidity wh ereby traders’ uncerta inty about finding buye rs and sellers at 
any one time is reduced and the risk premium th ey demand for searching decreases. However, 
there could also be support fo r a reduction in systemic liqui dity having an opposite effect on 
spreads. Although no study found that spreads wide ned for large trades, all found that the 
tightening of spreads after increased transparency  was lowest for large trades (and at times 
statistically insignificant), whic h could indicate a counteractive,  but proportionately smaller, 
effect as a result of a decr ease in systemic liquidity. 
It is argued that the three research papers th at show TRACE has tighten ed bid-ask spreads and 
thus not damaged liquidity focus on a too narrow definition of liquidity, and that it is likely that other factors such as market depth, tr ade volume and the ease of transacting have all 
declined post-TRACE.
423 We now turn to these issues. 
Market depth The market impact of increa sed transparency discussed a bove can have further negative 
implications for liquidity by reducing the willingness of dealers to commit capital. This could happen alongside a widening of spreads if dealers feel that  negative market movements 
cannot be sufficiently compensated for by increases in bid-ask spread s. This in tu rn could lead 
to a further reduction in liquid ity. The withdrawal of liquidity and increased difficulty in 
finding suitable counterparties is viewed as a serious consequence by th e industry. Increased 
market impacts may also lead to increased pri ce volatility (if the price changes more often as 
a result of large trades) a nd affect price discovery. 
According to a small survey  of high yield investors,
424 referred to in several SIFMA 
presentations, 54 per cent of them believed th at TRACE had negatively  affected dealers’ 
willingness to commit capital or to provide liquidity.  
Trade volumes Evidence from the USA market points to a possibl e reduction in trade volumes after TRACE. 
Goldstein et al find that for one  set of bonds examined there is a significant decl ine in average 
 
 256    daily trading volume between transparent and non-tr ansparent bonds (alt hough this result is 
not significant for othe r sets of bonds, not for very larg e trades). Although Bessembinder and 
Maxwell argue that average dail y trading volumes of corporate debt securities increased 
rather than decreased from 2002 to 2007, the to tal amount of corporate debt outstanding also 
increased over this period, by a far larger proportion (an increase of  42 per cent compared 
with an increase in tradi ng volumes of 27 per cent).425 This indicates that trading volumes 
failed to keep pace with the total amount of corpor ate debt outstanding. Whilst it must be kept 
in mind that this relatively slow  increase in corporate bond trading may be due to the fact that 
in recent years much credit trading has mi grated from corporat e bonds to derivative 
instruments such as credit default swaps (and th at this migration is not necessarily due to 
TRACE), it cannot be conclusi vely argued that the increase  in bond trading since TRACE 
shows that TRACE has not impaired li quidity in the corporate bond markets.426 
Furthermore, the TRACE studies do not take in to account the developmen t of alternative and 
parallel markets for acquiring a nd hedging credit risk, such as the CDS market, and their role 
in price discovery.427 Whilst we do not have direct evidence  for this, it has been suggested to 
us by a number of market partic ipants that the price discove ry and liquidity in the CDS 
market may have offset some of the negative e ffects on liquidity in th e corporate bond market 
resulting from TRACE. 
Shift towards a broker market  (ease of transacting)  
A bid-ask spread is a pr e-trade, posted spread, indicating the combination of prices at which a 
dealer is willing to buy and sell  a specified amount of securities.  A bid-ask spread represents a 
dealer mark-up, i.e. the implicit profit the dealer makes on a security he buys from one 
counterparty and sells to anothe r, relevant when dealers act as principals and put trading 
capital at risk. When dealers act  as agents, i.e. identifying suita ble counterparties to a trade 
without putting their own capital at risk, then they would ear n a commission to compensate 
their search costs, which would be a predet ermined, disclosed amount paid by the buyer or 
seller to the dealer.428 
The reduction in mark-ups after TRACE identif ied by the three studies may have occurred 
because fewer trades have been executed on a principal (capital risk) basis and more on an 
agency (risk-free) basis, or that relatively fewe r and smaller trades have been completed. Such 
a rise in the agency or brokerage role of deal ers would not necessarily be in the interests of 
investors, as the immediacy of trades conducted on an agency basis is lik ely to be lower than 
those conducted on a principal basis. In models of agency/brokerage, th e bids may remain the 
same as when the dealers commit capital (or inde ed decrease as the mark-up has been reduced 
and instead a commission is paid) but the time to  execute the trade may take much longer, as a 
suitable counterparty needs to be identified before the dealer will arrange the trade. 
Indeed, Bessembinder and Maxwell (2008) found that market partic ipants whom they 
surveyed (including small, medium and larg e investment firms an d medium and large 
corporate bond dealers) “were nearly unanimous that tradi ng is more difficult after the 
introduction of TRACE”.429 
This puts investors at risk as they are open to  price movements between  first putting an order 
with a dealer and having a suita ble counterparty found. The risk in this case moves from the 
dealer to the investor (where previously the dealer would ha ve bought all the bonds being sold 
by the investor, he now may buy fewer bonds and ta ke the rest on order so that he does not 
have to bear the risk of the market moving ag ainst him as a result of increased post-trade 
transparency), and the loss to the investor of  price movements could be far higher than the 
 
 257    savings in mark-up he or she made.430 In addition to losses made from price movements, 
opportunity costs of unexecuted trad es resulting from a shortage of market makers should also 
be considered and c ould be significant. 
Feedback from interviews with  industry associations repr esenting both buy- and sell-side 
market participants highlights this possibility  of an increase in the broker, rather than 
principal, role of dealers. 
Impact on end clients As mentioned previously, the si gnificant risk to dealers posed  by post-trade transparency may 
result in dealers widening bid-offer spreads in order to compensate for this additional risk, or 
employing a larger brokerage role by either delaying the execution of a contract until a 
suitable counterparty is found, or by breaking up  a client’s position into smaller parts. Both 
these actions would shift cost and risk onto the client, increasing the need for client 
sophistication. 
Further analysis  Measuring how the possible effects of transparen cy on liquidity described above could impact 
the EU bond and derivative markets is difficult give n the lack of data and the absence of any 
existing analysis that explicitly measures thes e effects (the results of the TRACE studies do 
not adequately address these effects, and are al so not applicable to th e EU context given the 
significant differences between  the EU and US markets). 
It must also be kept in mind that large trades  occurring under the curre nt system could still 
have a degree of market impact, particularly where products are infrequently traded and 
market depth is low: a buyer being contacted in  these circumstances by a dealer wanting to 
unwind a very large trade will know that the deal er might not have many alternative options 
and may factor in this know ledge when quoting a price. 
The extent to which increased transparency will increase this market im pact will depend to a 
large extent on the calibration of a transparency  regime. If very large trades are allowed to 
remain opaque to a substantial degree (e.g. by having no post-trade volume information 
published) then the negative impacts on liqu idity may not be severe. The timing of 
information disclosure is also an important factor. 
18.4. Ban inducements in the case of inves tment advice provided on an independent 
baisis and in the case of protfolio management 
Inducements are typically employed for packag ed investment products, such as UCITs and 
other forms of PRIPs.   
18.4.1.  Independent advice 
Europe Economics estimates the population of inde pendent financial adviso rs to 50,000, with 
about 60% of those in the UK (see Annex 5. 2.10). Reliance on third party inducements by 
investment advisors is  extremely widespread431, with commission-based models being 
widespread. 
The following possible effects of this measure could take place: 
 
 258    • There is a risk that a number of small provid ers may exit the market as a result of the ban 
of inducements432 (notably those for which commissi ons is an important source of 
revenues and that will not be willing or able to change their business model).  The impact of the UK FSA’s Retail Distribution Review  (RDR) dealing with  the regulation of 
inducements when advice is provided could be  used a reference point. It should be 
mentioned, however, that the RDR proposes more  stringent restrictions  on the treatment of 
inducements since it deals homogeneously with inducements provided for in any form of 
advice (not only indepe ndent); furthermore, the RDR d eals with products and entities 
which are not covered under MiFI D (i.e. entities providing insu rance products). In addition 
it also includes measures on professional sta ndards (i.e. professional qualifications of 
advisors). Lastly it should be  taken into account that th ere is a broader population of 
investment advisors in the UK, including a significant proportion of small advisors. Having 
said than, it is anticipated that, 23 per cent of  UK advisory firms might exit the market as a 
result of the RDR, with a much higher ratio amongst the sm allest advisers (those with 
annual incomes below €50,000). Overall, advi ser numbers would fall by about 11 per cent. 
This includes, for instance, sm all providers which are close to  retiring and wi ll not find 
worthwhile to make investment s to adapt to the new rules.
433 If the overall fall in adviser 
numbers relating to the UK (i.e. a bout 11 per cent) is applied here  then it implies that about 
2,000 advisers would leave the industry.   
• There is a significant possibility that many investment advise rs working with a 
remuneration structure geared towards third-pa rty commissions would simply cease to self-
describe as being independent and switc h their business to the provision of non-
independent advice (in that making the nature of their business more transparent to clients).  
• There may be a switching effect away (by cl ients) from advisers that switch from a 
commission-basis to a fee-basis.  The scale of this switch will be critically dependent upon 
the extent to which consumers value (and are therefore willing to pay) “ independent  
investment advice” against “investment advice”. If this is the case, any secular trend towards independent advice (in th e sense of not being restricted  in market choice and also 
having a remuneration structur e geared towards downstream  remuneration) would be 
considerably strengthened. This would benefit consumer choice and the quality of service received.  
18.4.2.  Portfolio management 
Based on Europe Economics bulk estimates, th e EU portfolio management industry could 
have revenues of at least €25bn. This would equate to perhaps 17 million customers and an industry of over 150,000 pe ople (see Annex 5.2.10). 
Whereas in investment advice provided on packaged products downstream charging is 
typically not standard practice, fees are usua lly charged to final i nvestors in the case of 
discretionary portfolio management.  
The only European country where inducements ar e strongly discouraged  in the context of 
portfolio management is Italy. Unfortunately no data are available to assess the scale of the changes driven by such a measure in Italy. An  Italian trade associa tion described this as 
having had the following impact on the business models of banks: 
• the reduction in the use of  inducements has resulted in an increase in the charges levied on 
investors (to compensate the portfolio ma nagers for the revenues lost — however, 
previously the customer would have borne th ese charges implicitly as the product provider 
 
 259    would have charge higher fees in order to enable him to pay commissions to the portfolio 
manager and these fees would have been deduc ted from the investment returns achieved)  
• A switch away from packaged products (where there had been inducements) towards direct 
investments by portfolio managers.  
However, we note that private banking and discretionary port folio management (combined) 
have been recently estimated to account for about  6 per cent of mutual fund distribution in 
Italy.434 This was 7 per cent in 2007 (FERI Fund Market Information). Whilst we recognise 
that market changes flowing from the regulatory change in Italy may not be fully reflected in 
the current estimate (and there could also be ot her drivers of the change) and that the split 
between private banking and discretionary po rtfolio management activities might have 
changed this scale of change does not appear likely to be having significant impacts upon the 
asset management sector.  
Another relevant example could be the UK which as part of its  Retail Distribution Review is 
considering eliminating inducements for portfol io management when they provide personal 
recommendation to clients. Apparently the adve nt of the new charging approach (i.e. fee-
based instead of commission-base d) does not seem to be in it self a major concern for the UK 
industry. Indeed, 26 per cent of discretionary por tfolio managers antic ipate an increase in 
business (i.e. more customers) due to the incr eased transparency in charging and consequent 
increase in confidence.435 
Whether the same impacts would occur if this model were applied elsewhere in Europe is 
unclear. There are only limited data on the importance of disc retionary portfolio management 
as a distribution channel for these packag ed products. The importance of portfolio 
management (together with private banking) in th e distribution of these funds is estimated to 
range from 6 per cent (in Italy, Spain and th e UK) up to 9.5 per cent in France and 10.7 per 
cent in Germany.436 It follows that there could be so me impacts upon the asset management 
industry, particularly in mark ets (e.g. Luxembourg or Germany) where inducements remain a 
more important aspect of the business model th an in the UK or where portfolio management 
represents a more important component within the distribu tion of funds (e.g. France, 
Germany).  
If distribution through portfolio managers dec lines by 15 per cent (the decline implied by the 
initial data on the Italian market, and if that is wholly attributed to the impact of the 
inducements ban) — without any increase from other sources such  as direct sales — and we 
further assume that 6-10 per cent of packaged products (which have a total volume of €7.1 
trillion)437 are distributed in this way, then this  implies (remembering that Italy and the UK 
would already have affected an equivalent polic y approach or market pr actice) that the policy 
option would lead to a further decline in asse ts under management of 0.5–0.9 per cent (about 
€36–€64 billion across the whole EU).  This could mean a reduction in revenues in this sector 
of €216 to €384 million if we assume that mana gement fees represent about one per cent of 
assets managed and if we also  exclude Italy and th e UK.  This would be about 0.8–1.5 per 
cent of the total annual revenue attributed to discretionary portfolio management above (1.3–
2.5 per cent of revenues outsi de of the UK and Italy). 
This could result in some reduction in headco unt in the asset management sector, if firms 
were unable to achieve compensatory changes else where.  We are not in a position to estimate 
the scale of that affect but we  do not anticipate notable st ructural change to the asset 
management industry.  Further, our model of  the effects here is that the assets under 
management would “switch” from packaged products to direct in vestment through the 
 
 260    portfolio managers, i.e. there could be a compensating upward ad justment in the headcount at 
portfolio managers. 
 
 261    19. ANNEX 9: SUMMARY OF SECONDARY POLICY OPTIONS CONSIDERED  
19.1. Under the operational objective "Regulat e appropriately all market structures 
and trading place taking into accoun t the needs of smal ler participants" 
 (a) Systematic internalisers 
MiFID introduced specific provisions for systematic internalisation.438 The core requirement 
for systematic internalisers (SIs ) is to publish firm quotes in sh ares admitted to trading on a 
regulated market that are clas sified as 'liquid' under MiFID when dealing in sizes up to 
standard market size. 
To date only 10 investment firms have been regi stered 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 internalisers439 and the relative inflexib ility of the quote publication 
regime.  
The policy option will be to –
 Provide more objective criteria in the implem enting regulation for dete rmining when a firm 
is a SI, in particular, by replacing the mate rial commercial relevance test with clear 
quantitative thresholds and cl arify the application in subs tance of the non-discretionary 
rules and procedures. 
– Clarify that once the conditions are fulfilled, SI  are obliged to register towards competent 
authorities.  
– Require SI's to maintain quotes to both buy and sell.  
– Require SIs to maintain a mi nimum quote size equivalent to 10% of the standard market 
size of any liquid share in which they are a SI. 
– Require SIs who make use of the exempti on from identifying themselves in post-trade 
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 matc hed principal trades w ould be treated for the 
purposes of MiFID (see pa ragraph 5 (d) below). 
(b) Non-discriminatory clearing access for financial instruments 
In addition to requirements in Directive 2004/39 /EC that prevent Memb er States from unduly 
restricting access to po st trade infrastructure such as cen tral counterparty and settlement 
arrangements, legislation should re move various other commercial ba rriers that can be used to 
prevent competition in the clea ring of financial instruments.  Barriers may arise from central 
counterparties not providing clear ing services to certain trad ing venues, trading venues not 
providing data streams to potenti al new clearers or in formation about benchmarks or indices 
not being provided to clearers. Without access to  the central counterparty, positions involving 
similar financial instruments could not be ne tted down by participants . This would prevent 
competition from new trading platforms as it would be economically unviable for participants to use them.  
 
 262    The policy option is to prohibit discriminatory practices and remove barriers that may prevent 
competition for the clearing of financial instru ments. Central counterparties should accept to 
clear transactions executed in di fferent trading venues, to the ex tent that those venues comply 
with the operational and technical requireme nts established by the central counterparty. 
Access should only be denied if certain access cr iteria specified in delegated acts are not met. 
This will increase competition for clearing of financial instruments in order to lower investment and borrowing costs, eliminate inefficiencies and fo ster innovation in European 
markets.  
The policy option will also require trading ve nues to provide access including data feeds on a 
transparent and non-discriminatory basis to central counterparties that wish to clear 
transactions executed on the trading venue. Li censing and access to info rmation about indices 
and other benchmarks that are used to determ ine the value of financial instruments should 
also be provided to central counterparties on a non-discriminatory ba sis. The removal of 
barriers and discriminatory practices is inte nded to increase compe tition for clearing of 
financial instruments in order to lower i nvestment and borrowing costs, eliminate 
inefficiencies and fo ster innovation in Eu ropean markets.  
 
19.2. Under the operational objective "Impro ve trade transparency for market 
participants for equities and increase it for non equities" 
(a) Include 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 pa rticipants and supervisors and the fact that some Member 
States already apply transparen cy requirements to such instru ments, the policy option is to 
amend the framework directive440 to extend the transparency regime to the following equity 
like financial instruments if admitted to trading on a regulated market: 
– Depositary receipts; 
– Exchange traded funds; and 
– Certificates issued by compan ies (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 th e regime that applies to shares but with 
appropriate differentiation to take into accoun t 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 regi mes would be developed for each type of 
financial instrument in the implementing me asures. It would provi de a harmonious and 
consistent framework for products which are ve ry similar in the way they trade. On the 
negative side, this new transparency regime c ould impact the liquidity of these instruments 
but a proper calibration of the regime could prevent that. 
The extension of the transparen cy regime to these equity-lik e instruments is expected to 
generate one-off costs of €5 million and ongoing costs of €1 million. 
 
 263    (b) Flag OTC trades 
The Commission services consider that the MiFID could continue to be neutral as to where a 
trade is executed. 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 regul ated markets, MTFs and system atic 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 subj ect to post-trade and transaction reporting 
requirements.  
Regulators from some Me mber States have suggested that there could be greater granularity 
of information about such trading. The polic y option would be that further post trade 
identification of trades on organised trading facilities there could be identification and flagging of trades that are OTC in  post trade transparency reports.
441 This would ensure that 
there is much more granular and accurate in formation about levels of OTC trading. The 
drawbacks of such solution would be some add itional reporting costs for investment firms as 
well as some possible disincen tivisation of using OTC mode to trade. Nevertheless, the 
additional costs should be limite d and the restraint on the use of  OTC is one of the objectives 
of the G20. 
19.3. Under the operational objective "Reinfo rce transparency towards and powers 
for regulators" 
(a) Extend the scope of transaction reporting 
This option will require market operators of orga nised trading venues to report transactions on 
behalf of their members which are not MiFID fi rms. The advantage woul d be that regulators 
would receive reports on the transactions of no n-regulated market partic ipants in relation to 
instruments covered by MAD. These reports co ntain additional information in comparison 
with the data feeds from the platforms themselv es. Competent authorities' capacity to detect 
and sanction abuses would thus be enhanced. The main disadvantage is in terms of reporting 
costs for the operators of organised venues, but th is should be mitigated by the fact that they 
already possess most of the data. 
(b) Improve the content of transaction reporting Various differences in nationa l implementation and interpre tation regarding transaction 
reporting have led to divergi ng reporting requirements. In or der to minimise differing 
requirements, reduce costs and improve efficiency  in the exchange of transaction information 
between regulators, specif ic changes are necessary. 
First, Member States take di ffering 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 co nstitutes a reportable transaction. There is also 
disagreement as to whether the aggregation of orders is consid ered to be executing the order. 
Second, national schemes differ as regards collec ting data that identifies the person who has 
made the underlying investment  decision. Some Member St ates 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 informati on do so either through direct 
 
 264    reporting by the client-facing entity, or by pa ssing 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 counterpa rty fields are populated in a transaction repo rt differs across the 
Member States. This divergence limits the use of transaction reporting for purposes of 
detecting and investigating possibl e cases of market abuse, because it hinders the exchange of 
information between supervisors. It also leads to diverging ob ligations on firms.  
Third, the Commission services are also consid ering whether, in order to provide further 
information to monitor for market abuse, transa ction reports could identify the trader within a 
firm who executes the transaction.  This field is a so-called "tra der ID". When the investment 
decision is made by an automated system (i.e. when a computer algorit hm has decided on the 
aspects of execution of the order such as timi ng, quantity and price), the transaction report 
should identify the algorithm as having made the investment decisi on (i.e. flagging of 
algorithm in the transaction reports) 
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 auth orities being able to exchange and understand 
exchanged information on transactions. Therefore,  subsequent clarifica tions to transaction 
reporting are needed in the implementing acts. 
In this context, the policy option would be to  modify transaction re porting obligations could 
be modified as follows: 
– Amend the implementing regulation to specify that, for transaction reporting purposes, a 
transaction refers to any agreement conclude d with a counterparty to buy or sell one or 
more financial instruments.442  
– 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 su ch orders to the re ceiving investment firm443. 
– Amend the framework directive to require transaction reports to include means of 
identifying the person who has made the inve stment decision (the  client identifier) 444 and 
the trader who executes the transaction. Tran saction 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 wo uld require that all en tities in a chain of 
transactions have the obligation to pass on all the details of the trade including client identifiers as in b) above they are themse lves not subject to transaction reporting. 
–
 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 part ies, identification of the client, trading 
capacity, number of the report, technica l format of transmission, and way of 
transmission.445 
This would greatly improve the quality of the reporting, especially in case of cross border 
transactions and should result in an upgrad e of the supervision performed by competent 
authorities. The changes brought to the reporting format coul d create one off costs for the 
reporting parties but they should be minimal and reporting partie s could actually benefit from 
having similar reporting oblig ations all across Europe. 
 
 265    These measures are expected to generate one -off implementation costs of between €20 and 
€33 million.  
19.4. Under the operational objective "Reinforce regulation on products, services and 
providers under the directive when needed" 
(a) Classifying the ancillary service under annex I section B (1) of MiFID as and investment 
service. 
The provision of ancillary services under MiFID446 is subject to supervision when they are 
provided by intermediaries authorised to pr ovide investment services and activities. A 
particularly sensitive ancillary service is th e "safekeeping and admini stration of financial 
instruments for the account of clients, includin g custodianship and related services such as 
cash/collateral management".447 This service is very often provided by investment firms and 
credit institutions but it could be provided by di fferent entities, regulated at national level or 
not. 
MiFID already addresses important  aspects of safeguarding client  assets in the context of 
organisational requirements for firms.448 The Commission services consider that this service 
should be classified as an investment service449; consequently, entitie s providing the service 
of safekeeping would need a MiFID authorisat ion (except in cases when an existing MiFID 
exemption applies) and they would be s ubject to the MiFID regulatory framework450 and to 
supervision by competent authorities. 
This option has already been assessed in the context of the Impact Assessment accompanying 
the Proposal for a Directive on legal certainty  of securities hold ing and transactions451.  
19.5. Under the operational objective "Stren gthen rules of business conduct for 
investment firms" 
(a) Reinforce the framework around selling by investment firms of their own securities 
Some national regulators have raised concerns with respec t to the applicability of MiFID 
when investment firms or credit institutions issue and sell their own securities. While the 
application of MiFID is clear wh en investment advice is provided as part of the sale, greater 
clarity is needed in th e 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 al so 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 underwriti ng. In particular, it  seems necessary to 
clarify in practice the si tuation of investment firms that can be acting on behalf of an issuer 
and, as part of the same transacti on, on behalf of the investor as well.452 
On the first issue, the policy option would be 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 s ecurities by banks and 
investment firms.
453  
Concerning the second point, the Commission Services cons ider that MiFID conduct of 
business rules clearly apply to the provision of services to i nvestors, irrespective of the 
circumstance that a firm is acting, at the same time, on behalf of the issuer and of the investor. 
 
 266    However, in order to ensure a convergent a pplication of these prin ciples in concrete 
situations, the policy option would be to adopt measures such as guidelines and examples of 
practical application of the rules by ESMA. This  would clarify any ambi guity that could have 
existed and reinforce the position of investors.  
The costs of these options shoul d be minimal with one-off cost s in the range of €3 to €4.5 
million.  
(b) Dealing on own account Dealing on own account by invest ment 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 re sulting in the conclusion of 
transactions in financial instruments.
454 On the other hand, the ex emption regime in MiFID 
narrows significantly the coverage of this activity by excluding pers ons 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 regu lated market or an MTF on an organised, 
frequent and systematic basis.455  
Experience shows that practi ce 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) agains t their proprietary capital. The first option in this area is to 
modify the definition of dealing on own account  and the corresponding exemption to make 
clear that the exemption applie s to persons who do not provide any investment services or 
activities other than de aling on own account unless they are market makers or deal on own 
account by executing client orders. Firms deali ng on own account by executing client orders 
would continue to be authorised for the execut ion of orders on behalf of clients and to be 
subject to the corresponding obligations towards clients (for instance best execution456).  
Another issue concerning the definition of de aling on own account concerns the treatment 
under MiFID of orders executed for clients usin g matched principal (also known as "back to 
back") trading. Provided the legs  of the trades are precisely ma tched, this method of executing 
orders can either be considered only as the ex ecution 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.457 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 unde r the Capital Adequacy Directive.458  
The second policy option in this area is to clarify that ge nerally 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.459 But this should not affect the capital requirements under the 
Capital Adequacy Directive.  
19.6. Under the operational objective "St rengthen the rules of organisational 
requirements for investment firms" 
(a) Fit and proper criteria 
The framework directive requires persons who eff ectively direct the busin ess of an investment 
firm to be of sufficiently good repute and suffi ciently experienced as to ensure the sound and 
prudent management of the investment  firm (so called "fit and proper test")460. This provision 
 
 267    is generic and has led to different applicati on in Member States. The implementing directive 
regulates the responsibility of senior management in ensuring the compliance of investment firms with their obligat ions under the MiFID. 
Following the Commission services cons ultation on corporate governance issues
461, the policy 
option is to clarify and strength en with particular reference to the role of executive and non-
executive directors. As to fit and proper criter ia, 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 pr ovide their activity). In addition, the role of 
supervisors could clearly include  the initial and on-going assessm ent of fitness and propriety 
of directors.  
The policy options will include the following modifications in the framework and in the 
implementing directives could be envisaged: 
–
 fit and proper criteria would cl early apply to all members of the board of directors (both 
executive and non-executive directors) and not on ly to persons who effectively direct the 
business462. To this end, a comprehensive de finition of management body could be 
introduced. Fit and proper criter ia could include the assessment of time commitment and 
assessment of independency, especially for non-executive members of the board. 
Principles aimed at promoting diversity in  the composition management body could also 
be envisaged; 
– competent authorities would be satisfied, at the moment of the aut horisation and in the on-
going monitoring of the firms, that all member s of the board are and continue to be of 
sufficiently good repute and sufficiently expe rienced to ensure the sound and prudent 
management of the firm and compliance with the applicable rules;  
– implementing measures could clarify the detail s of these requirements in order to adapt 
them to different roles and functions and ensure their uniform application463; 
– the definition of senior management464 in the implementing direc tive would be modified to 
reflect changes in the framework directive.  
These options are expected to generate one -off costs of €3.4 - €4.7 million and ongoing costs 
of €13.6 - €31.4 million. 
(b) Conflict of interest and sales process Conflicts of interest requirements
465 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 fo r the distribution of financial products. 
The Commission services consider that the fram ework for addressing conflicts of interest 
within MiFID is still appropriate to prevent fa ilures in the sales process  provided that it is 
consistently applied across Europe. The key el ement of this framework is the management 
and the avoidance of conflicts – not just di sclosure. 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 fi rm which creates str ong incentives for its sa les staff to sell 
certain products, e.g. through inte rnal bonus structures, to be able  to manage the conflicts of 
 
 268    interest thereby created. It is unlikely that such a firm could, in this situation, demonstrate 
compliance with MiFID. 
The Commission services consider that the conv ergent application of conflicts of interest 
provision has to be ensured acro ss the Union in order to gran t the same level of investor 
protection in different jurisdictions and the sa me treatment of intermediaries providing the 
services. To this end, the policy option is to add implementing measures in the area of conflicts of interest which would be useful fo r a consistent applicatio n of MiFID principles 
(e.g. elaboration of guidance and concrete exam ples by ESMA in order to ensure consistent 
application of the rules in  practical situations). 
(c) Segregation of client assets Recent cases where ownership of assets has been in dispute
466 as a result of poor rules or 
practices underline the importan ce to have strong requirements in  this area. Therefore, the 
Commission services consider appropriate to introduce modifications in the implementing directive
467 in the following areas. 
– A recital468 currently allows the exclusion of c lient asset protection rules when full 
ownership of funds and financial instruments has been transferre d to an investment firm to 
cover any client obligations. Th e indiscriminate application of such a possibility would 
jeopardise the effectiveness of segregation of client assets requirements. Under the new 
policy, these arrangements would not be allowed,  at least when dealing with retail client 
assets.469 Member States would also be given the option to exclude title transfer collateral 
arrangements in the case of pr ofessional clients and eligible counterparties and to require 
that, when such arrangements are allowed, cl ients receive a specifi c warning in writing 
giving appropriate evidence of the risk of these arrangements.  
– MiFID allows the use of securities financin g transactions involving client financial 
instruments held by the investment firm , subject to clients' express consent.470 The policy 
option here is to consider that the implementi ng directive could requir e firms, at least for 
retail client assets, to  adopt specific arrangements to en sure that the borrower of client 
assets (for instance in the case of stock lending activities) provi des the appropriate 
collateral and that the firm m onitors the continued appropriateness of such collateral and 
takes the necessary steps to maintain the ba lance with the value of client assets.  
– Firms are required to provide retail clients w ith clear, full and accurate information on the 
terms of the use of the financia l instruments and relevant risk.471 Leveraging on the fact 
that described information is a useful tool irre spective of the type of client, the option is to 
extend it to all categories of clients in orde r to increase awareness of the risk of such 
practices.  
– Investment firms are required to place client  funds into accounts opened with a central 
bank or a credit institution or  certain money market funds a nd, except for cen tral banks, to 
exercise all due skill, care a nd diligence in the selection and re view of the institutions they 
choose.472 As a result of the financial crisis, it ha s emerged that the concentration of client 
money in group entities may f ace the risk of contagion when intra-group insolvency 
occurs. The option is to consider that diversif ication 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. 
 
 269    The range of costs is expected to be between €1.4 -€1.6 million for one-off costs and €6.8 – 
€24.1 million for ongoing costs. 
(d) Tied agents Member States may currently allow
473 investment firms to use tied agents as a means of 
offering their services  and soliciting business474. This option has been exercised in most 
Member States. Based on CESR assessment475, the rules governing tied agents have worked 
well so far. Thus, the Commission services co nsider that only a few adjustments to these 
provisions would be necessary.  
In particular: –
 National discretion of allowing tied agents476 could be abolished and the possibility to use 
tied agents would be generali sed in all Member States.  
– The possibility for Member States to allow ti ed agents to handle c lients' money and/or 
financial instruments could be restricted.477 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 ag ents represent investment firms which are 
themselves not authorised to hold client mone y and/or financial instruments. Therefore, 
tied agents would not be allowed to  hold client money or assets.  
– Tied agents would be treated as a branch478 independently of whethe r 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.  
– Where an investment firm intends to use tied ag ents in providing services cross border, the 
current MiFID provisions allow, but do not pres cribe, the transmission of the identity of 
tied agents from the home to the host comp etent authority. The host supervisor has the 
option, but not the obligation, of publishing this information.479 For investor protection 
reasons, it is important to give investors the po ssibility to check the identity of a tied agent. 
Therefore, the policy option is to make both requirements mandatory. 
– Finally, the passporting provision s 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 unlev el playing field between the two types of 
institutions providing the same  services. In order to ensure sufficient transparency for 
investors and competent authorit ies, the provis ions on tied agents under articles 31 and 32 
of Directive 2004/39/EC could also be  applicable to credit institutions.480  
 
 270    20. ANNEX 10: BIBLIOGRAPHY INCLUDING LIST OF REPORTS PUBLISHED BY CESR  ON 
MIFID  RELATED ISSUES  
MiFID Impact Assessment Bibliography Markets in Financial Instruments Directive (MiFID): 
Directive 2004/39/EC (MiFID  Framework Directive) 
Directive 2006/73/EC (MiFID  Implementing Directive) 
Regulation No 1287/2006 (MiFID Implementing Regulation) 
Other European legislation: 
Directive 2004/72/EC (Mar ket Abuse Directive)  
Directive 2003/6/EC (Mar ket Abuse Directive) 
Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions 
(recast) 
Directive 2005/60/EC (Anti- Money Laundering Directive) 
Directive 2003/87/EC of the Europe an Parliament and of the Council 
Directive 2003/71/EC (Prospectus Directive) Directive 1993/22/EEC (Directiv e on investment services in the securities field) 
Commission Regulati on (EC) No 1287/2006 
Commission Regulation (EU) No 1031/2010 (Auctioning Regulation) 
Regulation (EU) No 1095/2010 of th e European Parliament and of  the Council, establishing a 
European Supervisory Authority (Europ ean Securities and Markets Authority) 
Charter of Fundamental Rights of the European Un ion (2000/C 364/01) 
The Treaty on the Functioning of  the European Union C 115/47 
Non-European Legislation 
Dodd–Frank Wall Street Reform and Consumer  Protection Act (Pub. L. 111-203, H.R. 4173), 
21 July, 2010 
Implementing Dodd-Frank Wall Street Re form and Consumer Protection Act — 
Accomplishments, see: http://www.sec.gov/ spotlight/dodd-frank/accomplishments.shtml 
Commission, Council and European Parliament sources 
(COM (2011) 25 final) Tackling the challenges in commodity ma rkets and on raw Materials, 
February 2011 
 
 271    (COM (2010) 726) Proposal for a Regulation of the European Pa rliament and of the Council 
on energy market integrity a nd transparency, December 2010 
(COM (2010) 716) Communication from the EC on Reinforcing sanctioning regime in the 
financial services sector  
(COM (2010) 573), Strategy for the effective im plementation of the Charter of Fundamental 
Rights by the European  Union, October 2010 
(COM (2010) 484) Proposal on Regulation on OTC derivatives, central counterparties and 
trade repositories, September 2010  
(COM (2010) 482) Proposal on short selling and certain aspects of Credit Default Swaps, 
September 2010  
(COM (2010) 301 final) Communication Fr om The Commission To The European 
Parliament, The Council, The European Econom ic And Social Committee And The European 
Central Bank: Regulating Financial Serv ices For Sustainabl e Growth, June 2010 
(COM (2010) 284 Final) Green Paper on Corporat e Governance in financ ial institutions and 
remuneration policies  
(COM (2009) 563 final) Comm unication by the Commission on ensu ring efficient, safe and 
sound derivatives markets: future policy actions  
(COM (2009) 591) Communication from the Commission to the European parliament, the 
Council, the European Economic and Social Committee and the Committee of the Regions A 
better functioning food supply chain in Europe  
(COM (2009) 204 final) Communication on Pack aged Retail Investment Products, April 
2009, Update on Commission work on Packag ed Retail Investment Products, December 2009 
(COM (2009)204) Impact Assessment – St aff Working Paper Accompanying the 
Communication from the Commi ssion on Packaged Retail Investment Products, April 2009 
(COM (2009)114) Communication for the spri ng European Council, Driving European 
recovery, March 2009 
Commission Staff working docum ent (SEC(2009) 1447) Agricu ltural commodity derivative 
markets: the way ahead, 28 October 2009 
Commission Staff working paper,  (SEC 2009) 905), 3 July 2009 
Consultation of Commission serv ices on legislative steps for the Packaged Retail Investment 
Products initiative of 26 November 2010 
Public Consultation by the Directorate Ge neral for Energy on measures to ensure 
transparency and integrity of wholesale markets in electricit y and gas, 31 May 2010 
G2/PP D(2009) Legislation on legal certainty  of securities holding and dispositions, 
Consultation document of the Services of the Directorate-General Internal Market and 
Services, 16 April 2004 
 
 272    DG Markt G2 MET/OT/acg D(20 10) 768690, Legislation on legal certainty of securities 
holding and dispositions, Consultation document of the services of the directorate-general internal market and services 
Report, High-level Group on Financial Superv ision in the EU, chaired by Jacques de 
Larosière, February 2009
 
Council conclusions on streng thening EU financial supe rvision, 10862/09, June 2009 
European Parliament resolution on derivatives  markets: future policy actions (A7-0187/2010), 
15 June 2010  
Competitiveness and Innovation Framework Programme (CIP), see http://ec.europa.eu/cip/ 
Commission Impact Assessment Guidelines, see 
http://ec.europa.eu/governan ce/impact/commission_guidelines/ commission_guidelines_en.ht
m 
MiFID Transposition state of play, see 
http://ec.europa.eu/internal_market/secu rities/isd/mifid_implementation_en.htm 
Sources issued by supranational bodies  
Triennial Central Bank Survey, Foreign Exchan ge and Derivatives Market Activity in 2010, 
Bank for International Settlements, September 2010  
BIS Quarterly Review, September 2010 Inte rnational banking and financial market 
developments, Bank for International Settlements 
Directorate for Financial and Enterprise  Affair, OECD Steering Group on Corporate 
Governance, Paper: Corporate Governance a nd the Financial Crisis: Conclusions and 
emerging good practices to enhance implemen tation of the Principles, February 2010 
OECD, Income statement and balance sheet, OECD Banking Statistics Database, 2010 
G-20 Leaders' statement of Pittsburgh Summit, 24-25 September 2009, 
http://www.pittsburghsumm it.gov/mediacenter/129639.htm 
Triennial Central Bank Survey of Foreign Exchan ge and Derivatives Market Activity in 2007, 
Bank for International Settlements 
BIS Statistics, Bank for International Settlements, see http://www.bis.org/statistics/ Occasional paper series no.50: Implications for liquidity from innovation and transparency in 
the European corporate bond market, European Central Bank (Laganá, Pe řina, von Köppen-
Mertes and Persaud), August 2006 
Documents issued by nati onal public authorities 
FSA fines Barclays £7.7 million for investment advice failings and secures as much as £60 
million in redress for customers, FS A/PN/006/2011, UK FSA, 18 January 2011 
Rapport d'étape: Prévenir et gé rer l’instabilité des marchés ag ricoles, Jean-P ierre Jouyet, 
Christian de Boissi eu et Serge Guillon, 23 September 2010 
 
 273    Financial Services Author ity Quarterly consultation (No 25), UK FSA, July 2010 
Rapport sur la révision de la Di rective MiF, AMF, 11 June 2010 
Report of the staffs of the CFTC and SEC to  the joint advisory committee on emerging 
regulatory issues, Findings regardin g the market events of May 6 2010 
La régulation des marchés du CO 2: Rapport de la mission confiée à Michel PRADA, 
Inspecteur général des Fina nces honoraire, April 2010 
FSA estimate of incremental compliance costs fo r Retail Distribution Review proposals, UK 
FSA, March 2010 
Rapport du groupe de travail sur la  volatilité des prix du pétrole, sous la présidence de Jean 
Marie Chevalier, Minist ère de l'économie et de  l'emploi, February 2010 
Report to the Minister for the Economy, Indus try and Employment on the Review of the 
Markets in Financial Instruments Directiv e (MiFID), Pierre Fleuriot, February 2010 
Reforming OTC Derivative Markets - A UK perspective, UK FSA and HM Treasury, 
December 2009 
Retail Investments Product Sales Data (PSD) Trend Report, UK FSA, August 2009 
Annual Review, financial year 2009 – 2010 of cons umer complaints about  insurance, credit, 
banking, savings and investments,  UK Financial Ombudsman Service 
Ombudsmann der Privaten Banken, Tätigkeitsbericht 2009 
Hellenic Ombudsman for Banking-Invest ment Services, Annual Report 2009 
Consultation Paper 07/9: Conduc t of Business regime: non-MiFID deferred matters (including 
proposals for Telephone Reco rding), UK FSA, May 2007 
MiFID Non-Equities Market Transparency, Pres entation by Claudio Salin i, Head of Markets 
Division, CONSOB at IC MA conference 15 May 2008  
The overall impact of MiFID, UK FSA, November 2006 
CESR publications 
Consultation paper, Guidelines on systems and controls in a highly automated trading 
environment for trading platforms, investment firms and competent aut horites, 20 July 2011, 
ESMA/2011/224 
Technical Advice to the European Commission in the context of the MiFID Review and 
Responses to the European Commission Request  for Additional Information, (including 
CESR/10-1096, CESR/10-882, CESR/ 10-1040, CESR/10-1254), October 2010 
Technical Advice to the European Commissi on in the context of the MiFID review – 
Transaction Reporting, CE SR/10-796, 29 July 2010 
Technical Advice to the European  Commission in the context of  the MiFID Review – Equity 
Markets, CESR/10-802, 29 July 2010 
 
 274    Technical Advice to the European Commission in the Context of the MiFID Review: Non-
equity Markets Transparen cy, CESR/10-799, 29 July 2010 
Technical Advice to the Eur opean Commission in the cont ext of the MiFID Review – 
Investor Protection and Intermed iaries, CESR/10-859, 29 July 2010 
Responses to Questions 15-18 and 20-25 of the European Commission Request for Additional 
Information in Relation to the Review  of MiFID, CESR/10-860, 29 July 2010 
Final Advice to the European Commission in the context of MiFID Review on transaction 
reporting, CESR/10-808  
Consultation Paper: CESR Tec hnical Advice to the European Commission in the Context of 
the MiFID Review - Equity Ma rkets, CESR/10-394, April 2010 
Micro-structural issues of  the European equity markets, CESR/10-142, April 2010 
Report on the mapping of discreti ons in MiFID, CESR/09-833, 2010 
Transparency of corporate bond, structured fi nance product and credit derivatives markets, 
CESR/09-348, July 2009 
Impact of MiFID on equity  secondary markets functio ning, CESR/09-355, June 2009 
Response to the European Commission's call for evidence on the review of Directive 
2003/6/EC (Market Abuse Directive), June 2009 
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), CESR/08-220 , February 2009 
Consultation Paper: Transparency of corpor ate bond, structured fina nce product and credit 
derivatives markets, CESR/08-1014 
Overview of national options  and discretions under MiFID Level 1 – Dir. n.2004/39/EC, 
CESR/07-703 , October 2007 
Response to the Commission's request for in itial assistance on commodity and exotic 
derivatives and related busine ss, CESR/07-673, October 2007 
CESR / CEBS Technical Advice to the European Commission on the review of commodities 
business, CESR/08-752 and CEBS 2008 152 rev, 15 October 2008 
CESR / CEBS / CEIOPS Report of the 3L3 Task Force on Packaged Retail Investment 
Products (PRIPs), CESR/10-1136 and CEBS 2 010 196 and CEIOPS-3L3-54-10, l6 October 
2010 
IOSCO publications 
Report on trading of OTC Derivatives, OICV-IOSCO, FR03/11, February 2011 
Guidelines for the Regulation of Conflicts of Interest Facing Market Intermediaries: Final 
Report, IOSCO, FR12/10, November 2010 
 
 275    Issues raised by dark liqu idity, Consultation Report, IOSCO, CR05/10, October 2010 
Principles for Direct Electronic Access,  Final Report, IOSCO, FR08/10, August 2010 
Transparency of Structured Finance Products, Final Report, IOSCO July 2010  
Task Force on Commodity Futures Markets, Report to G-20 and Final Report, March 2009 
External studies requested by the Commission 
Consumer Market Study on Advi ce within the Area of Retail Investment Services – Final 
Report, Prepared for: Europ ean Commission, Dir ectorate-General Hea lth and Consumer 
Protection, Synovate, 2 011MiFID review, Data Gathering a nd Cost-Benefit Analysis, Europe 
Economics, February 2011 
Consumer Decision-Making in Retail Inve stment Services: A Behavioural Economics 
Perspective, Final Report, D ecision Technology Ltd, N Chater, S Huck, R Inderst, November 
2010 
Data gathering and analysis in the context of  the MiFID review, Final Report for Directorate 
General Internal Market and Services, Eur opean Commission, Pric ewaterhouseCoopers, 13 
July 2010 
Reports by think tanks, consultancie s, professional and industry bodies 
Monitoring Prices, Costs and Vo lumes of Trading and Post-tra ding Services, Oxera, 16 July 
2009 –  
MiFID 2.0: Casting New Light on Europe's Capital market s, Report of the ECMI-CEPS Task 
Force on the MiFID Review, chaired by Pierre Fran cotte, Centre for European Policy Studies 
Brussels, February 2011 
The Structure, Regulation and Transparency of  European Equity Markets under MiFID, CFA 
Institute, January 2011 
Derivatives 2010, International Fina ncial Services London, December 2010  
Monthly Agricultural Update and data s upplied by NYSE-Euronext, CME Group, December 
2010  
European Fund Industry Breakfast Briefing, Thomson Reuters and Lipper, Ed Moisson, 
December 2010 
Does bad liquidity drive out good liquidity?, Credit Agricole  Chevreux, 24 November 2010  
Study on the Costs and Benefits of Potential Changes to Distribution Rules for Insurance 
Investment Products and othe r Non-MIFID Packaged Retail  Investment Products: Final 
Report, Europe Economics, September 2010 
MiFID: Spirit and Reality of a European Fina ncial Markets Directive, Celent and Goethe 
Universitat Frankfurt am Main, September 2010  
Food and Agriculture Organization of the United Nations (FAO), Economic and Social 
Perspectives, Policy Brief 9, June 2010 
 
 276    Summary of Responses to the ICMA Survey on Corporate Bond Mark ets – Liquidity and 
Transparency, ICMA, June 2010 
ISDA 2010 Operations Benchm arking Survey, April 2010 
An EU-Listing Small Business Act, March 2010, F Demarigny, MA ZARS Group, March 
2010 
Nordic Trading Landscape Evolution – Impact of MiFID on Retail Flow Providers, Citadel 
Securities, February 2010 
Retail Distribution Review: The retu rn of “The man from the Pru”? , Exaxe White Paper, Tom 
Murray, January 2010 
Retail Distribution Review proposals: Impact on market structure and competition, Oxera, 
2010 
Economic contribution of UK fi nancial services 2009, Intern ational Financ ial Services 
London, December 2009 
Electronic Trading of Bonds in Europe: W eathering the Storm, Celent, October 2009 
Trading in the Dark in Europe: Choice and Co mplexity on the Cusp of Change, TABB Group, 
M Mizen, October 2009 
High Frequency Trading T echnology, A TABB Anthol ogy, TABB Group, August 2009 
Two years after MiFID: No turning back fo r the equities markets, Celent, June 2009 
The European Structured Retail Product Ma rket 2009 Review, Arete Consulting, EUMR09, 
April 2009 
Study on the Cost of Compliance with Select ed FSAP Measures: Final Report, Europe 
Economics, January 2009 
IASB Expert Advisory Panel: Measuring and disc losing the fair value of financial instruments 
in markets that are no longer active, Internationa l Accounting Standards Board, October 2008 
Final Report of the IIF Committ ee on Market Best Practices: Pr inciples of Conduct and Best 
Practice Recommendations Financia l Services Industry Response to the Market Turmoil of 
2007-2008, Institute of Intern ational Finance, July 2008 
European corporate bond markets: transparency, li quidity, efficiency, Biai s et al, Centre for 
Economic Policy Research, May 2006 
The Rise and Fall of the European New Market s: on the Short and Long-run Performance of 
High-tech Initial Public Offerings, European  Corporate Governance Institute, Finance 
Working Paper N°27/2003, Go ergen et al, September 2003.  
MiFID Implementation Cost Survey of the UK Investment Industr y, LECG, October 2005 
Goethe Universität report on High Frequency Trading, Prof. Dr. Peter Gomber, March 2011 – 
Commissioned by Deitsche Börse Group 
 
 277    Journal articles and academic papers 
Does Algorithmic Trading Improve Liquidity?,  T Hendershott, C Jones, and AJ Menkveld, 
American Finance Association Journal of Finance, forthcoming 
High-Frequency Trading, Stock Volatility, and Price Discovery, F Zhang, December 2010 
High Frequency Trading and its Impact on Market Quality, J Brogaard, 5th Annual 
Conference on Empirical Legal St udies Paper, 22 November, 2010 
The City's Role in Providing for the Public Equity Financing Needs of UK SMEs, G 
Openshaw, D Widger, Professor C Mason, L Jones, S Wells, City  of London, March 2010 
Algorithmic Trading and Information, T Henders hott, and R Riordan, NET Institute Working 
Paper No. 09-08, September 2009  
Price Transparency in the U.S. Corporate Bond Markets, J Tempelman, The Journal of 
Portfolio Management, Vol. 35, Spring 2009  
Assessing the Impact of Algorithmic Trad ing on Markets: A Si mulation Approach 
M Gsell, Centre for Financial Studi es Working Paper No. 2008/49, June 2008 
Securities Regulation in Low-Tier  Listing Venues: the Rise of the Alternative Investment 
Market, JM Mendoza, Fordham Journal of Co rporate and Financial Law, vol. XIII, 2008 
Technology and Liquidity Provision: The Blur ring of Traditional Definitions, J Hasbrouck 
and G Saar, 30 December 2007 
Latent Liquidity and Cor porate Bond Yield Spreads, S Mahanti A Nashikkary M 
Subrahmanyamz, 8 August 2007 
Corporate bond market transac tion costs and transparency, A Edwards, L Harris and M 
Piwowar, The Journal of Finance , Vol LXII (3), 2007 
Populists versus theorists: Futures markets and th e volatility of prices, DS  Jacks, Explorations 
in Economic History 44 (2007) 342–362, 2007 
Market transparency, liquidity externalities an d institutional trading costs in corporate bonds, 
H Bessembinder, W Maxwell and K Venkatarama n, Journal of Financial Economics Vol 82, 
2006 
Transparency and liquidity: a controlled e xperiment on corporate bonds’ M Goldstein, E 
Hotchkiss and E Sirri, The Review of Financial Studies Vol 20 (2), 2006 
Access to Stock Markets for Small and Medium-Sized Growth Firms: The Temporary 
Success and Ultimate Failure of Germany's Ne uer Markt, Burghof and Hunger, October 2003 
Expansion of TRACE in the U.S. fixed-inco me OTC market, NO Persson, Director, TRACE 
and Fixed Income Strategy, FINRA 
Newspaper articles and press releases 
Inflation protection is doubtful, Financial Times, 13 December 2010 
 
 278    Derivative uncertainty likely to hit banks ’ revenues, Financial Times, 21 March 2010 
Carbon trading – an outbreak of fraud in the Eu ropean emissions trading scheme has battered 
the credibility of the bloc's chief weapon in th e fight against global warming, Financial Times, 
15 February 2011 
End in sight for European post-trade da ta impasse, The Trade News, 3 March 2010 
Press Release: Depositary Receipts Show Resiliency in 2009 on Higher Global Trading 
Volume, Program Establishment, Capital Raisings and Price Returns, According to BNY Mellon Year-End Industry Report, BNY Mell on Depositary Receipts, 13 January 2010 
Interview with J.Hardt, L'Echo, 12 January 2010 
Other sources 
All European Equities Market Activity by Trade Type (January 2010 to January 2011), 
Thomson Reuters, 2011  
Bourse de Luxembourg Fact Book 2010 NASDAQ OMX Guidelines for Members’ On-E xchange Trade and Members’ and Non-
Members’ OTC Trade Reporting in  Danish Fixed Income Instru ments Version 1.1, September 
2008 
Thomson Reuters Europe Mont hly Market Share Reports 
Geneva Trading and Shipping A ssociation (GTSA) website  
Findings regarding the market ev ents of May 6, 2010; Report of  the Staffs of the CFTC and 
SEC to the Joint Advisory Committee on em erging regulatory issues; 30 September 2010 
 
 279    21. ANNEX 11: DATES AND LIST OF PARTICIPANTS TO MEETINGS ORGANISED BY DG  
INTERNAL MARKET ABOUT MIFID  RELATED ISSUES  
List of workshops organised on MiFID related issues 
Organisation Name Organisation Name 
Transparency 9 December 2009 Commodities markets 17 December 2009 
AFME Bertrand Huet EFET Karl-Peter Horstmann 
EFAMA Nick Robinson EuroPEX Paulo Sena Esteves 
Tradeweb Roger Barton LEBA Alexander McDonald 
Thomson Reuters Robin Poynder ICE Futures Europé Simon Martin 
AIMA Aron Landy LIFFE (NYSE Euronext) Gilles Clerc 
CESR Alberto Garcia AAF Juliette Jacques 
EFAMA Bertrand de Guerny The European Flour 
Millers Bernard Vallius 
Euroinvestors / FIN 
USE Guillame Prasche CIAA Roxane Feller 
Markit Marcus Schueler IETA Marc Cornelius 
ICMA Richard Britton ECX Patrick Birley 
CEA John Hale CESR Diego Escanero 
EBF Dominic Adler ERGEG Andrea Korr 
London Stock 
Exchange Fabrizio Plateroti Liam McCarthy Morgan Stanley 
AFME Guy America   
ICAP Godfried De Vidts   
European Issuers Pierre Marshal   
Bloomberg Jason Connolly   
FESE Ludovic Aigrot   
High frequency trading 12 January 2010 Waivers and dark pools 18 January 2010 
Getco Jim Faraci CESR Alberto Garcia  
Optiver Edwin van der Kruk FESE Burcak Inel 
IAT Yorck Schumacher  Miroslav Budmir 
FESE Miroslav Budimir LSE Steven Travers 
BATS Paul O'Donnell Chi-X Denzil Jenkins 
AFME Andrew Morgan BATS Mark Hemsley 
EFAMA Bertrand du Guerny AFME George Andreadis 
AIMA Rebecca Fuller  Brad Hunt 
Thomson Reuters Bill Fenick  John Serocold 
 
 280    EBF Stéphane Tyc EBF Gorm Praefke 
CESR Alberto Garcia  Ross Barrett 
AMAFI Emanuel De 
Fournoux ICAP Pinar Emirdag 
Flowtraders Jan de Bolle Euroissuers Pierre Marshal 
Chi-X Graham Dick TABB Group Miranda Mitzen 
EACB Philippe Guillot CEPS Diego Valiente 
   Liquidnet Eva Heffernan 
   EFSA Stephane Giordano 
   EFAMA Bernard Coupez 
Best execution and conduct of business 
rules 22 January 2010 Data consolidation 28 January 2010 
EBF Georg Baur FESE Santiago Ximénes 
AFME Tillie Rijk  Burcak inel 
EFAMA Graziella Marras LSE Steven Travers 
EFAMA Graham Goodew BATS Paul O'Donnell 
EAPB  Hans Bretschneider AFME John Serocold 
EACB  Christoph 
Echternach  Stephen McGoldrick 
ESBG  Jonas Myrdal  Andrew Bowley 
EFSA Stephanie Hubert EFAMA Bertrand du Guerny 
FIN USE Marcin Kawinski  Guy Sears 
Euroshareholders Casten Heise EBF Kim Lilmose 
CESR Diego Escanero Euroinvestors/FIN USE Guillaume Prache 
   CESR Alberto Garcia 
   Thomson Reuters Andrew Allwright 
   BOAT /Markit Sophia Kandylaki 
   Chi-X Denzil Jenkins 
   DG COMP Fabien Kaiser 
    EFSA Emmanuel de 
Fournoux 
 
 281    22. ANNEX 12: SUMMARY OF PUBLIC HEARING  
Conference on the MiFID review and commodity and exotic derivatives 
20-21 September 2010 
Summary 
DAY 1  Opening Speeches  
Jonathan Faull (Director General, DG Internal  Market and Services, European Commission) 
welcomed all participants and attendees to th e conference. He noted the backdrop of intense 
regulatory reform in the financial sector and the vital role MiFID has to play in this. In particular Mr Faull saw five areas where targeted modificat ions were needed: increased 
organisation, transparency a nd oversight of various market  segments; continued progress 
towards a genuine single market for investment services; appropr iate regulation to keep pace 
with increasing competition, fragmentation and speed; amendments to meet the new European 
supervisory structure; and finally, additional transparency and oversight measures in the 
commodity derivatives market. 
Michel Barnier (Commissioner, Internal Market and Services, European Commission) noted 
the importance of MiFID, and its success to date; however he also noted that since the original 
proposal was drafted, the financial world has witnessed deep change s which justify this 
review. Commissioner Barnier stated that questions raised by the crisis must not remain unanswered and that he sought to fulfil four  key objectives – increased accountability for 
financial actors; transparency for all; conti nuation of fair competition; and restoring 
confidence in the markets and financial intermed iaries. He noted that these objectives apply 
comprehensively across the financial landscape and that no markets, activities or players will 
be left aside, including commod ity derivative markets. He said that the Commission would 
adopt a proposal in spring 2011. 
Dacian Ciolo ş (Commissioner, Agriculture and Rural Development, European Commission) 
expressed his concern about the impact on agriculture of exce ssive speculation on financial 
markets. He noted that across Europe farmers, various food industry players and processors 
and consumers were all seeking increased mark et transparency. The Commission must take 
measures against the extreme volatility of pr ices of agricultural products. Commissioner 
Cioloş cited the fluctuations in the milk mark et over the period 2007-2009 and underlined that 
speculation should not put in dange r farms otherwise perfectly vi able in normal times. Asking 
for more transparency of the financial mark ets and more supervision for the derivatives 
markets, Commissioner Ciolo ş stated that the future refo rm of the Common Agriculture 
Policy will include more elements to fight the vol atility of prices and th e decrease in farmers' 
incomes. 
In her keynote speech, Sharon Bowles M EP (Chair,Economic an d Monetary Affairs 
Committee, European Parliament) considered that alt hough there are many recent events from 
which lessons can be learned, the ultimate co nsideration of MiFID should be the needs of 
users and investors – these bei ng choice and protection.  Mrs Bowles commented that there are 
times when the needs, interests and incentives of  the individual and the whole are not always 
the same, and that this presents tough politica l decisions. In meeting these decisions key 
 
 282    principles must be considered – recognition of  the difference between wholesale and retail 
markets; non discriminatory choi ce and regulation that  is appropriate to its level; recognising 
that liquidity and transparency can sometimes be  a trade off and that different asset classes 
behave differently; and that markets are organi c and can not be forced. In particular, she 
questioned if the appropriate balance for pre tr ade equity transparency had been struck, in 
view of the growth of dark tr ading. She also noted the technical changes in the market (e.g. 
new types of trading and incr eased fragmentation), the str ong case to move to intra-day 
monitoring, if not the banning on so me types of trading - such as flash orders, and the need to 
move towards a consolidated tape of trade data. 
In the final keynote speech, Carl os Tavares ( Chairman, CESR) highlighted the progress made 
so far, but also the need to further devel op MiFID. He queried wh ether fragmentation had 
increased liquidity - citing that mitigating syst ems (to provide consolidated information to 
investors and regulators) are still far from being complete, and summarised seven key points to be considered in the review – enhanced  transaction reporting; urgently implement a 
consolidated tape; re view the best execution concept; reduce opportunities for regulatory 
divergence; strengthen investor  protection; increase pre and post trade transparency; and 
regulate new trading modalities e.g. high freque ncy/algorithmic trading. Mr Tavares also 
noted that the review should anticipate the ne wly created ESMA and l eave room for this to 
implement principles via technical standards. Mr Tavares concluded th at markets have proved 
to be dynamic and creative in building new solutions and so re gulation must be flexible and 
agile. 
Panel I Derivatives – gea red for a paradigm shift 
The moderator, Georges Ugeux (G alileo Global Advisors), open ed the debate by recalling the 
context of the financial crisis , the US legislative reform a nd the recent Commission proposal 
on OTC derivatives. 
Brendan Bradley (Eurex) under lined that trading on organi sed venues and OTC has been 
largely complementary. One of the key differen ces between the two was the level of pre trade 
transparency which has not been fully addresse d in recent consultation as the focus has been 
placed on post trade transparency and the ava ilability of CCP services. As a result he 
suggested that the standardisa tion approach and the possibility  for organised trading should 
broadly follow the US regulatory approach and that European regulators should provide for a 
level playing field between regu lated markets and MTFs given the similarities that exist in 
their execution functions. 
Erik Litvack (Société Générale) came back to the statement of the G20 in Pittsburgh on 
trading of all standardised de rivatives on organised venues where appropriate. He underlines 
the differences and complementarities between trading on regulated markets which can maximise turnover and liquidity and fits benc hmark products and trad ing OTC which offers 
maximum flexibility for users but less frequency of trading. Post trade transparency for OTC 
products could be possible only if  counterparty risk is excluded,  otherwise it will create 
misleading price signals. He insisted on the need to define the reasons for more transparency 
and the fact that there will likely be a trade o ff between more transpar ency and the willingness 
of dealers to trade. 
Håkan Feuk (E.ON Energy Trading) underlined the fact that it was crucial to allow efficient 
hedging for corporates, especially in the energy markets. Pushing more trading onto regulated 
markets could achieve increased liquidity but su fficient flexibility should be kept to allow 
effective hedging. For firms which have small vo lumes to transact, OTC is more efficient and 
 
 283    non financial firms should be able  to choose the most efficient venue. Current exemptions for 
commodity firms should remain. 
Rich Silts (CFTC), speaking in a personal capacity, confirmed the willingness of US 
regulators to achieve consistency on both sides of the Atlantic. He gave a summary of the US 
reform and subsequent rules which are being drafted. Among other reforms, he mentioned 
swap execution facilities (SEFs), the main featur es of which would be trade transparency and 
multiple participants on both supply and demand sides. 
Matt Woodhams (GFI) mentioned that electronic tr ading was more developed in Europe than 
in the US. A balance should be  found between transp arency and liquidity . Suitable trading 
venues need to be created possibly by reproducing the SEF concept in MiFID. 
The rest of the discussion focused on the differe nt recipients of trade transparency. There was 
a rather larger consensus for a complete and full transparency for regulators but only high level transparency for the public. 
Panel II Transparency, efficiency a nd soundness in the trading of financial 
instruments 
The moderator, Alexander Justham (UK FSA) , recalled the objectives behind a regulatory 
framework for transparency of trading, namely  a balance between private and public interests 
in support of fair, robust and efficient markets.  He noted that fragmentation of trading and 
data in the wake of MiFID, as well as rapi d technological developments, underline the need 
for regulation of transparency to keep pace. 
Scott Cowlling (Blackrock) said a review of MiFID transparency rules should seek to 
enhance, not rewrite the status  quo. Equity market transparency was largely satisfactory, 
while non-equity transparency should be pursu ed in the same vein, with instantaneous 
publication whenever participants were not on risk, and allowing for suitable delays in other 
cases in order to avoid impairi ng clients' and participants' interests and damaging liquidity. He 
questioned whether many equity trades occurr ing OTC were relevant for price discovery 
purposes. 
Roland Bellegarde (NYSE Euronext ) said that there had been a big increase in opacity and 
OTC trading in equities since Mi FID. He said a large number of  equity trades occurring OTC 
were in fact of a small size and thus did not need the confidentiality  associated with OTC 
trading. The future ESMA should have the capa bility and agility to address loopholes in the 
framework of transparency in order to mitigate private interests from circumventing and compromising commonly established rules. 
Roger Barton (Tradeweb) said that trading in vari ous fixed income non-equity markets is 
often characterised by relatively fewer numbers of trades, but in large sizes. Matching of 
clients' interests is unlikely and thus facilit ated by dealers. Traditional means of executing 
trades by phone are increasingly giving way to el ectronic platforms, whic h adjust levels of 
transparency provided according to the needs of market users.  
Massimo Mocio (Banca IMI) recalled that the Italian transparency  regime was more extensive 
than MiFID. He said that whil e it had not played a direct ro le in supporting Italian banks 
during the crisis, it did serve to remind that li quidity and dealers' capital commitment in 
various non-equity markets can be fragile. Fi nancial institutions should help regulators 
 
 284    formulate ambitious and balanced transparency rules, and that CESR's recent advice to the 
Commission was a good compromise. 
Stephen Luparello (FINRA) said that, in relatio n to equities, the US was mostly focused on 
improving pre-trade transparency and transparency  towards regulators, due to the challenges 
posed by dark pools and fragmentation between competing venues. As for non-equities, he 
said the TRACE model provided the necessary transparency fo r regulators, while achieving 
the right balance in transparency towa rds the market was always in flux. 
In the discussion that followed greater clarity was sought on the size and nature of the OTC 
market in equities, whether there was a future for the systematic internaliser regime, and how 
transparency and various execu tion arrangements in non-equities  would look like in the 
future. 
Panel III The changing face of trading – ac hieving a level-playing field for trading 
venues and market participants 
The moderator, Karel Lannoo (CEPS), observed th at the questions anal ysed by the panel are 
similar to those in 2001 when MiFID was elaborated, namely  the one of the balance between 
transparency and fragmentation, though the cont ext has changed since. He also pointed out 
that MiFID has achieved its primary objectives  of reducing fees an d spreads, but more 
attention needs to be given to  conduct of business rules and to markets other than equity 
markets. 
David Lester (LSE) emphasized the success of MiFID in abo lishing monopolies of national 
exchanges, in creating possibilities for new trad ing venues to appear, in bringing more choice 
and in reducing trading fees and spreads thr ough modern technology. MTFs  continue to gain 
market share. Harmonised data standards would allow effective consolidation of post-trade 
data by the industry and would enhance the transp arency of the European equity market. Dark 
pools are an important component of the choice available to mark et participants, but all dark 
trading venues should be able to execute with in the spread to deliver price improvement. 
Competition in trading must be supported by an  efficient and cost effective post-trade 
environment. Finally, SME access to capital should be supported to help drive economic 
growth and job creation. In the UK, the AIM market has been a success. 
Kelly Riley (US SEC), speaking in a personal ca pacity, underlined that markets have changed 
with automation, but also with the increase in the number of market pa rticipants. Applicable 
SEC regulation is similar to MiFID but has se veral differences due to market changes as 
regards for example best execution, informati on requirements, as well as order matching and 
the consolidation of qu otations to determine one nationa l best bid and offer. The order 
protection rule requires tr ading centres to direct the order to  the venue offering the best price 
when they can't offer it themselves. Dealers al so have to respect this rule for clients. 
Following the flash-crash, the SEC issued di fferent proposals on re gulating high-frequency 
trading, dark pools, flash orders  and transparency in  order to achieve in vestor protection and 
fair markets. 
According to Jonathan Eardley (QCA/European  Issuers) listing ru les under MiFID are not 
prohibitive for large firms and there is no eviden ce of a need to change this for large caps. 
However, for small illiquid caps, rules need to be proportionate. The role of the Commission 
and of national government is to foster competiti on. This does not necessarily need to be done 
through uniform markets. On the contrary, mark ets have to meet in vestors' expectations. 
 
 285    Eleanor Jenkins (Morgan Stanley) expressed the view that the key driver to the success of the 
markets today is the choice of execution me thods for different orders. These execution 
methods are not mutually exclusive. She point ed out that better understanding is needed 
regarding different types of models includin g the methods and orga nisation of crossing 
systems. The working group set up by CESR should improve the quality of post-trade data. 
Without this, a consolidated tape would make  little sense. She expr essed the wish that 
regulation be evidence-based. According to her, there was no significant increase in OTC 
trading after MiFID, but the methods of trad ing have changed. With regards to Broker 
Crossing Systems, this activity  does not represent a materi al proportion of pan-European 
trading and arguably has no effect on price fo rmation. Moreover, the provision of capital for 
risk filling purposes, which by its  nature has to remain OTC, has always been a core broker 
activity and provides an important and valued se rvice to institutional,  retail and corporate 
clients. Integral to this is the ability of a br oker to delay the publication of large risk trades 
and it would be damaging to European liquidity, es pecially in illiquid securities if this ability 
were to be taken away. Finally, the systematic in ternaliser regime is not achieving its aim. It 
makes little sense to mandate pre-trade transparency when only the investment firms' clients can interact with the quotes generated creating unnecessary noise on the tape. 
John Woodman (Chi-X Europe) underlined that one  person's level playing field is another's 
disadvantage, because investment objectives diff er, for instance according to the time of the 
investment and the type of investor. Fo stering choice of venues according to the 
characteristics of the order has been one of the main benefits of MiFID. Lower execution 
costs are important for efficien cy, but the question is  if new trading ve nues piggy back on 
existing exchanges, including taking the most lucrative part of the activity of regulated markets. He believes this is not the case, b ecause new venues have grown the total market. 
Moreover, price formation occurs in new venues al so and is more than ce ntralising orders in a 
book. It is also about post-trade informati on from all venues. Concerning high frequency 
trading, made possible by tec hnological developments, he cons iders it helps provide liquidity 
to markets and thereby drive ex ecution costs down. Provided th e risks of market abuse are 
prevented through the application of existing rules, high fre quency business should not be 
inhibited unless it proves abusive or  harmful. In this context, short-selling is also a valuable 
service, a natural adaptation of  the market. The focus now should be on encouraging cheaper 
post-trading systems and on providing more consistent post trade information. 
Judith Hardt (FESE) said that regulated mark ets played a key role in providing liquidity 
during the crisis, which shows that the structure of the markets they ope rate (neutral, robust, 
open, etc) brings real  benefits to the whole economy. Mi FID has had a positive impact on 
improving competition among regulated venues, en abling pan-European trading and reducing 
execution costs. However, MiFI D has not increased choice fo r all and has not increased 
competition between all market players. There is  a big amount of trading on unlit venues. The 
part of unlit trading on regulated markets a nd MTFs is well known, but the trading that 
happens on an OTC basis remains more opaque. However the best available public sources 
indicate that this trading might be quite signi ficant when compared w ith other venue types – 
and more significant that one would have expected after Mi FID, which allowed OTC only as 
an exception. This has undermined price forma tion as well as fair competition and proper 
supervision. She stressed that the same busin ess should be subject to  the same rules. FESE 
thinks the price discovery process should be  improved through more rigorous pre- and post-
trading transparency for all venues engaged in  multilateral trading and a clear definition of 
OTC to ensure that only truly OTC trades rema in outside the trading venue rules. She also 
stressed that funding for mid-size caps and SMEs  should be analysed mo re closely, as the 
pan-European trading in blue chips enc ouraged by MiFID has had the undesirable and 
 
 286    unintended effect of restricting the ability of regulated market s to provide access to SMEs. As 
SMEs are not able to change jurisdiction easily,  they will always need access to local capital 
markets. The MiFID Review needs to take a close look at their needs.  
Replying to the question on the n eed to increase regulation of high frequency traders, Eleanor 
Jenkins warned against a regu lation based on definitions as opposed to a regulation based on 
effects. Judith Hardt recalled that despite the advantage of high freque ncy trading in providing 
liquidity, there is a limit to speed. On the questi on of the need to maintain the MTF category, 
David Lester observed that the market needs MTFs because they innovate and they often 
operate on a pan-European basis, going beyond the national markets that regulated markets 
were operating in before MiFID. Judith Hardt al so observed that it is much more expensive to 
run a regulated market than a MTF, notably due to different levels of supervisory oversight. If 
this trend continues, listing f ees may have to increase.  
Panel IV Investor protection aft er the crisis – repair or reform 
The moderator, Jean-Paul Servais (CBFA) emph asised the great importance of MiFID as a 
step forward for investor protection across Eu rope. He recalled the recent contributions of 
CESR to the review in this area: advice to  the Commission, a letter on specific additional 
areas, and a paper on client classification. He al so mentioned some of the topics covered such 
as inducements, intermediaries' internal approv al process for new services and products. the 
classification of UCITS as non-co mplex instruments, and the trea tment of different categories 
of clients.  
Fabrice De Marigny (Mazars) noticed  that MiFID sets a satisfact ory regulatory framework for 
the distribution of investment products and that fine tuning ma y be appropriate in few areas 
such as some aspects of client  categorization and info rmation on risk of financial instruments, 
which should include worst case scenarios. He recalled the PRIPs workstream and welcomed 
MiFID being the benchmark for se lling practices. He emphasised that investor protection is 
one of five broad policy areas covered by  MiFID (besides fragmentation, competition, 
liquidity and transparency). The five areas are clearly interconnected. For instance, he 
mentioned best execution as a topic touching upon different areas and deserving attention. 
Alain Pithon (AFG) said that portfolio managers are classified by brokers as eligible 
counterparties and consequently do not enjoy best execu tion (while they have best execution 
obligations towards their clients). He recomm ended a careful assessment of any perceived 
problems in dealing with the treatment of induc ements in the case of portfolio management. 
He expressed disagreement with positions emerged in CESR as to the classification of UCITS. He said that UCITS ar e appreciated by retail clients,  they are liquid and strictly 
regulated in terms of management and should re main all classified as non-complex financial 
instruments. 
Guillaume Prache (EuroInvestors) expressed a genera l pessimistic view since, in spite of the 
crisis, he sees financial operators back to “b usiness as usual”. He recalled that investor 
representation at the European financial policie s level is an important area in the Commission 
communication on “Driving European recovery” th at has not been followed through yet. He 
recalled the importance of real - independen t - advice and the ne gative impact of 
compensation mechanisms on the quality of advi ce and also said that inducements provisions 
are actually not enforced. He mentioned the impo rtance of the correct and full implementation 
and application of the regulator y framework by supervisors. He asked not to de lay the PRIPs 
work stream and emphasised that MiFID only cove rs a fraction of investment products sold to 
retail investors. 
 
 287    Bernhard Koch (Raiffeisen Zentralbank Oste rreich AG) noted that MiFID was implemented 
in Member States only at the end of 2007. Th e implementation was costly and it would be 
premature to conduct a wide review of the direc tive. He emphasised that , in assessing investor 
protection measures, the overall body of legisla tion should be taken into account, including 
consumer law and civil law. The overall pictur e seems satisfactory in terms of protection of 
investors. 
Maria Velentza (European Commissi on) clarified that the PRIPs work stream is advancing. 
She mentioned that, for selling pr actices, it will be part of th e MiFID review and, in the case 
of insurance products, should be included in th e parallel review  of the Insurance Mediation 
Directive. 
In the subsequent discussion the relevanc e of distinguishing independent advice was 
mentioned. It was also noticed that there is an increasing retailizat ion of complex products. 
Mr Prache recalled the importance of proper financing for investor s associations and 
mentioned the commitment of the European Commission in that di rection. Mr Pithon 
expressed the hope that US and EU authorities  are equally committed to implement any new 
rules resulting from G20 agreements. Mr De Ma rigny underlined that the current flexibility of 
client categorisation rules should remain untou ched (opt-in and opt-out mechanisms). He 
mentioned the impressive budget for investor prot ection issues in the US , but he also argued 
that competing US-style agencies do not seem necessary or desirable; rather a dedicated unit 
in ESMA would be useful. 
Panel V Data consolidation – fixing the failures and supporting best execution 
Maria Velentza (European Commis sion) opened the discussion by asking the panellists how 
they understand the con cept of a consolidated tape, if they agree with the idea of a 
consolidated tape in case of a positive response, if  it should be run by a public utility or if they 
prefer a decentralised solution a nd if they have any concrete proposals as to how to improve 
the best execution rule in MiFID. 
The moderator, Rhodri Preece (CFA  Institute), pointed out that  Europe does have problems 
regarding the timeliness, quality and cost of data. In a survey , 68% of CFA In stitute members 
considered trade-reporting as problematic with 64% believing that the cost of data had 
increased post-MiFID. 45% of me mbers think that best execu tion had become more difficult 
and 82% were in favour of a consolidated tape. 
Rudolf Siebel (BVI and EFAMA) considered improvements in  data consolida tion and quality 
as one of the main issues of the MiFID Re view. He regarded the introduction of Approved 
Publication Arrangements (APAs) as a necessary first step in that direction, however, he 
advised to be careful in relation to the cr eation of a mandatory consolidated tape. A 
framework should rather be developed in c ooperation between CESR and the industry.  
Andrew Allwright (Tho mson Reuters) blamed problems su ch as over-reporting, erroneous 
reporting, the lack of flaggi ng of relevant trades for i nvestors and the high costs on 
insufficient detail in MiFID on pre- and post-trade transpar ency rules and a lack of 
enforcement. In addition, he held the lack of clarity regarding best execution obligations responsible for investment firms not demanding a consolidated tape. He did not agree with the 
imposition of a mandatory consolid ated tape as users wanted customised data rather than a 
one size fits all approach, it would entail limita tion on pricing, would be costly to run and to 
finance and it would pose signifi cant technical challenges. A demand for a consolidated tape 
 
 288    in his view could only be cr eated if investment firms we re judged on their performance 
against the consolidated data. 
Charles-Albert Lehalle (Credit Agricole) qu estioned the possibility of a traceability of 
execution as the landscape of liquidity change s every two milliseconds. Hence, in his view 
pre-trade information does not allow for a determ ined decision and market  participants should 
rely more on post-trade information. As useful  regulatory measures he considered a recording 
of orders for surveillance pur poses. For the price formation pr ocess, a better quality of post-
trade data should be ensured. His conclusion ha s been that dark pools are not that different 
from lit pools with so blurred a picture pre trade. 
Holger Wohlenberg (Deutsche Börse) emphasi sed that MiFID should continue without a 
mandatory consolidated tape as market structur es in Europe are different from the US. He 
advised on harmonising trade-reporting in the EU, the introduction of standards for APAs 
modelled on those for Trade Data Monitors in th e UK, application of sanctions by supervisors 
and a reduction of delays in reporting. If all that was implemented the industry could develop 
a solution at competitive pri ces compared to the US. 
In the following discussion Mr Siebel and Mr Allwright considered th at there is neither 
demand nor need for consolidated pre-trade da ta. Mr Wohlenberg was happy with the existing 
best execution criteria. Mr Allwright thought that more clar ity on the price elements of best 
execution would be welcome. Dr Lehalle explaine d that he rejected a mandatory consolidated 
tape because without a trade thr ough rule it would not have the sa me importance as in the US. 
Conclusions Day 1  
Maria Velentza (European Co mmission) concluded the fi rst day with the following 
summation. 
Panel I : The EU proposals on OTC derivatives, centr al counterparties a nd trade repositories 
goes a long way towards improving the regula tion of derivatives markets but the MiFID 
review has still a big role to play. The G 20 commitments must be  honoured and trading 
should be migrated to organised venues as fa r as possible. In addi tion, new and harmonised 
powers for regulators appear to be necessary to introduce an a ppropriate oversight regime for 
the derivatives area. 
Panel II : Additional rules on transparency in equity and non-equity markets appear to be an 
essential part of the upcoming MiFID review. Do ing nothing in this ar ea cannot be an option 
after the financial market crisis. However, new regulatory requirements must be carefully 
calibrated in order not to damage the liquidity of markets. Extensive consultations will be carried out to achieve this goa l and we as the Commission enc ourage all parts of the industry 
to submit their views. In substance, key ar eas for review seem to be the aligning and 
clarifying of the pre-trade waiver s regime for shares and defini ng suitable trade-transparency 
regimes for other asset classes. 
Panel III : Creating more efficient and dynamic markets through competition is one of the key 
elements of MiFID that must be maintained. Levelling the pl aying field among trading venues 
can contribute to that end and should be addr essed in the MiFID review. Among the issues to 
be discussed in the review will certainly be  the establishment of appropriate regulatory 
requirements for crossing systems. Also the impact of and risks associated with high-
frequency trading seem to call for a regulatory response. 
 
 289    Panel IV : The protection of investors – retail investors in partic ular – has been one of the 
main goals of MiFID. We are aw are that the industry had to make  significant efforts to adapt 
to the MiFID requirements. Nonetheless, the fi nancial market crisis has demonstrated that 
some additional adjustments need to be made. Hence, the review should aim to strengthen the 
investor protection rules as well as their enforcement. 
Panel V:  Given the current state of post-trade tran sparency data, a regulatory intervention 
appears to be necessary. Standards in all likeli hood need to be implemented to harmonise data 
outputs and facilitate cons olidation. In addition, Ms Velent za saw merit in further exploring 
the options of mandating a consolidated tape. 
DAY 2 
Maria Velentza (European Comm ission) opened the day by reca lling the G20 agreement "to 
improve the regulation, functioni ng, and transparency of financial and commodity markets to 
address excessive commodity price volatility".  Policy-makers are tasked notably with 
increasing oversight of commodity  and futures markets, as well as related OTC markets, in 
order to improve their functioning for price di scovery and hedging purp oses. She noted that 
there is significant discord ar ound the impact of increased in vestment flows in commodities 
and commodity derivatives on prices, and encourag ed stakeholders to c ontribute their views 
on the required policy actions. 
In his keynote speech, Michel Prada (Former Chair, AMF) sa id that recent developments 
demonstrate that the proper functioning of comm odity derivative markets was at risk. As a 
result, public authorities and financial regu lators had a duty to improve regulation and 
intensify oversight. Increas ed investment flows, the presence  of new market participants, an 
increasing number of available derivative products, and the grow th of alternative means of 
trading presented challenges fo r the existing regulatory framew ork and for price formation. 
He emphasised the need to avoi d repeating some of the mistakes of the past. No party, 
instrument, or venue should be overlooked. Tran sparency and better information flows were 
critical. The EU should consider a dedicated fr amework of regulation for commodity markets, 
with comprehensive but proportio nate requirements for all player s, instruments, and trading 
platforms across both physical and financial markets. Superv ision of day-to-day market 
functioning would reside with fi nancial regulators, with various commodity authorities tasked 
with overseeing market fundamentals and implementing sectoral policy. 
Panel I The outlook for global commodity markets 
The moderator, Philippe Chalmin (University of Paris Dauphine), started the debate by 
presenting data showing that commodity market s are undergoing big changes with prices on 
average three times higher than in 2000. Comm odity prices evolution is subject to the 
combined effects of supply, demand and sp eculation. Compared to  financial products, 
commodities have a much longer cycle because of physical constraints on the production. 
Christof Rühl (BP) said that it was difficult to su bstantiate that volatility in oil prices is due to 
speculators. The increase in fina ncial transactions on commodities  started before the hike in 
prices. Long positions in derivati ves are said not to have driven  prices or inve ntories up. Oil 
prices are fundamentally driv en by supply and demand and there is a 5 to 6 months gap 
between the decisions by producers (with OPEC playing a central role) to in crease or decrease 
output and the actual effect on prices or inventories because of this new production. 
 
 290    Myriam Vander Stichele (SOMO) insisted on the fact that the interests of consumers needed 
to be taken into consideration in the new regulation. In additi on, a precautionary principle and 
the specific nature of commodity  markets in everyday well-bei ng should also be integrated. 
The new regulation needs to define position limits  and the type of intervention allowed as 
well as increasing the information availa ble to the public and to regulators. 
Jorge Montepeque (Platts) said that markets are reacting to fundame ntals and fiscal and 
monetary conditions and that they are efficient. He pointed out that the oil market is getting 
more global with new pipelines capacities being rolled out and increasingly influenced by the 
economic evolution of Asia and particularly China. 
Jonathan Whitehead (Barclays) mentioned th at the fundamentals in the evolution of 
commodity prices lie with the physical markets.  Speculation was said not to impact on prices. 
Mandatory clearing will make hedging more  difficult by requiring hedgers to hold and 
manage flows of cash. Standardisation has its limits and many products are actually not 
traded. Transaction reporting obligations and po sitions limits should be pursued with care to 
preserve confidentiality while allowing taking large positions for people who need them. 
The subsequent discussion and que stions from the audience ra ised various points from the 
issue of the lack of a clear legal definition of emission allowances to further questions on the 
exact role of speculation on the commodity markets. Various audience members challenged 
the assumptions and analysis of those panellist s who claimed that the impact of speculation on 
prices is limited.  
Panel II Global regulatory perspectives 
The moderator, Don Casturo (Goldman Sachs) , introduced the debate  by saying that rules 
should be harmonised across financ ial and physical markets. Effi cient markets require greater 
transparency to regulators whereas the adequa te level of transparency towards the public 
should be properly analysed. 
Wayne Smith (French AMF) recalled that thes e markets are extremel y diverse which create 
challenges. He made three main recommendations  to improve the regulation and oversight of 
commodity markets: (1) All market participan ts should be comprehensively regulated and 
supervised. This implies a na rrowing of the MiFID exempti ons for specialist commodity 
firms. Naturally regulators should acquire th e necessary expertise to carry out proper 
oversight of these participants . (2) The G20 roadmap for OTC derivatives should be applied 
swiftly to commodity derivatives. Promoting trading on exchanges will bring the benefit of increased competition and fairer prices. (3) The transparency of the underlying physical 
market should be improved. In parallel the cooperation between regulators should be 
reinforced. 
Alexander Justham (UK FSA) acknowledged that no single category of traders could be 
pointed out as being the main group influencing prices. Agains t that backdrop he gave the 
message that there are clear ar eas where regulation could be im proved: (1) Transparency of 
trading towards regulators should be impr oved by implementing the G20 roadmap on OTC 
derivatives. (2) Market particip ants should have some regulator y net although pr oportionate to 
the risks they pose. (3) Position reporting shou ld be introduced as it is key information for 
regulators and market particip ants alike to unde rstand the dynamics of the market. (4) 
Regulators need a broader set of powers than  narrowly defined position limits to tackle 
excessive price volatility, including powers to  address attempts at market manipulation. 
 
 291    Johannes Kindler (Bundesnetzagentu r) said that markets need to be better protected by: (i) 
improving transparency of the tr ading process, (ii)  a proper regulator y coverage of OTC 
derivatives, and (iii) enhancing the oversight of these markets.  The regulatory regime should 
take into account the whole mark et, both financial and physical as  these markets impact each 
other. He also drew the atte ntion to the importance of f undamental data transparency. 
Sony Kapoor (Re-Define) stressed that commodity  markets are fundament ally different from 
securities markets. Although thes e markets may not contribute to financial systemic risk, they 
contribute to food and ba sic well-being risk. Mark ets are there to serv e genuine end-users, 
while intermediaries should remain liquidity providers. Investor-interest in commodities is 
misplaced. Hence he called for the EU to de velop a different regulatory approach for 
commodity markets. Transparency is paramount in these markets as is the idea of positions 
limits, but these are just the start.  
Rich Shilts (CFTC), speaking in a personal capacity, outlined the US regulation of 
commodity derivative markets and upcoming changes. The CFTC's market surveillance 
program draws on multiple sources of informa tion among which one of the key tools are the 
highly confidential data on the act ivity and positions of individua l traders derived from their 
large trader report system. The Dodd-Frank Act aims to extend the existing CTFC's oversight 
of exchange traded derivatives to OTC commodity derivatives. It also provides for the setting 
of position limits on all non-hedged positions for future contracts in physical commodities, 
including agricultural products, energy and metals with the ai ms of combating excessive 
speculation and manipulation, ensuring market liquidity and protectin g the markets' price 
discovery function.  
Panel III Users and producers 
The moderator, Anthony Belchambers (FOA), in troduced the debate by underlying that the 
role played by speculators in markets has both pros and cons. Pros come in the form of 
additional liquidity. Cons come in the form of  short term price spik es and acceleration of 
price trends. In light of this, any regulatory in tervention will need to be carefully considered 
and evidence-based. In addition it  should be properly ta ilored to meet the sp ecificities of the 
commodity markets. A one-size-fits-all appro ach with rules for banks spilling over to non-
banks would be disproportionate. Finally enhancing risk manage ment capabilities of market 
participants is as critical as building safer derivatives markets. 
Yves Vercammen (ENI) said that the trading arm of ENI uses commodity derivatives to 
hedge their commercial and financial risks aris ing from their underlying physical activity. As 
a result their trading activity does not contribute to systemic risk. This is why he stressed the 
importance of taking the sp ecificities of the commodity business when devising any 
regulatory rules. He gave the example of the accounting standa rds (more specifically IAS 32 
& 39) as poor practice based on an  assumption of "one size fits all". In terms of transparency 
any additional information made available sh ould be relevant information which allows 
market participants to better unders tand the price formation process.  
Paul Dawson (RWE) considered the main chal lenge to be transpar ency. Regulators do not 
have up to now the necessary information to u nderstand what is happ ening in the markets. 
The forthcoming EU energy transparency and ma rket integrity regime will bring significant 
benefits. It will consist of three main legs: (i) transparency of fundamental data, (ii) reporting 
of trades irrespective of where it takes place, and (iii) alignm ent of the standards for conduct 
and integrity with the financial markets standa rds. He did not think action beyond this tailor-
made regime was necessary at th is stage, saying that neither  these markets nor the market 
 
 292    participants pose any systemic ri sk. In addition there is no inte raction with retail investors. 
Hence the case to extend financial regulation to  power and gas trading has still to be made. 
Lastly the focus should be instead on increasing competition in the physical markets. The current triangle of regulation the energy compan ies are subject to, i.e. financial, energy and 
competition is in itself a challenge.  
Fausto Filice (Cargill) expresse d the view that the system that exists today is not broken 
although it could be improved. The factors for efficient and well functi oning futures markets 
are the following: (i) the size of the underlying cash market, (ii) the liquidity of the futures 
markets, and (iii) the convergence between the futures contracts and the underlying at the time of delivery. He added that convergence betw een futures and the underlying cash markets acts 
as a natural deterrent for long term speculators. With the refo rm of the Common Agricultural 
Policy, producers and consumers will have to ad apt to the increased volatility in the physical 
markets. Efficient futures markets can help them to deal with this incr eased volatility. He was 
in favour of a certain number of regulatory measures to main tain the efficiency of the 
markets: (i) regulators and ex changes should fix the convergence problem by, for example, 
expanding the number of delivery points, (ii) the introduction of  position limits for certain 
categories of market particip ants, and (iii) increasing tran sparency by the introduction for 
example of a US type of Co mmitment of Traders report. 
Pekka Pesonen (COPA COGECA) said the he curre nt reality for farmers and cooperatives of 
the physical markets has to be taken into a ccount. Farmers are expo sed to severe price 
volatility. Agricultural markets are connected to world mark ets which expose farmers to 
foreign exchange volatility. Inst ability in agricultural markets has repercussions on other EU 
stakeholders and industrial sectors. A key tool farm ers have at their dispos al to deal with this 
volatility and instability  is the futures markets. However these markets should respond to the 
need of greater transparency. Comprehensiv e transaction reporting should be introduced. 
Information about the trading activity of diff erent categories of tr aders should be made 
available. Farmers should also ge t direct access to the markets.  Transparency would also be 
greatly enhanced if the EU ha d its own tool to analyse wo rld supply and demand, improving 
the consistency and availability of fundamental  data about the underlying physical markets.  
In the ensuring discussion severa l questions were raised about the size and profitability of 
trading activities of large corporat e end-users. The panellists con cerned said that this financial 
information is publicly availabl e but that it is very difficu lt to draw the boundary between 
hedging and speculative activities. Some trans actions may not qualify as  hedging transactions 
under the international accountin g standards but still be back ed by underlying physical assets. 
European Flour Millers meanwhile  advocated for an exemption in favour of end users from 
the obligation to report to trade repositories as these deals do not contribute to systemic risk. The importance for the Commission to consult all interested parties as part of its work was 
also recalled. 
Panel IV The road ahead for EU energy and emissions markets 
The moderator, Simone Ruiz (IETA), opened the panel by mentioned three priorities in 
ongoing EU energy and emissions work: (i) securi ng conditions for businesses to continue to 
manage their production and carbon-related risks;  (ii) adapting new regulatory requirements 
to the circumstances of the different commoditie s; (iii) streamlining reporting requirements to 
regulators. 
Simon Smith (Shell) considered  that many parts of the G 20 derivatives roadmap were 
unsuited for commodity trading. He recalled the 2008 advice by EU securities and banking 
 
 293    regulators that commodity firms do not represent a sour ce of systemic risk. He said that 
clearing was well-established in various commodity derivative markets, that Basel rules on capital were not adapted to the industry, and that position limits were not helpful. He did 
agree however that the various transparency developments, for example trade repositories, 
could help alleviate concerns over excessive  speculation and that better data flow on 
fundamentals should be required in sectoral legislation. 
Alexandre Marty (EDF Trading)  said that power companies occupy a central role in 
electricity, gas, coal and em issions markets, where prices are closely interlinked. He 
underlined various specific features of emissions markets, for example thei r origin in political 
decisions, their dematerialised natu re, and their high rate of centra l clearing. He said that more 
detailed information on fundamentals such as  supply and demand of emission allowances 
would be welcome, and argued that hasty so lutions for enhancing oversight and market 
integrity should be avoided. He mentioned that  financial regulators could well play a bigger 
role in micro-level supervisi on, with energy regulators m onitoring market fundamentals. 
Fredrik Voss (Nasdaq OMX) commented that th e basic principles fo r regulating different 
commodity derivatives should be the same, with  sufficient latitude to take into account 
notably different physical delivery mechanisms . Liquidity in today's EU power and gas 
market was poor and more tradi ng by new investors was to be welcomed in order to improve 
economic efficiency and price discovery . A major challenge today was improving 
competition in the physical market. Level ling the playing field for hedging between 
exchange-based and OTC instruments was welcome although he was sceptical about 
mandatory clearing. 
Jeremy Elliott (ICAP) said th at competition between commodity derivative trading venues 
was helping efficiency. For example electron ic trading and central clearing were well 
advanced in energy and emissions markets, comp ared to some other derivative classes. He 
stressed that the focus today should be on increasing automation a nd further developing 
clearing, as well as setting up efficient trade repositories.  
In the ensuing discussion, pane llists were challenged on why the G20 roadmap on derivatives 
was inappropriate for commodity derivatives, why position limits shouldn't also apply, and how to ensure a level-playing field between di fferent participants in commodity markets. 
They commented that position limits had not damp ened volatility in the US, that a transparent 
subsidy constituted a better means of price control,  and that all participants in commodity and 
commodity derivative market  should be better identifiable in the future.  
Conclusions Day 2 
Maria Velentza (European Commis sion) concluded the final day of the review of MiFID and 
commodity derivatives by reiter ating that measures designed for commodity derivatives 
markets should and will be an integral part of  the MiFID review. She noted the widespread 
agreement regarding the increasing "financial isation" of commodity derivatives, that the 
implications of this beyond fi nancial markets (e.g. global food markets) deserved study, and 
that if necessary, a preventive policy appro ach may be required. She concluded with the 
following summation. Panel I:  Commodity and commodity derivative markets have 
experienced developments of late that do pose regulatory challenge s. The regulators and 
supervisors responsible for these markets need to strike the ri ght balance when dealing with 
these challenges to ensure functioning and sou nd markets. An enhanced cooperation of the 
various regulators and supervisor s involved seems to be key.  
 
 294    Panel II : The message from the G20 is certainly very clear that action must be taken to tackle 
the volatility we experienced in commodity ma rkets. Of course, the Commission will respond 
to this message swiftly and take appropriate  regulatory action. We have a number of 
initiatives in the pipeline which will apply to co mmodity derivatives markets in particular. In 
the field of DG Markt Ms Velentza noted in particular the EMIR legislation, the PRIPS 
initiative and the reviews of MiFID and of the Market Abuse Directive.  
Panel III : The European Commission is aware that  commodity derivatives markets function 
to some extent in a different fashion from equ ity markets, therefore, solutions must be found 
that fit the characteristics of  these markets. To that end Ms Velentza found the ideas and 
opinions expressed during the course of the day very helpful and said that the Commission is 
keen to continue the dialogue with al l stakeholders also  in the future.  
Panel IV : Energy and emissions market s are also very specific in their functioning and the 
development of "tailor-made" regulatory soluti ons for these markets should be explored. For 
example, the emissions markets have a signific ant number of SME participants who need to 
fulfil their obligations in respect of submitting CO2 allowances. Imposing a wide array of the financial markets regulation upon them does not a ppear to be proportionate. However, market 
integrity needs to be upheld at all times. In so  far as necessary, adequate supervisory tools 
should be developed to guarantee market conditi ons that benefit the European economy as a 
whole.  
 
 295    23. ANNEX 13: SUMMARY OF THE REPLIES TO THE PUBLIC CONSULTATION  
The consultation ran from 8 December 2010 to 2 February 2011. We received around 360 
replies from organisations and nearly 4000 repl ies from citizens, on two distinct issues.481  
Details by stakeholder group 
The summaries below cover the aggregate views of stakeholders across nine groups: (i) public 
authorities; (ii) banks, brokers an d their trade associations (sel l-side); (iii) asset managers, 
funds and their trade associations  (buy-side); (iv) market opera tors and exchanges; (v) retail 
investor associations; (v i) non-financial corporates; (vii) ac ademics; (viii) service providers; 
(ix) other (including issuers, NGOs, law firms etc.).  
Public authorities (approximately 29 replies)  
1. Align requirements for venues and introd uce Organised Trading Facilities (OTFs)  A 
small majority is in favour but  respondents raise several conc erns. Some have doubts about, at 
once, adding a new venue and mi nimising differences in requirements between them. Some of 
the latter did however consider increasing coope ration in market surveillance between venues 
to be desirable. One opposed it  as impractical and another said this should be treated under 
MAD. Two respondents suggested subsuming sy stematic internaliser s into the new OTF 
category. One opposed a general OTF category as  well as clarifying that crossing cannot 
overlap with systematic internalisation and MTF-type multi-party interaction. 
2. Mandatory trading of clearing eligible and sufficiently liquid derivatives on OTFs A 
small majority is in favour. On e explicitly opposes mandates, and prefers targets. Another is 
against requiring eligible OTFs to be multila teral in character, prefers to consider 
standardisation instead of clearing-eligibility  as a better basis, and suggests non-financial 
users should be exempt from any requirement.  
3. Introduction of tailored regime for SME markets  A small majority is against the 
introduction of a new SME segment. Two say it should only be under the MTF-category, not 
the regulated market category. 
4. Authorisation of and increase in organ isational requirements for all HFT firms 
Respondents are mostly in favour. One says au thorisation should hinge  on whether the HFT 
firm is a direct member of a trading venue or a user of direct market  access. Another says only 
direct members who are HFT fi rms should be authorised.  
5. Additional requirements fo r firms providing sponsored or direct market access  The 
majority agree with the propos als. One respondent says ea ch algorithm should be uniquely 
identifiable to the regulator via a code.  
6. Reinforcement of organisational requirements for organised venues Respondents 
unanimously support the proposal. 
7. Introduction of order-to-execution ratio  There is no clear suppo rt for the proposal. The 
few replies received are evenly divided.  
8. Harmonised application of pre-trade tran sparency waivers, reduction of post-trade 
delays and extension of transparency to  shares traded only on MTFs or OTFs  (including 
 
 296    new SME markets) A large majority support the proposa ls. Some do not agree with the 
proposal to publish remaining stubs of unexecute d large-in-scale orde rs or to consider 
actionable indications of intere st as orders. One respondent pr efers to abolish the reference 
price waiver. One respondent s uggests further calibration of the transparency regime may be 
needed for SME markets.  
9. Calibrated pre- and post-trade transparency regime for bonds, structured finance 
products, and derivatives  The majority broadly agree on the post-trade transparency 
proposals, but some disagree with extending the requirem ents beyond clearing-eligible 
derivatives. Most disagree with devising pre-tr ade requirements for OT C non-equity markets. 
Two respondents propose to excl ude all sovereign securities fr om the exercise, and another 
two to further differentiate between currencie s within asset-classes.  Some propose further 
liquidity measures such as fre quency of trading, issuance size, and the number of participants 
as relevant triggers to include in any regime.  
10. Unbundling of data, ESMA guidance on "reasonable price", introduction of 
Approved Publication Arrangements A large majority agree.  One respondent signals 
support for applying similar provision to non-equities. 
11. Consolidated tape by approved commercial provider(s)  A majority agree. Two 
respondents prefer a public body, while another pr efers a commercial entity chosen by public 
tender. 
12. Mechanism for banning products, services or activities The majority support the 
proposals. 
13. Reinforcement of oversight of positions in derivatives, including possible position 
limits  The views are mixed with a small majority  in favour. One reply doubts the ability of 
regulators to assume these tasks. Another urges caution before proceeding with this 
significant policy reorientation. One reply urges keeping management of positions as close to 
the relevant markets as possible to ensure flexibility, with lim its as a conceivable option in 
low-liquidity or immature mark ets. One respondent says that the possible objectives given for 
position limits are all dealt w ith under other legislation, e.g. on market abuse, capital 
requirements, etc, and that any scope for li mits should thus only apply in the case of 
speculative trading by un regulated entities.  
14. Third country regime  The majority is in favour of su ch a regime. One respondent signals 
the AIFM Directive as a model.  
15. Common minimum rules for administrative  sanctions and requirement for criminal 
sanctions The majority support the proposals. Two respondents does not support an EU-level 
framework for determining what constitutes a criminal act. 
16. Extension of transaction reporting to all instruments admitted to trading on 
organised venues and all OTC instruments the value of which correlates with these, as 
well as commodity derivatives  Respondents largely agree. Two oppose reporting for all 
OTC commodity derivatives, and one prefers to replace "corre lates with" by "is dependent 
on". One respondent prefers to go further and requ ire reporting of all fina ncial instruments.  
17. Require reporting through Approved Repo rting Mechanisms (ARMs) and enable 
reporting of derivatives through trade repositories  The majority agrees, but two 
respondents signal ARMs can't absolve reporting firms of th eir responsibility. Many also 
 
 297    stress that data flows under EMIR and MiFID will have to be identical for the proposal to be 
acceptable. 
18. Direct reporting to ESMA after transition  A small majority is against this proposal. 
Many point to recently incurred costs setting up existing reporting systems and call for cost-
benefit data. Some signal reporting to home co mpetent authorities only as an option.  
19. Market operators to store order data Respondents unanimously support the proposals. 
20. Market operators to report on behalf of their non-MiFID members  Respondents 
unanimously support the proposals 
21. System of position reporting by types of traders on commodity derivative markets 
The majority are in favour. One respondent spec ifically urges adopting the US categorisation, 
while another stresses the need for cl ose alignment, possibly via IOSCO.  
22. Narrow scope of commodity derivative exemptions  With one exception, respondents 
unanimously support the proposals. 
23. Classify emission allowances as financial instruments  There is no support for the 
proposal. Most urge further study. 
24. Require the application of  key MiFID principles for national Article 3 regimes  With 
one exception, respondents unanimously agree. 
25. Extend MiFID conduct of business and conflict of interest rules to structured 
deposits With one exception, respon dents unanimously agree. 
26. Narrow list of non-complex products, specify  when investment advice is independent, 
and require annual assessment of the advice provided  A majority agree. Some remark 
however that an oblig ation of ongoing advice blurs th e distinction between portfolio 
management and investment advice. Many say th at it should remain an option. Some do not 
agree with the proposals for a differentiation of advice as either indepe ndent or not, while one 
respondent prefers a clearer di fferentiation. One reply warn s against harming the UCITS 
brand with any distinct ion of complex/non-complex UCITS, while another pref ers to delete 
the execution-only regime altogether.  
27. Apply general conduct of bus iness principles between e ligible counterparties and 
exclude municipalities from th e list of professional clients  A substantial majority agree. 
One respondent prefers to leave the classification of municipal ities to nationa l discretion. 
28. Reinforce information obligation in relation to complex products and strengthen 
associated reporting requirements  A small majority of respondents agree. Those in favour 
specify that they prefer it appl y only to retail structur es products (2 replies)  and not to eligible 
counterparties (2 replies). On e reply prefers a reporting freque ncy of six months. Another 
stresses that a risk/gain profile and periodic valuations may be too static to genuinely benefit 
the investor. Those against refer to the administrative burden.  
29. Ban inducements for independent invest ment advice and portfolio management A 
substantial majority agree in the case of por tfolio management. Those who agree with the 
differential labelling of independent advice s upport the proposal in this case as well. 
 
 298    30. Require trading venues to publish data on execution quality and improve 
information to clients on best execution  A majority agree. Those who don't, say existing 
providers of data analytics, combined with th e obligations incumbent on investment firms, are 
sufficient. 
31. Strengthen role of directors  in relation to internal control functions and when 
launching new products and services  A substantial majority agree. Those who don't, 
nonetheless generally support im proving internal reporting a nd governance. Two respondents 
disagree with any new require ments for launching new produc ts. Another does not consider 
that all board-members have to have sufficien t experience in financial services. Finally, one 
reply suggests public officials shou ld not be able to ta ke up a board seat before one year after 
leaving office.  
32. Require specific arrangements for po rtfolio management and underwriting  A small 
majority disagree. One reply doesn 't wish to create legal uncert ainty by singling out portfolio 
management in terms of organisational aspects,  while another would pr efer Level 3 guidance 
to any new requirements on underwriting. 
33. Minimum regime for telephone and electronic recordings  With two exceptions, 
respondents unanimously agree. 
Banks, brokers and their trade associations (approximately 85 replies)  
1. Align requirements for venues and introduce OTFs A small majority agree. 
Respondents generally ask for more clarity on the scope of an OTF and suggest various 
approaches to trim it down. Many underline that OTFs should onl y encompass trading 
systems and not systems that merely confirm tr ades post execution. Some propose that a more 
rigorous application of existing categorie s is more appropriate. Many oppose a unique 
identifier for crossing networks and disagree th at execution against proprietary orders or 
third-party access should compel the application of MTF or SI requirements. Others however 
support this and say this would dismiss the need for an OTF category. Some even support a 
threshold upon which the OTF would convert to an  MTF, at e.g. 3-4% of global turnover for 
specific shares within  a certain timeframe. There is broad support for introducing more 
cooperation between venues, but only tentative agreement on th e alignment of requirements 
of venues.  
2. Mandatory trading of clearing eligible a nd sufficiently liquid derivatives on organised 
venues A majority disagree. Many argue  against all aspects of the proposals, and in favour of 
targets set by authorities. They see few be nefits, and only drawbacks. Some support the 
proposals, provided that voice execution remains an option within OTFs, notably as regards 
transparency requirements. Many underline that  there are differences  between derivatives 
eligible for trading and standard ised derivatives. They stress that an evolution of liquidity 
over the life of the instrument, suitable exempti ons for block trades and certain participants 
(non-financials) are needed. Many comment that flexibility in the choice of trading venue should be driven by both the type of contract and the type of customer. 
3. Introduction of tailored regime for SME markets Views are divided. One respondent 
says an SME label cannot assure investors if di sclosure standards and listing requirements are 
reduced. They say we should not compromise qual ity and standards associ ated with regulated 
markets and MTFs. They also comment that th e proposal is very uncle ar. Various respondents 
remark that MiFID is not the right tool to  alleviate administrative burden for SMEs. 
 
 299    4. Authorisation of and increase in organ isational requirements for all HFT firms A 
majority are in favour. One respondent says HF T firms should be defined exclusive of the 
services provided by brokers. Another says HFT should be defined more specifically than as a 
subcategory of automated trading. Many disagree  with requiring liquidity commitment akin to 
that of market makers and mi nimum duration of orders. As an  alternative, some however 
suggest gradual increases in costs for cancelling orders. 
5. Additional requirements for firms provi ding sponsored or direct market access 
Respondents largely agree. 
6. Reinforcement of organisational requirements for organised venues Respondents 
largely agree. Some signal that the requireme nts should not be overly prescriptive and venues 
should have flexibility  in applying them. 
7. Introduction of order-to-execution ratio Few agree. Many say more study would be 
required before such a measure is imposed. Difficulties would emerge from HFT firms accessing markets via multiple brokers. Some suggest that venues should be left to determine the specifics of any ratios, or that they could gradually increase costs for cancelling orders in 
order to discourage abuse usage of systems. 
8. Harmonised application of pre-trade tran sparency waivers, reduction of post-trade 
delays and extension of transparency to shares  traded only on MTFs or OTFs (including 
new SME markets) A small majority agree. Many signal concerns with reducing post-trade 
delays and keeping current larg e-in-scale thresholds. Some oppos e large-in-scale order stubs 
being made transparent and a minimum order size for the reference price waiver. Some 
oppose extending transparency to MTF/OTF-only shares. 
9. Calibrated pre- and post-trade transparency regime for bonds, structured finance 
products, and derivatives Respondents mostly disagree. Ther e is widespread opposition to 
any pre-trade requirements especi ally for securitised products  and derivatives (different 
prices, terms and overall low leve ls of liquidity), except possibl y for issues actively traded by 
retail investors. They refer to existing levels of pre trade data already available for vanilla and liquid products. Many consider th at asset-specific post-trade ca libration should take frequency 
of trading and issuance size into  account, and apply to confirmed trades only. Others consider 
that the priority would be to allow for significan t delays in the case of large trades, as well as 
avoid disclosing trade sizes above certain limits.  Others prefer aggreg ate disclosure only. 
Many signal difficulties and si gnificant work in devising an overarching transparency 
requirement for non-equities at Level 1, with  asset-specific, highly calibrated regimes in 
Level 2. Many urge a phased approach. Va rious respondents comme nt that imposed 
transparency is only needed when there is retail participation and others say that it would even 
hurt retail investors in markets where they are present.  
10. Unbundling of data, ESMA guidance on "reasonable price", introduction of 
Approved Publication Arrangements Respondents mostly agree. Some however doubt 
whether unbundling will reduce costs. Some support mandated publication by APAs in non-
equities also. Others see no need to define "reasonable" further. So me urge to avoid the 
creation of new APAs and pref er to leverage upon existing arrangements (e.g. regulated 
markets). Isolated replies support making raw data  available for free, with only APAs able to 
charge reasonable fees for processing it. 
 
 300    11. Consolidated tape by approved commercial provider(s) A majority agree. Some 
however doubt whether the incen tives are strong enough to sustain commercial model. Many 
comment that governance and avoidance of m onopoly power are more important than the 
nature of the entity. There is thus some support for a public entity or a public tender procedure 
but most support a single commercial organisation. 
12. Mechanism for banning products, services or activities Respondents very largely 
disagree. They say the powers are not circumsc ribed clearly enough, and would give rise to 
legal uncertainty. Many remark that existing po wers of regulators and ESMA suffice. Some 
insist that any ban be triggered only in the even t of actual investor harm, and that in any case 
it should be at European level. Most critic ise the ambiguity of safeguarding investor 
protection in this respect. All are against banning OTC derivative s eligible for cl earing but not 
offered by a CCP. 
13. Reinforcement of oversight of positions in derivatives, including possible position 
limits Almost all respondents disagree. Many su pport the views of the UK Treasury and UK 
FSA in favour of a position management appro ach. They remark that limiting activity in one 
part of the market is artificial and leads to re gulatory arbitrage. Many urge considering soft 
position limits (i.e. information thresholds) instead, and comment that positions should 
already be supervised unde r existing prudential rules 
14. Third country regime The views are split with a small majority against. They caution 
against a strict equivalence regime. Many also in sist that great attentio n needs to be devoted 
to this issue because of possible incr eased competition with no reciprocity 
15. Common minimum rules for administrative  sanctions and requirement for criminal 
sanctions Respondents mostly agree. 
16. Extension of transaction reporting to all instruments admitted to trading on 
organised venues and all OTC instruments the value of which correlates with these, as 
well as commodity derivatives Respondents largely agree.  However many say the 
requirements should be limited to instruments solely traded on MT Fs/OTFs and exclude non-
securities derivatives and those with index underliers. Ma ny comment that pos ition reporting 
is far more useful for commodity derivatives and strongly oppose an exte nsion of transaction 
reporting. Most respondents urge a central list of reportable instruments, clarity on technical 
requirements such as instrument  and venue codes, and replacing  "correlate" with "derived 
from or dependent on".  
17. Require reporting through Approved Repo rting Mechanisms and enable reporting 
of derivatives through trade repositories Respondents largely agree. Many support 
maximum synergies with trade repositories. Others oppose extending AR M regime to existing 
practices. 
18. Direct reporting to ESMA after transition  Many theoretically agree, but doubt will be 
more efficient in practice. Possible high transi tional costs and a deteri oration of service are 
noted. 
19. Market operators to store order data Respondents are slightly against. 
 
 301    20. Market operators to report on be half of their non-MiFID members Respondents 
mostly agree. Some express doubts about  practical and cost implications.  
21. System of position reporting by types of traders on commodity derivative markets A 
majority agree. Some say that a classification by EU-regulatory category is not watertight and 
suggest the following instead: produc ers, consumers/transformers, dealers, liquidity providers. 
Some remark that not all affected venues will have the required position information today. Isolated comments are very critical and think any classification will result in poor 
generalisations and confusing outcomes. One banking association suggested that ad hoc 
directive would probably be th e best way to address problem s identified in the commodity 
markets. 
22. Narrow scope of commodity derivative exemptions A majority agree. Some however 
comment that there is a risk in driving smaller participants out of the market. Others point out 
that it could force some exempt  entities previously eligible for ECP treatment into the 
professional client regime, with implications  for who will accept to trade with them.  
23. Classify emission allowances as financial instruments Virtually all are against. Some 
refer to the conclusions of the Prada report in this respect. 
24. Require the application of key MiFID prin ciples for national Article 3 regimes A 
majority agree. Some signal the need  for proper cost-benefit analysis. 
25. Extend MiFID conduct of business and conflict of interest rules to structured 
deposits A majority agree, but comment that this w ill entail some reorganisation within credit 
institutions.  
26. Narrow list of non-complex products, specify  when investment advice is independent, 
and require annual assessmen t of the advice provided Views are split. Many raise strong 
concerns over blurring of dis tinct services of advice and portfolio management, and possible 
new costs for clients from ongoing suitability services. Some re mark that differentiation of 
advice should only be in relati on to retail clients. Some doubt  that differentiation can be 
adequately defined (e.g. what is a sufficiently  large number of instruments), will be accepted 
by clients, or would deliver be nefits to investors. Many r ecommend to await IOSCO work on 
the topic, and to avoid defining a list of comp lex products in Level 1 (leaving it to ESMA to 
make it more flexible). Many co mment that risk level and not complexity of a product is a 
more valid distinction. 
27. Apply general conduct of bus iness principles between e ligible counterparties and 
exclude municipalities from th e list of professional clients The majority agree. However, 
some urge more study on ensuring municipal ities still have suffici ent access to financial 
markets and counterparties. Many resist the id eas to increase protections for professional 
clients or eligible counterpartie s. One reply comments that in th eir experience municipalities 
have never requested downgrading to retail , only sometimes upgrading to eligible 
counterparty status. Many comment that what c onstitutes a municipality differs across the EU. 
One reply notes that a population and budget th reshold (e.g. 25k/€40k) c ould qualify them as 
professional. 
 
 302    28. Reinforce information obligation in relation to complex products and strengthen 
associated reporting requirements Most respondents disagree. They say information should 
only be made available to clients, not provided . The right for investors to request information 
is better met on the basis of demand of client s to firms than by regulation. Providing more 
information would run the risk of overloading c lients and encouraging s hort-term investment 
horizons. Some say that PRIPs work should take precedence over this.  
29. Ban inducements for independent inves tment advice and portfolio management 
Views are split. Many say that more clarity on  what types of payments actually induce a 
conflicting situation should be prioritised. Ma ny disagree with entirely prohibiting payments 
to advisors when these "facilitate" fee-based a dvice. Others are agains t any differentiation in 
advice and assuming that the best  interests of clients cannot be  reconciled with inducements. 
Some comment that commission-ba sed advice is preferable for clients compared with fee-
based advice as they only incur costs if they actually choose to invest. 
30. Require trading venues to publish data on execution quality and improve 
information to clients on best execution Most respondents oppose. They say it is not 
necessary and that sufficient in formation already exists. Any sy stem should ensure that price 
is a prominent but not the only measure of ex ecution quality. Some say that more information 
on execution policies should be upon request  only, lest clients are overloaded.  
31. Strengthen role of directors  in relation to internal control functions and when 
launching new products and services Views are split. Many say th at distinctions between 
the involvement of the supervis ory and the management board should be clarified. They 
underline the need to avoid duplication with other EU co rporate governance principles. 
32. Require specific arrangements for por tfolio management and underwriting 
Respondents mostly disagree. Th ey urge avoiding any legal uncertainties in the case of 
portfolio management. Many say th at satisfactory rules already ex ist for underwriting and that 
flexibility shouldn't be hindered. 
33. Minimum regime for telephone and electronic recordings Most respondents agree. 
However many prefer a retention period of 6 months. Those against question the value of 
recordings for detecting abus es and refer to pr ivacy concerns with  recording personal 
information. 
Asset managers, funds and their trade a ssociations (approximately 55 replies)  
1. Align requirements for venues and introduce OTFs Respondents broadly agree with the 
extension of the admission to trading concept but ask for clarification. In relation to OTFs the buy side, in principle, appreciates the rationale  of introducing a future-proof definition into 
MiFID, however is concerned that  it could be too wide . Greater clarity is asked for also in 
relation to BCNs and the requirements applicab le and other potential sub-regimes for other 
classes of financial instruments. Reasons th at investors use lit and non-displayed venues 
(market impact suffered when trading on lit ve nues is considered as not acceptable) and the 
need for flexibility should be taken into accoun t. There is general agre ement that a separate 
OTF investment service should be created which can be pa ssported. The majority of 
respondents rejects the idea of a threshold triggering a conver sion into an MTF. Respondents 
widely agree with an alignment of regulat ory requirements for RMs and MTFs and with 
extended cooperation requireme nts for trading venues.  
 
 303    2. Mandatory trading of clearing eligible a nd sufficiently liquid derivatives on organised 
venues Views are mixed with some in agreemen t with the proposals and others strongly 
opposed. Respondents vouch for continued flexibil ity in the use of derivatives (ie oppose 
mandatory exclusive trading on organised ve nues), favour a gradual approach and are 
concerned about an increase in costs.  
3. Introduction of tailored regime for SME markets From the few responses received 
agreement to stimulating SME markets however lit tle conviction that a specialised regime is 
needed or beneficial. Same standards of investor  protection should apply as  for other sectors.  
4. Authorisation of and increase in organ isational requirements for all HFT firms 
Overall support but firms urge to appropriately calibrate definition.  
5. Additional requirements fo r firms providing sponsored or direct market access The 
majority of respondents support the proposals.  
6. Reinforcement of organisational requirements for organised venues Strong support for 
measures suggested in respect of risk cont rols, particularly circuit-breakers. Also non-
discriminatory access to co-loc ation services is strongly supp orted while the views are mixed 
on minimum tick-sizes.  
7. Introduction of order-to-execution ratio, [also minimum resting period and 
requirement to provide liquidity] Views are mixed regarding the imposition of a 
requirement to provide liquidity for HFTs. So me respondents see th e point in an equal 
treatment of market makers and HFTs while a majority rejects such a requirement as 
inappropriate. A large majority rejects a minimu m resting period for or ders and most firms 
also are not convinced of an order-to-execution ratio citing con cerns regarding a widening of 
quotes and a decrease in liquidity.  
8. Harmonised application of pre-trade tran sparency waivers, reduction of post-trade 
delays and extension of transparency to shares  traded only on MTFs or OTFs (including 
new SME markets) Firms by and large support the approa ch to pre-trade transparency but 
emphasise the importance of being able to execu te orders in dark pools to manage market 
impact und achieve best execution. The right balance between transparency and protecting 
proprietary order information need s to be struck. A slight majority agrees with making IOIs 
actionable while a majority disagrees with disclosing stubs. Very limited feedback on 
embedded fees and minimum order size for wa ivers. Strong support fo r leaving pre-trade 
threshold untouched. Split views on reducing post-trade delays with some firms warning 
specifically that costs on reduci ng the delay from 3 to 1 minute outweigh the benefits. Of the 
limited responses received firm s favour extending transparency to shares traded on MTFs 
only.  
9. Calibrated pre- and post-trade transparency regime for bonds, structured finance 
products, and derivatives Most firms are concerned about the impact of the proposed 
measures on liquidity, price formation, costs and market efficiency and demand a calibrated 
and proportionate approach taking into account the specificities of all as set classes as well as 
factors like size and time of issue (eg for bonds). Firms disagree with a requirement to make 
all quotes public. If quotes n eed to be good to everybody belo w a certain size they fear 
detrimental effects on banks  risks and liquidity.  
 
 304    10. Unbundling of data, ESMA guidance on "reasonable price", introduction of 
Approved Publication Arrangements The firms are very supportive of most of the intended 
measures but want to avoid an increase of costs for investor s due to charges of APAs. For 
non-equities firms warn that collec ting data will be much more di fficult than for equities and 
ask the Commission to be careful regarding methods and costs.  
11. Consolidated tape by approved commercial provider(s) Firms almost unanimously 
support the establishment of a consolidated tape while preferences regard ing the type of tape 
are almost evenly split between the public utility model (option A) and the commercial provider solution (option C). Ther e is almost no appetite for a pre-trade tape and firms are 
split regarding the usefulness of  a tape for non-equities.  
12. Mechanism for banning products, services or activities Contributions range from 
expression of concern (or even opposition) to recommendation to establish proper and careful criteria and procedures for any ban. Genera lly no support for ban of OTC derivatives that 
should be cleared but are not. One respondent warns against regulator s vetting products. 
13. Reinforcement of oversight of positions in derivatives, including possible position 
limits Few answers mostly disagreeing with th e introduction of any hard position limits. 
Suggestion that position manageme nt or exposure management regime would be better. One 
respondent indicates any limits to be simple (one  limit applicable to all), with few exemptions 
for hedging (but avoiding any concentration risk ); net open interest would be appropriate. 
Another suggests spot month limits as tool to  prevent market manipulation. Few respondents 
indicate contracts with narrow supply (eg platin um) or with delivery on the physical side, soft 
agricultural commodity and OTC derivatives as more prone to market manipulation. 
14. Third country regime Few answers mostly supporting the current system and not 
introducing an equivalence regi me. If introduced, it should be  a broad substantive and not 
strict equivalence regime. 
15. Common minimum rules for administrative  sanctions and requirement for criminal 
sanctions Few answers. Support to consistent sanc tions but not levelled to the highest 
existing level. One suggests example of Aust ralian "enforceable unde rtakings" (settlements 
alternative to court action). Criminal sancti on to be left to MS. Limited support for 
whistleblowing; most require full consultation, calibration and applicatio n across all sectors. 
Support for publication of sanctions but with po ssibility for supervis ors to issue private 
sanctions and to withdraw  previous publications. 
16. Extension of transaction reporting to all instruments admitted to trading on 
organised venues and all OTC instruments the value of which correlates with these, as 
well as commodity derivatives Support for broad scope. A few recommend portfolio 
managers to be excluded. Others request list of instruments covered (in line with article 11 
Implementing.Regulation). Alignment with MAD needed.  
17. Require reporting through Approved Repo rting Mechanisms and enable reporting 
of derivatives through trade repositories Few answers. Support to the proposals. 
18. Direct reporting to ESMA after transition Few answers. Divided views. 
Recommendation to avoid duplications. 
 
 305    19. Market operators to store order data Few answers. Support for the proposal. 
20. Market operators to report on be half of their non-MiFID members Few answers. 
Support for the proposal.  
21. System of position reporting by types of traders on commodity derivative markets 
There are concerns that information to the public even on an aggregate basis may not 
guarantee the anonymity of big players in the market and there may be adverse effects on 
liquidity and proprietary stra tegies. Concerns are also voi ced regarding categorisation by 
regulated entity as some firms may fall into more than one category.  
22. Narrow scope of commodity  derivative exemptions The few respondents for these 
questions all favour a leve l-playing field for all market participants.  
23. Classify emission allowances as financial instruments Basically just one response 
received which was in favour.  
24. Require the application of key MiFID principles for na tional Article 3 regimes Broad 
support. One respondent proposes a quantitative threshold for exempted entities; another 
questions the applicat ion of best execution requirements.  
25. Extend MiFID conduct of business and conflict of interest rules to structured 
deposits Broad support. Some suggest the extens ion of MiFID to any Packaged Retail 
Investment Products (PRIPs) (few also  mention personal pension products). 
26. Narrow list of non-complex products, specify when investment advice is independent, 
and require annual assessment of the advice provided  
No support for abolition of execution-only  regime. Broad support for narrowing and 
clarifying list of non-complex instruments but only few respondents support split of 
complex/non-complex UCITS while most disagr ee (in the light of st rong UCITS framework 
and also not to weaken the UCITS "brand" in  third countries). Fe w respondents recommend 
any shares in (non UCITS) investment funds to be treated as non-complex, similarly to other 
shares. 
General support for measures ai med at strengthening advice and clarifying its basis. However, 
mixed views about the opportunity to label part of the advice as  "fair and independent" (as 
opposed to "restricted" or "(multi-)tied") a nd about the ban of inducements for it (also 
considering clients' unwillingness to pay for advice). Prevailing support to written 
specification to clients about underlying reasons for the advice (to be ad apted, however, to 
different channels). Mixed vi ews on on-going advisory servi ces; many recommend to leave 
the choice to clients and to require intermediari es to specify whether they offer this service; 
others underline the cost  of this option that could be re munerated via continued payment of 
retrocessions; others disagree with regular reporting to client s about financial instruments; 
others mention the blurring line be tween this and portfolio manage ment or suggest to classify 
this as a new service. Some emphasize the need  of harmonised approach within PRIPs; also 
the issue of standardisation of  disclosures is mentioned.  
 
 306    27. Apply general conduct of business principles  between eligible co unterparties (ECPs) 
and exclude municipalities from the list of professional clients General acknowledgement 
that current system works. Pr evailing support for excl usion of municipalities from ECPs and 
professional clients per se. Prev ailing support on extension of hi gh-level principles to ECPs. 
A few respondents claim the right for portfolio  managers to require/obtain (and not only 
request) classification as professi onal or retail clients (especially  for best execution purposes).  
28. Reinforce information obligation in relation to complex products and strengthen  
associated reporting requirements Mixed views. On information prior to the transaction, 
many request coordination with PRIPs to make  sure that the Key Investor Information 
Document (KIID) is sufficient. Others menti on the need to involve product providers in 
complying with any such obliga tions (one respondent mentions  that issuers should provide 
certain data free of charge). Clarifications are requested about tech nical details and some 
express concerns about risk of confusion due to excessive information. One respondent 
mentions the inability of some intermediaries , emerged from the crisis, to understand product 
they sell and consequently welcomes an ob ligation to provide ongoing reporting (but on an 
annual basis, except when there has been a sign ificant change in the structure or expected 
outcome of the product). Few answers, normally  negative, to the exte nsion of information 
requirements to ECPs. 
29. Ban inducements for independent inves tment advice and portfolio management 
Disagreement, with some exceptions, with pr oposals. As to portfolio management, some 
mention, however, the possibility to require reba te to clients of inducements received (or to 
allow clients' consent to commissions paid to por tfolio managers). Others request any ban not 
to include soft commissions. As to advi ce, few support ban for any advice, not only 
independent; others underline clients' unwillingness to  pay fees and risk for small firms to exit 
the market. Some underline the need for horizont al approach across diffe rent products/sectors. 
Two respondents suggest the ban of (certain) inducements for all investment services. 
30. Require trading venues to publish data on execution quality and improve 
information to clients on best execution Prevailing support concerni ng publication of data 
on execution quality by trading venues (some,  however, mention that data seem already 
available from commercial  providers). Prevailing support for clearer, more informative and 
more standardised execution policies; a few, ho wever, underline that retail clients often would 
not be interested or no t able to understand them. 
31. Strengthen role of directors  in relation to internal control functions and when 
launching new products and services General support for the proposal  to strengthen fit and 
proper criteria and internal functions (some s uggest, however, that flexibility for internal 
functions should be ensured, including involvement of the compliance function in handling 
complaints). Mixed view on orga nisational requiremen ts for launch of products and services. 
32. Require specific arrangements for por tfolio management and underwriting 
Prevailing support for portfolio ma nagement. A few answers, with  prevailing negative views, 
for underwriting. 
33. Minimum regime for telephone and electronic recordings Broad support (with few 
exceptions). Some mention need to avoid duplica tions and that portfolio managers should not 
be included. Many believe 3-year s retention period is too long. 
 
 307    Exchanges and market operators (approximately 30 replies)  
1. Align requirements for venues and introduce OTFs  The  majority  reject the OTF 
concept and recommend sticking to the existing MiFID categorie s (concerns re level-playing 
field, more fragmentation, lowering of standard s, unnecessary complexity, and possibility for 
regulatory arbitrage). Some s upported the new category but though t it needed to be more 
clearly defined and sought grea ter clarity about what broker age activity the new category 
would apply to. A majority of respondents did not support thresholds for OTFs, saying instead 
that there should be a "f unctional approach" to cl assifying new venues.  
Alignment of requirements for MTFs and RM s is widely supported as well as more 
cooperation between trading venue s. A number of respondents poi nted out that MTFs are not 
homogenous. Four broad groups we re identified. It is the one s trading blue  chips where 
treatment needs most to be aligned. But for othe rs it is not necessarily proportionate to simply 
align all requirements with RM s. A number of exchanges e xpressed concerns about free 
riding by other MTFs and argued that exchanges undertake a numbe r of costly or low margin 
activities that are not undertaken by an MTF. Many excha nges also expressed concern about 
what they saw as a high level of  OTC trading. In relation to co operation some raised concerns 
that this should not create practical problems.  For example, trading halts should not be 
required to be notified across EU every time th ey occur. Confidential commercial information 
should not be required to be disclosed. 
2. Mandatory trading of clearing eligible a nd sufficiently liquid derivatives on organised 
venues Views are mixed with a majority of operato rs strongly in favour  of mandating trading 
on organised venues mentioning the benefits of reducing systemic risk and breaking-up vested 
business interests of parties involved for trad ing to remain OTC. Other operators question 
whether a reduction of systemic risk will be achieved and whether platforms can generate 
sufficient liquidity if platform trading does not reflect customer needs. A number of regulated 
markets argued that trading s hould only be on regulated market s or MTFs. They argued that 
venues should be multilateral in nature. Ot her supported a more flexible approach. 
Suggestions of derivatives suit able for trading on OTFs incl uded credit deriva tives, equity 
options and contracts, fixed income options and futures, interest rate and foreign exchange 
contracts and electricity contra cts, all plain vanilla contract s and look alike contracts and 
CFDs. But many stated that products that are hi ghly customised are not suitable for trading on 
an organised trading venue. One venue suggested  that if an OTC de rivative was "clearing 
eligible" then that should be su fficient to require trading on an  organised trading venue. It is 
not necessary to apply any liquidity test as by definition to be clearing eligible instrument 
must be relatively standardised  and capable of being valued  on a continuous basis.  
3. Introduction of tailored regime for SME markets Opinions range from strong 
opposition (concern that quality label of RM deteri orates) to support for the idea. A majority 
was not convinced about the benefits for sma ller issuers of a new regulatory regime for 
SMEs. They were concerned that a new regi me risks damaging an already well functioning 
market structure. This is because the existing categories provide sufficient flexibility but any 
new category would by definition be more restrictive and it would be difficult to come up with one set of criteria that would not da mage current SME markets. Those supporting the 
Commission proposal in principle believe that in practice it will not be possible to come up 
with uniform criteria. It was also pointed out that there seems to be little demand by SME issuers for passporting. Op erators think that to make any initi ative work other factors need to 
be taken into consideration (tax incentives, wi llingness to provide liquidi ty by intermediaries). 
 
 308    They ask for flexibility to remain for platfo rms operating under national standards (use of 
national accounting standards) . A number of respondents s uggested an industry working 
group (consisting of exchanges, in vestors, issuers and advisers) should be set up to look at 
way forward for SMEs. This should consider how  to widen the universe of investors that 
support SMEs in order to drive li quidity, incentivise a wider set of analysts  and intermediaries 
to focus on SMEs and ultimately reduce the cost of public equity capital for this set of issuers. 
There were very divergent ideas about how  an SME could be defined with various 
respondents suggesting that any atte mpt would be too restrictive. 
4. Authorisation of and increase in organ isational requirements for all HFT firms 
5. Additional requirements fo r firms providing sponsored or direct market access  
6. Reinforcement of organisational requirements for organised venues Almost all 
respondents commented that HFT has had positiv e effect on markets or that there is no 
evidence that HFT is causing detriment to the market. Views are mixed on the definitions on 
HFT and the authorisation requirement (a majori ty supports the latter) while operators widely 
support non-discriminatory co-location offerings and imposing specific risk controls on firms 
and platforms. They warn against being overl y prescriptive and while many operators support 
the use of circuit-breakers some would prefer measures such as market-wide stock-by-stock 
price limit regimes or pre-trad e risk limits. There we re polarised views about whether circuit 
breakers should be harmonised or left to indivi dual venues to determine. Regarding tick sizes 
most operators are against regul atory measures and feel this should be left to competition 
while a minority would support developing a re gime in cooperation with the industry.  
7. Introduction of order-to-execution ratio, [also minimum resting period and 
requirement to provide liquidity] A majority of operators opposes these measures citing 
concerns about liquidity, appropriate risk management, market qu ality and a possible 
penalising of less liquid stocks (where due to a stock being thinly traded the order-to-
execution ratio may be high). Requiring resting tim es in the order books was widely rejected 
as it was stated that this would have a drama tically negative effect on price formation. It 
would lead to wider spreads to compensate increased risk and would lead to liquidity moving 
to opaque markets. Some responses were more  supportive of order to  transaction ratios. 
Although a majority pointed out this measure wa s impractical as it would be difficult to 
prescribe a ratio for all instruments. Some argued that limiting ratios of orders could also have 
some unintended negative effects. For example,  it may encourage partic ipants to generate 
additional trades for the pur pose of reducing the ratio. 
8. Harmonised application of pre-trade tran sparency waivers, reduction of post-trade 
delays and extension of transparency to shares  traded only on MTFs or OTFs (including 
new SME markets) Where views are split in this area  it is pretty much between the 
traditional exchanges on the one and the operators of alternative venues on the other hand. On the pre-trade waivers the former support more  consistency while the latter question the 
necessity to do anything and emphasise the importance of retaining a principles-based 
approach. Some exchanges favour  displaying stubs while MTF ope rators and other exchanges 
are concerned about an increase  in trading costs. Some exch anges favour a minimum order 
size for the reference price wa iver with MTFs in opposition.  Exchanges favour keeping the 
current thresholds for the LIS pre-trade waiver  while MTFs consider the threshold as being 
too high. Large majorities are supporting tr eating IOIs as orders, the prohibition for 
embedding fees and also reducing post-trade delays with some being concerned about 
 
 309    reporting manual trades inside one minute. Almost all agree that transparency should apply to 
"equity like" instruments. A number of res pondents opposed requirements being applied to 
UCITS as these prices are negotiated on thei r daily NAV and not thr ough supply and demand. 
A majority of respondents supports transparency  for shares traded on MTFs only while there 
is little support for a specific SME regime.  
9. Calibrated pre- and post-trade transparency regime for bonds, structured finance 
products, and derivatives Respondents are generally in favour of the concept with some 
exchanges being concerned that limiting tr ansparency requirements to bonds with a 
prospectus or admitted to trading would serv e as a disincentive for publishing a prospectus 
and admitting such bonds. Therefore they want the requirements to apply to OTC bonds as 
well. Almost all stressed that requirements must be individually ca librated to different 
instruments. Some are against pre-trade tran sparency in the OTC space due to concerns 
regarding front-running and ge nerally applying something meaningful. For pre-trade 
transparency to apply to these products for so me business models quotes may need to be 
indicative rather th an firm. A number of ve nues suggested criteria for determining whether 
pre-post trade transpar ency should apply.  
10. Unbundling of data, ESMA guidance on "reasonable price", introduction of 
Approved Publication Arrangements R espondents strongly favour  the introduction of 
APAs and the proposed criteria for establishi ng them. The majority support further standards 
to address the quality, availability and consiste ncy of data. Some resp ondents voice concerns 
regarding mandating formats by legislation. Almost  all respondents agreed  with proposals for 
unbundling of trade data and making data free  after 15 minutes. Views are mixed on an 
application of an APA regime to non-equities wh ere some respondents suggest doing this at a 
later stage. The proposal s on reducing the cost of data are welcom ed but are considered 
insufficient by one respondent. On disaggrega tion of data views are mixed with some 
respondents strongly in favour with others concerned about additional costs. Strong views 
were expressed regarding the reasonable cost of data with some respondents vigorously 
demanding a definition and strict enforcement of reasonable costs with others strictly opposed 
demanding to leave the setting of  costs to market forces.  
11. Consolidated tape by approved commercial provider(s) Views are split along the lines 
of exchanges opposed and MTF operators in favour of the introduction of a consolidated tape. Exchanges do not consider a tape as necessary , economically viable, an outdated concept and 
creating a single point of failure . There were also some concer ns expressed that the proposal 
was unclear about the main issu e which is who would bear the cost of a consolidated tape 
under options A and B. Option C was most supported as it allo ws competition and innovation. 
Little value was seen by the exchanges in a pre-trade
 consolidated tape as  prices would not be 
actionable, so it will only create  confusion and it would not be viable due to latency issues. 
Most thought that given the lack of conformity  for non-equities transparency, they see even 
less feasibility of a consolidated tape in this area. The MTF operators consider a consolidated 
tape as necessary and by majority favour Opti on A or B. MTF operato rs also cautiously 
support a pre-trade tape for equities while there seems to be no appetite for a non-equity tape.  
12. Mechanism for banning products, services or activities Some support based on the 
provision of clear criteria and pr oper analysis before taking a decision with others thinking 
that banning should be approached with great  caution. Also some respondents agreed that 
CCPs not accepting a product for cl earing could be taken as an  indicator although such a 
decision may not always be due to excessive risks associated with the product as other 
 
 310    considerations play a role as well. Others held  the banning of uncleared OTC derivatives to be 
the wrong approach. Incentives  should be used instead. 
Most thought that bann ing should be approached with gr eat caution. It should only be in 
response to specific and demonstr ated market failure. If banning is provided for it needs to be 
coordinated. One respondent referred to the FSA paper on product intervention sets out some 
useful criteria. Banning of unc leared OTC derivatives was ar gued by a number of respondents 
to be the wrong approach. Incentives should be used instead. 
13. Reinforcement of oversight of positions in derivatives, including possible position 
limits A number of responses express a preferen ce either for position management or support 
leaving the setting of position limits to ex changes. Many respondents argued that breaking 
down positions by type of entity and also breaking down positions between hedging and speculation is not practicable and will be misleadi ng. It is also very difficult in practice to 
adopt a common client identifier system. Seve ral made the point that position reporting is 
important but needs to c over OTC transactions.  
14. Third country regime There were limited responses on this issue and those responses 
diverged. Some supported development of a th ird country regime. Others were concerned 
about a "strict equivalence" test  for third country firms in the EU. This could be viewed as 
protectionist leading to retalia tion in third countries threaten ing access of EU firms. Some 
rejected an EU regime and Member States should  rather maintain the ab ility to grant access to 
3rd countries.  
15. Common minimum rules for administrative  sanctions and requirement for criminal 
sanctions There was some support for co mmon rules in this area. 
16. Extension of transaction reporting to all instruments admitted to trading on 
organised venues and all OTC instruments the value of which correlates with these, as 
well as commodity derivatives A number of respondents stressed that we need to be clearer 
about the purpose of transaction reporting before extending scope. Transaction reporting 
should only be of information that is necessary for regulators and can be analysed. There is a 
risk of flooding regulators with information that  is not useful. Before extending the scope it 
must be considered whether ther e is a clear regulato ry reason for seeking transaction reports 
for an instrument. For commodities derivatives, a majority of respondents expressed the view 
that position reporting is the correct tool to  monitor market abuse and not transaction 
reporting. Transaction reporting sh ould only apply to products which need to be monitored on 
a transaction by transaction basi s. Therefore it is a mistake to  require transaction reporting 
rather than position reporting for commodity de rivatives. Others also expressed doubts about 
whether a harmonised transaction reporting regi me for commodity deri vatives not possible 
given their diversity. One respond ent specifically crit icised an extension to instruments the 
value of which correlates with admitted inst ruments as disproportionate. Most respondents 
agree with proposal to extend transac tion reporting to de positary receipts. 
17. Require reporting through Approved Repo rting Mechanisms and enable reporting 
of derivatives through trade repositories Most respondents agreed that ARMs have the 
potential to enhance the quality and reliability of data. Most agreed with the possibility of 
reporting through trade repositories but had con cerns about such reporting leading to double 
 
 311    reporting. Most agreed trade re positories should be a pproved as ARMs if they are performing 
that function. 
18. Direct reporting to ESMA after transition There were mixed vi ews about proposal, a 
number of respondents thought it was desirable but some queried whether it was practicable 
and were concerned about costs. 
19. Market operators to store order data Most agreed with this  proposal for market 
operators to store order data for a specified period as it would be useful for regulators. There 
were mixed views about harmonisation of st orage requirements with some respondents 
thinking this would be be neficial while others criticise that a one size fits all approach is not 
feasible and that costs would outweigh the benefits. 
20. Market operators to report on be half of their non-MiFID members Many respondents 
opposed an obligation being placed on the tradi ng venue arguing it should be placed on the 
entity itself. Further there were concerns th at having obligations pe rformed at the trading 
venue level could increase the risk of double reporting of transactions. 
21. System of position reporting by types of traders on commodity derivative markets 
Two respondents support disclosing harmonised position information because they believe 
greater transparency is desirable. Both ask for an alignment of rules with the US. One 
respondent did not consider exte nding the disclosure of harmonised position information to all 
OTC commodity derivatives as feasible while  another one thought th is was desirable to 
provider for a level-playing field.  
22. Narrow scope of commodity derivative exemptions Responses on this issue were 
limited and varied. There was some support for commission proposals to  narrow exemptions 
but one respondent felt the exem ptions should be preserved. 
23. Classify emission allowances as financial instruments Two respondents considered this 
classification as helpful even if it would not remove all im perfections. Another respondent 
strongly opposed such classificat ion as it would exclude certain companies from the market 
and as it would make the mechanism more costly and complicated.  
24. Require the application of  key MiFID principles for national Article 3 regimes One 
respondent suggested that it shou ld be clarified that CDF provi ders are covered under MIFID. 
26. Narrow list of non-complex products, specify  when investment advice is independent, 
and require annual assessment of the advice provided There was opposition to abolition of 
execution only regime or further restriction of non-complex products while the latter also 
received some support.  
28. Reinforce information obligation in relation to complex products and strengthen 
associated reporting requirements Two responses, one considering the provision of 
additional data as virtually im possible with the othe r supporting daily repor ting to the retail 
investor.  
 
 312    30. Require trading venues to publish data on execution quality and improve 
information to clients on best execution There was some support for publishing data on 
execution quality. But there was quite some agr eement to the suggestion that the content of 
execution policies need to be improved as they  are often not sufficiently informative and 
difficult to read. One respondent advocated oblig ing firms to connect to venues offering better 
execution opportunities.  
31. Strengthen role of directors  in relation to internal control functions and when 
launching new products and services Just one response agreeing with the suggestions.  
32. Require specific arrangements for por tfolio management and underwriting 
Responses on this issue were limited. There was not much support for further measures on 
underwriting. It was pointed out th at conflicts of interest provisions for firms already address 
the issues that can arise from underwriting.  
33. Minimum regime for telephone and electronic recordings Responses on this issue 
were limited. Most supported harmonised requir ements for telephone and electronic recording 
and for records to be kept for a minimum period. 
Retail investor associations (approximately 10 replies)  
1. Align requirements for venues and introduce OTFs Very few answers. No extension of 
"admission to trading" to new venues. No s upport for OTF (this would add complexity and 
confusion); rather, low threshol ds to OTC trading should be in troduced (globally and for each 
operator); above th e threshold, operators should switch to RMs, MTFs or SIs (and the 
category of SI is also questione d). Support for alignment RMs/MTFs. 
2. Mandatory trading of clearing eligible a nd sufficiently liquid derivatives on organised 
venues Two associations support mandatory trad ing on RM and MTF (no OTF). Role for 
ESMA to detail criteria. Possible mandatory trading on RM/MTF to include Forex, CDS and 
IRS. Transparency does not hurt liquidity and the crisis concerned the most illiquid product 
being also most opaque.  
3. Introduction of tailored regime for SME markets Answer from two associations. 
Support need to promote SME, but need  to look for evidence on MiFID impact. 
4. Authorisation of and increase in organ isational requirements for all HFT firms 
Answer from two respondents. Support specific re gime for HFT firms. Po ssibility to ban HFT 
disturbing markets and in vestors is mentioned. 
5. Additional requirements for firms provi ding sponsored or direct market access 
Agreement from two respondents.  
6. Reinforcement of organisational requirements for organised venues No answer.  
7. Introduction of order-to-execution ratio Support from two responden ts to require orders 
to rest on the order book for a period of time. 
8. Harmonised application of pre-trade tran sparency waivers, reduction of post-trade 
delays and extension of transparency to shares  traded only on MTFs or OTFs (including 
new SME markets) Answer from two associations. Refere nce price waiver to be deleted. 
 
 313    Large in scale waiver to be le ft untouched, no evidence of decr ease of investors' order size 
(rather orders are sliced by in termediaries). Support extensio n of transparency to MTF.  
9. Calibrated pre- and post-trade transparency regime for bonds, structured finance 
products, and derivatives  Mixed views Some respondent s oppose pre and post trade 
transparency for corporate bonds, citing insuffi cient liquidity and fr agmented issues. Many 
respondents note that pre and pos t trade transparency  are currently sufficient for energy 
derivatives. Some argue that the introduction of trade repositories will be sufficient to 
improve post trade transparency. Many argue that  pre and post trade requirements should only 
apply to liquid derivatives and not to bespoke  products, as their characteristics differ and 
prices reflect other factors such  as counterparty credit risk. Many note that post trade reports 
should be anonymous. Some note th at OTC transactions are typica lly referenced to observable 
market prices. 
10. Unbundling of data, ESMA guidance on "reasonable price", introduction of 
Approved Publication Arrangements  
11. Consolidated tape by approved commercial provider(s)  Mixed views. Several 
respondents consider there is no need to introduce a consolidated  tape. Some consider it might 
support development of certain markets, but stre ss the need to filter useful information. 
12. Mechanism for banning products, services or activities Mixed views . A number of 
respondents oppose banning of products , as they consider it limits  their choice and note there 
is no systemic risk in most mark ets. Some urge cooperation with  sectoral regulators in such 
instances. 
13. Reinforcement of oversight of positions in derivatives, including possible position 
limits No answer  
14. Third country regime No answer  
15. Common minimum rules for administrative  sanctions and requirement for criminal 
sanctions Two answers. Support for criminal sanc tions. Administrative fines should be 
effective and harmonised across EU. Proceeds to  be partly used to finance investors' 
representatives. Sanctions to be publicly disclosed.  
16. Extension of transaction reporting to all instruments admitted to trading on 
organised venues and all OTC instruments the value of which correlates with these, as 
well as commodity derivatives Two answers. Support for tran saction reporting regime for 
instruments admitted on RMs and MTFs and instruments the value of which correlates with those. Support for transaction reporting on commodity derivatives.
 
17. Require reporting through Approved Repo rting Mechanisms and enable reporting 
of derivatives through trade repositories No answer  
18. Direct reporting to ESMA after transition Two answers: Yes 
19. Market operators to store order data Two answers: Yes 
20. Market operators to report on be half of their non-MiFID members Two answers: Yes  
21. System of position reporting by types of traders on commodity derivative markets 
Two answers: Yes.  
 
 314    22. Narrow scope of commodity derivative exemptions No answer. 
23. Classify emission allowan ces as financial instruments Two answers: option to be 
studied. 
24. Require the application of key MiFID principles for na tional Article 3 regimes 
Support for the proposal with one respondent  preferring the deletion of Article 3.  
25. Extend MiFID conduct of business and conflict of interest rules to structured 
deposits Support for the proposal. MiFID investor protection rules should cover all PRIPs. 
Some respondents mention the area  of 'grey market investments'  ('Grauer Kapitalmarkt' in 
German), investments involving financial particip ation in different assets (for instance, art 
objects, real estate, containe rs, teak plantations) that should be brought under MiFID.  
26. Narrow list of non-complex products, specify when investment advice is independent, 
and require annual assessment of the advice provided Execution only – Mixed views, with 
three associations supporting the abolition of this regime (they under line the merits of 
profiling the clients and that investors would be allowed not  to provide their personal 
information and to proceed with any inappropria te transaction and they are concerned about 
banks pushing retail investors into execution-onl y despite advising them in order to escape 
further obligation). Support for narrowing li st of non-complex products except from one 
respondent. Support to split UCITS except from one respondent.  
Advice - Support for proposals - So me suggest restricting definition of advice to exclude 
firms receiving commissions from product prov iders. Two respondents recommend that any 
reporting on underlying reasons  for advice should not incl ude any clause to reduce 
responsibility of advisers. A nother association disagrees w ith the proposal to give the 
underlying reasons for advice to the client in writing due to adverse national experiences. 
Most support annual monitoring of products recommended (especiall y when commissions 
from product providers are receiv ed by firms). Others are more  prudent; they are concerned 
about costs or they would leav e on-going advice to negotiations between advisors  and clients 
or warn that review of clie nts' portfolios should not lead  to unnecessary adaptations.  
27. Apply general conduct of bus iness principles between e ligible counterparties and 
exclude municipalities from th e list of professional clients Two answers: Yes  
28. Reinforce information obligation in relation to complex products and strengthen 
associated reporting requirements Support for the proposal. One respondent considers 
unrealistic to say what might happen to complex products in unpredictable future; clients 
purchasing risky products should be aware of danger of losses.  One respondent advocates a 
prohibition to actively di stribute structured bond s to retail clients.  
29. Ban inducements for independent inves tment advice and portfolio management 
Suggestion for a large ban of inducements covering any advice. Two respondents underline 
non-compliance of firms with rule s and lack of enforcement (for  inducements as well as in 
other areas).  
30. Require trading venues to publish data on execution quality and improve 
information to clients on best execution Complaint about best execu tion not being delivered 
to investors and need of effective supervis ion. Need to improve  pre- and post-trade 
transparency, to ensure best price for client's orders, to overcome frag mentation, to ensure 
 
 315    proper information to clients about best execu tion. Two respondents co nsider that data on 
execution quality is not usef ul for retail investors.  
31. Strengthen role of directors  in relation to internal control functions and when 
launching new products and services Some respondents agree with strengthened fit and 
proper criteria; others suppor t Commission's proposals to strengthen organisational 
requirements and internal control functions. 
32. Require specific arrangements for po rtfolio management and underwriting No 
answer. 
33. Minimum regime for telephone and electronic recordings Some respondents suggest 
recording of any contacts leading to advice  in order to solve any conflicts between 
intermediaries and clients; it is also suggested a retention period of at least 5 years.  
Non-financial corporates (approximately 55 replies)  
1. Align requirements for venues and introduce OTFs Respondents generally oppose the 
introduction of OTF's as they consider it would increase costs,  limit trading opportunities, and 
constrain their choice of instruments. There is concern that the definiti on of OTF will capture 
platforms that help tailored deals, and corporate end user  platforms. Some respondents 
welcome increased cooperation between platfo rms for market surveillance purposes. Some 
welcome OTF's as they expect them to bri ng more transparency, bu t are divided on which 
MiFID rules should apply. 
2. Mandatory trading of clearing eligible a nd sufficiently liquid derivatives on organised 
venues Practically all respondents o ppose mandatory organised trading, which they consider 
to be inconsistent with the exemptions proposed under EMIR. Th ere is general concern that 
organised trading would imply cen tral clearing, so that this obligation would impose central 
clearing on non-financial companies exempt unde r EMIR. Some responde nts argue that these 
problems especially arise when physical forwards  are reclassified. Phys ically settled futures 
should remain out of scope, as they are under Dodd-Frank. There is further concern among 
many respondents that this would limit the ra nge of non-standardised OTC instruments 
available. It would also limit the execution ch oice for end users. Some argue that it would 
hinder execution of transactions in the desired size. Many also argue that it would increase 
costs due to margin calls. Some smaller compan ies may not be able to make the arrangements 
to trade through an exchange. It would be diffi cult for non-financials to hedge a combination 
of exchange traded contract s and continuous adjustments. 
3. Introduction of tailored regime for SME markets  Some respondents welcome the 
introduction of SME markets, but do note con cern that harmonisation of requirements on 
these markets may not be appropriate. 
4. Authorisation of and increase in organ isational requirements for all HFT firms  A 
respondent favours increased requirements on HFT firms as HFT may distort commodity 
derivatives markets. 
5. Additional requirements for firms provi ding sponsored or direct market access   
6. Reinforcement of organisational requirements for organised venues  
7. Introduction of order-to-execution ratio  
 
 316    8. Harmonised application of pre-trade tran sparency waivers, reduction of post-trade 
delays and extension of transparency to shares  traded only on MTFs or OTFs (including 
new SME markets)  Some respondents welcome further harmonisation, but see no need to 
adjust current thresholds and delays. 
9. Calibrated pre- and post-trade transparency regime for bonds, structured finance 
products, and derivatives  Mixed views Some respondent s oppose pre and post trade 
transparency for corporate bonds, citing insuffi cient liquidity and fr agmented issues. Many 
respondents note that pre and pos t trade transparency  are currently sufficient for energy 
derivatives. Some argue that the introduction of trade repositories will be sufficient to 
improve post trade transparency. Many argue that  pre and post trade requirements should only 
apply to liquid derivatives and not to bespoke  products, as their characteristics differ and 
prices reflect other factors such  as counterparty credit risk. Many note that post trade reports 
should be anonymous. Some note th at OTC transactions are typica lly referenced to observable 
market prices. 
10. Unbundling of data, ESMA guidance on "reasonable price", introduction of 
Approved Publication Arrangements  
11. Consolidated tape by approved commercial provider(s)  Mixed views. Several 
respondents consider there is no need to introduce a consolidated  tape. Some consider it might 
support development of certain markets, but stre ss the need to filter useful information. 
12. Mechanism for banning products, services or activities Mixed views . A number of 
respondents oppose banning of products , as they consider it limits  their choice and note there 
is no systemic risk in most mark ets. Some urge cooperation with  sectoral regulators in such 
instances. 
13. Reinforcement of oversight of positions in derivatives, including possible position 
limits  Most respondents oppose positi on disclosure. They question the benefits, and there is 
general concern that it would hurt liquidity, and that individual open positions and business strategies may be inferred. Most respondents oppose position limits. Many favour a position management approach, welcoming harmonisation and more dialogue. If limits were to be 
imposed, there should be a hedge exemption, a nd characteristics of products and markets, 
including the wider EU market, need to be  taken into account. A number of respondents 
oppose using IAS 39. 
14. Third country regime  Some respondents welcome a third country regime on an 
exemptive relief basis, but cite c oncern over access to  third countries. 
15. Common minimum rules for administrative  sanctions and requirement for criminal 
sanctions   
16. Extension of transaction reporting to all instruments admitted to trading on 
organised venues and all OTC instruments the value of which correlates with these, as 
well as commodity derivatives  Respondents generally do not  oppose the extension of the 
scope of transaction reporting, but stress th at there should be no duplication of reporting 
under REMIT or EMIR. Some welcome aggregat e rather than trad e by trade reporting. 
17. Require reporting through Approved Repo rting Mechanisms and enable reporting 
of derivatives through trade repositories  
18. Direct reporting to ESMA after transition  
 
 317    19. Market operators to store order data Some respondents welcome this extension as a 
sensible accompaniment to the extension of  MAD to attempted market manipulation. 
20. Market operators to report on be half of their non-MiFID members   
21. System of position reporting by types of traders on commodity derivative markets 
Most respondents question the need for position reporting, noting that market operators are 
better placed to oversee the markets. Position reporting would require costly changes to deal 
capture systems. Many respondents express concer n that individual positions may be inferred, 
and stress that there should be no duplication of regulation or repo rting. A number of 
respondents welcome disclosure of weekly open positions as in the US. A few favour 
categorisation as commercial ve rsus non-commercial, a nd others by commer cial, banks, other 
financial, other. With regards to contract design, some note there should be no mandatory 
physical settlement. 
22. Narrow scope of commodi ty derivative exemptions  Almost all respondents oppose 
narrowing the scope of exemptions  as energy companies are not systemically relevant and do 
not have clients in th e MiFID sense. The main concern is  that energy companies would need 
to meet capital requirements under CRD. Narrowing the scope would affect energy 
companies' business models. It would incr ease entry costs and hurt competition. Hedging 
should be exempt. Dealing on own account to he lp customers hedge their prices should be 
exempt, and they should be able to offer hedge  transactions (brokerage) to clients. Non-
financial users and those offeri ng services on an ancillary basi s should remain exempt. Some 
fear regulatory scrutiny of contracts. Some ar gue that energy companies are already covered 
by other legislation, notably EMIR. Many o ppose reclassifying forwards as financial 
instruments. 
23. Classify emission allowan ces as financial instruments  Respondents generally oppose 
reclassifying emission allowances, as their main purpose is not i nvestment, but hedging. 
Many note it would raise costs for compliance buyers. Some favour a specific regime, e.g. 
through REMIT. There should be  no regulatory overlap. 
24. Require the application of key MiFID prin ciples for national Article 3 regimes  
25. Extend MiFID conduct of business and conflict of interest rules to structured 
deposits  
26. Narrow list of non-complex products, specify  when investment advice is independent, 
and require annual assessment of the advice provided  
27. Apply general conduct of bus iness principles between e ligible counterparties and 
exclude municipalities from th e list of professional clients Some welcome the application 
of general principles. 
28. Reinforce information obligation in relation to complex products and strengthen 
associated reporting requirements  
29. Ban inducements for independent invest ment advice and portfolio management  
30. Require trading venues to publish data on execution quality and improve 
information to clients on best execution  
 
 318    31. Strengthen role of directors  in relation to internal control functions and when 
launching new products and services 
32. Require specific arrangements for portfolio management and underwriting Some 
welcome specific arrangements as there may be  conflicting interests between issuer and 
underwriter.  
33. Minimum regime for telephone and electronic recordings Some welcome such a 
regime, as it could help resolve conflicts, a nd there currently is divergence under different 
contracts. 
Academics (approximately 10 replies)  
1. Align requirements for venues and introduce OTFs Overall support  Respondents in this 
category felt that there was a strong need to introduce a level playing field. They felt that 
there was a need to eliminate admission to trading loopholes whereby some instruments may 
be traded on some venues without being admitted to trading, and not on others. All MiFID trading venues and any others that seem re levant should be included. There was strong 
support for aligning requirements; broker crossing networks (BCNs) shoul d be brought within 
scope as other venues, otherwise they are operating under a loophole. They should have to 
comply with the same regulatory requirements as  other venues; they have a large market share 
and should be treated as important. Respondents were strongly against the threshold approach, 
for fear of arbitrage, market uncertainty, and di fficulties in choosing the right threshold, given 
the wide variation of market si zes across Member States. There is also the question of what 
would happen if the volume of the venue fell. Th ere was strong support fo r the principle that 
all venues performing the same activities shoul d be treated equally – so BCNs should be 
treated accordingly since they are not innovative in terms of procedures, instead performing a 
mix of the activities of MTF dark pool and SI  functionalities. Respon dents felt it might be 
possible to regulate BCN activities  falling into either category separately, without creating a 
new category, but that BCNs s hould not be subject to less regulation. However, genuine 
derivative price crossing mechan isms should not be affected. 
2. Mandatory trading of clearing eligible a nd sufficiently liquid derivatives on organised 
venues There was strong agreement for standardised OTC products to be tr aded in this way, 
to help eliminate information asymmetries exploited by some participants and increase efficiency. The degree of concentration shoul d be taken into account. For more complex 
derivatives, it may not be realistic to trade them in this way. OTC trades are different to what 
MiFID envisages. Large orders should be protected against market impact ; this need should 
be cross-checked with the re ality of trading o pportunities provided in  public, transparent 
markets. Existing derivatives proposed include benchmark index credit default swaps, some 
large single-name CDS issues, and sovereign CDS. 
3. Introduction of tailored regime for SME markets There was less suppor t for this option, 
as it was felt that MTFs already catered toward s an SME market, with generally less stringent 
requirements, so that there was no need to cr eate further sub-categoris ations as in practice 
these exist. There was caution on the consequences of such a move. 
4. Authorisation of and increase in organ isational requirements for all HFT firms Some 
support for this approach, provided the threshold and definition for automated trading are carefully defined. 
 
 319    5. Additional requirements for firms provi ding sponsored or direct market access 
Overall support.  Some respondents noted CESR work in this area and the additional risk 
posed by such arrangements. 
6. Reinforcement of organisational requirements for organised venues Overall support.  
Circuit breakers were seen as effective and co-location a normal commercial arrangement, 
provided that all can acce ss if they wish to pay.  Smaller tick sizes are viewed as a good thing 
as they reduce volatility, reduce inventory risk, but tick sizes should be similar on all venues. 
7. Introduction of order-to-execution ratio Not supported. 
8. Harmonised application of pre-trade tran sparency waivers, reduction of post-trade 
delays and extension of transparency to shares  traded only on MTFs or OTFs (including 
new SME markets) Overall support.  Respondents said that sugge sted changes to waivers 
look reasonable, but that large or ders should be covered by pr e-trade transpar ency waivers. 
Several MTFs already are SME markets. Transp arency should always be similar when the 
same instruments are traded; transp arency to be extended to MTFs. 
9. Calibrated pre- and post-trade transparency regime for bonds, structured finance 
products, and derivatives For equities, transparency is  roundly supported. For other 
products, this would need to be tailore d to the structure of these markets. 
10. Unbundling of data, ESMA guidance on "reasonable price", introduction of 
Approved Publication Arrangements Pre- and post-trade separa tion supported. This should 
also help pricing, but some suggest this is st ill a commercial arrangeme nt that should not be 
regulated.  
11. Consolidated tape by appr oved commercial provider(s) Opinion was divided on 
whether or not a consolidated tape was necessary or useful , though a commercial solution was 
preferred. 
12. Mechanism for banning products, services or activities Mixed views.  The bans (or 
possibility of them) could disrupt ma rkets; others sought clarification. 
13. Reinforcement of oversight of positions in derivatives, including possible position 
limits Hard position limits were opposed, with a suggestion to focus more on exposure. 
14. Third country regime No comments. 
15. Common minimum rules for administrative  sanctions and requirement for criminal 
sanctions Overall support.  There should be standard ised rules and standa rdised sanctions to 
ensure a level playing field. 
16. Extension of transaction reporting to all instruments admitted to trading on 
organised venues and all OTC instruments the value of which correlates with these, as 
well as commodity derivatives Provided that the definition of  'financial instrument' was 
completely clear, respondents in this categor y were strongly in favour of these measures. 
17. Require reporting through Approved Repo rting Mechanisms and enable reporting 
of derivatives through trade repositories There was general support for removing 
transaction reporting loopholes. 
18. Direct reporting to ESMA after transition There was some support for this option. 
 
 320    19. Market operators to store order data There was support for this option, so long as the 
requirements were not overly burdensome. 
20. Market operators to report on behalf of their non-MiFID members The respondents 
supported this proposal. 
21. System of position reporting by types of traders on commodity derivative markets 
No comments. 
22. Narrow scope of commodity derivative exemptions No comments. 
23. Classify emission allowances as financial instruments No comments.  
24. Require the application of key MiFID prin ciples for national Article 3 regimes There 
was support for strictly limiting the number  of exemptions that could be applied.  
25. Extend MiFID conduct of business and conflict of interest rules to structured 
deposits There was support for this measure. 
26. Narrow list of non-complex products, specify  when investment advice is independent, 
and require annual assessment of the advice provided There was one suggestion of 
forfeiting the complex / non-comple x distinction in favour of th e classification of financial 
products being discussed in relation to PRIP S taking into account level of risk and time 
horizon. Respondents felt that ex ecution only services should be allowed where products for 
simple, low risk products and some felt that where the client was acting purely on their own 
initiative they should be allowed to undert ake these. There was some support for barring 
execution only services where credit was also granted, especially as highly leveraged 
transactions may pose systemic ri sks, but others felt this should be regulated more from the 
point of view of supervisors ensuring clients posted enough co llateral and that firms have 
enough capital. There was more support for ty ing the barring of execution only to the 
definition of complex and non-complex. Respondents opposed the abolishment of execution only services. There was significant agreement that products were not sold on suitability, but simply on fees. Therefore, respondents generall y supported disclosure of the basis on which 
advice is given. Some respondent s noted the advantag es of requiring qualifications to give 
advice. There was agreement for recording in writing the logic behind investment decisions. 
There was agreement that advice should be updat ed, but some felt that the situations where 
this was appropriate needed to be defined.  
27. Apply general conduct of bus iness principles between e ligible counterparties and 
exclude municipalities from the list of professional clients There was strong support for 
introducing a high-level requireme nt for eligible counterpartie s to act honestly, fairly and 
professionally, and to be fair, clear and not misleading. This is  seen as fundamental to the 
financial markets. 
28. Reinforce information obligation in relation to complex products and strengthen 
associated reporting requirements Respondents felt that if advi ce is provided, then there 
should be fuller obligations, but th at if a portfolio was discreti onary, there was less need for 
such obligations. 
29. Ban inducements for independent inves tment advice and portfolio management 
General support.  Inducements were not seen as acceptable. 
 
 321    30. Require trading venues to publish data on execution quality and improve 
information to clients on best execution There was some support for these measures. 
31. Strengthen role of directors  in relation to internal control functions and when 
launching new products and services There was strong support fo r all these measures, as 
culture and the fit and proper test was seen as extremely important. 
32. Require specific arrangements for portfolio management and underwriting There 
was limited support. 
33. Minimum regime for telephone and electronic recordings There was support for these 
measures on the basis that it is already common in several MS and that th is would be 
beneficial to all th e parties involved. 
Service Providers (approximately 22 replies)  
1. Align requirements for ve nues and introduce OTFs Concern was expressed by some 
respondents that a definition of admission to trad ing could lead to unint ended or inadvertent 
consequences unless carefully considered. A ma jority of respondents agreed with the new 
OTF category but raised c oncerns that: there is st ill a lack of clarity a bout the object ive of the 
category being so broad; it needs further clarif ication/definition otherw ise it will capture post 
trade activities, retail service providers, receivers and transmitters etc; it does not clearly 
distinguish for systems that are multilateral a nd non-discretionary when a system is an MTF 
and when it is an OTF. There mu st be a level playin g field. Some commented that there is 
limited evidence of trading shifting outside regulated markets and MTFs to new venues. 
Many do not support the concept of using thres holds to differentiate  between regulatory 
categories. There was support for the idea of cooperation between trading venues regarding 
surveillance. 
2. Mandatory trading of clearing eligible a nd sufficiently liquid derivatives on organised 
venues There was limited support for this option. Opposition was based on the principle that 
it should be for investors to de cide where and how they execut e a trade. Also it was argued 
that rather than using prohibi tions, trading on organi sed venues should be incentivised. It 
should be for venues and particip ants to determine when an instrument should be traded on a 
facility. Some suggested that such a require ment should apply where contracts are mature, 
liquid and standardised. But nascent markets sh ould be able to operate unneeded regulatory 
burden. Others suggested if instrument can be cleared there should be a presumption it can be 
traded on an OTV. Some respons es suggested full pre-trade tran sparency will have a very 
negative effect on these OTC markets. 
3. Introduction of tailored regime for SME markets There were limited responses on this 
issue. One response suggested that such a category is unnecessary and instead it is necessary to promote investor interest in SMEs. 
4. Authorisation of and increase in organ isational requirements for all HFT firms There 
was support for these proposals. One respondent suggested the automated trading definition 
may be too broad and needs to di stinguish between algo rithms that take c ontrol away from the 
participant and simpler forms where the participant retains control over the method, manner 
and timing of order entry and execution. Another s uggested that it should be made clearer that 
automated trading is trading where a computer is  helping to deliver best execution and/or risk 
management on criteria such as minimising mark et impact, completing block trades. HFT is a 
 
 322    specific computer trading ac tivity that focuses on high th roughput and low latency. The 
current definitions do not reflect this distinction. 
5. Additional requirements for firms provid ing sponsored or direct market access There 
was support for these requirements being imposed on such firms. 
6. Reinforcement of organisational requirements for organised venues There was support 
for requirements for more effective stress testing and circuit breakers. 
7. Introduction of order-to-execution ratio There was little support for minimum resting 
periods, minimum tick sizes, order to transaction ratios or a requirement  for HFT to provide 
ongoing liquidity. It was argued that resting periods for orders will have unintended 
consequences. A minimum tick size is not necessary and we can't prescribe a one size fits all 
approach. One respondent argued that high orde r to transaction ratios do not damage but 
benefit the market. Therefore, resting times an d order to transaction ratios are misguided and 
detrimental. One response pointed out that a ny requirement to provide  liquidity cannot work 
if market is crashing. A firm would be out of business in hours if it had to provide competitive 
quotes in such situations. This proposal fails to understand the rationale for market making – 
to provide liquidity in normal conditions. 
8. Harmonised application of pre-trade tran sparency waivers, reduction of post-trade 
delays and extension of transparency to shares  traded only on MTFs or OTFs (including 
new SME markets) There was support for more uniform a pplication of waivers. Also there 
was support for actionable indications of intere st being covered by the pre-trade regime. 
There were mixed views about whether order st ubs should benefit from a pre-trade waiver. 
9. Calibrated pre- and post-trade transparency regime for bonds, structured finance 
products, and derivatives A number of responses commente d that it is unclear what non-
equity products are intended to  be covered under th e proposals. Unlike e quities, non-equity 
instruments potentially cover a wide universe of  products. Apart from more definition of the 
scope more information is necessary about th e proposed calibration. One response agreed 
with extension of transparency to other instruments where there is transparency in other major 
markets e.g. certain bonds and securitised instruments. Another response suggested the 
proposed public quoting obligation goes far beyond the US and also  the regime for equities in 
the EU and will dissuade market making. So it is not useful. Some argued that significant 
costs have been ignored in th e proposals. Increased transpar ency in dealer markets (as 
opposed to order driven markets) is likely to be  counterproductive. Also , it is not helpful in 
markets with limited numbers of buyers and sellers (such as cor porate bond markets where 
investors hold their bonds until maturity). Pre-trade transparency requirements need to take into account the needs of buye rs and sellers and the effect  of proposals on liquidity. One 
response opposed further transp arency especially for OTC en ergy markets as these are not 
retail markets and there is a lack of recogni tion of differences regarding participants. 
10. Unbundling of data, ESMA guidance on "reasonable price", introduction of 
Approved Publication Arrangements Most responses supported the proposed APA regime 
and the criteria for approval. There was so me support for extending the APA regime to non-
equities. There was wide support for prescribed standards to harmonise the quality, content 
and format of post trade reports. Some suggested prescribing a consistent format is essential. 
One suggested ISO 20022 already pr escribes standards for format  of reports that could be 
used. Another that there should be  greater consistency in post tr ade data regard ing the use of 
time stamps. There was some support for pres cribing standards to harmonise content and 
format also for non-equities. A number of res ponses suggested the concept of "reasonable 
 
 323    cost" needs to be further define d under the Directive. There is  a monopoly and so this is the 
only effective means of addressing the issue. A contrary view wa s suggested that the cost of 
data should be left to competitive forces. A number of responses supported the idea that making information available after 15 minutes will reduce costs. One response did not agree 
that unbundling of data will help reduce co sts. There was some support for extending 
standards and proposals to non-equi ty markets where there are ma ny different sources of data. 
11. Consolidated tape by approved commercial provider(s) Most believe the case for a 
consolidated tape has not been made out. Mo st support was for option C on the basis that it 
will allow competition, innovation, responsiveness to  client demands and will prevent risk of 
a single point of failure. There was some limited support for Option B.  One made the point 
that the consolidated tape was proposed in the US in the 1970s but it seems unlikely if today's 
technology was available then th at US would have adopted such  an approach. Not possible or 
very difficult to have a consolidated tape for non-equities and need for it and evidence of a 
problem does not exist. For non-equities w ill have trade repositories. One provider argued 
that the consolidated tape shoul d include pre-trade information but most argued there is no 
clear case for a consolidated tape for pre-trade da ta and it is not feasible for latency issues. It 
was also argued that it will be important to also place obligations on data providers to 
aggregate. 
12. Mechanism for banning products, services or activities Concerns were raised about 
banning of products. 
13. Reinforcement of oversight of positions in derivatives, including possible position 
limits There was disagreement about limits as to how  much prices can fluctuate. This would 
threaten an orderly process especially for en ergy derivative markets.  There was opposition to 
imposition of position limits. 
14. Third country regime There was some opposition to such  a regime on the basis that it 
fails to recognise that many EU firms need to use non EU firms to access non EU markets. 
15. Common minimum rules for administrative  sanctions and requirement for criminal 
sanctions There was some support for more harmoni sation of administrative sanctions. 
16. Extension of transaction reporting to all instruments admitted to trading on 
organised venues and all OTC instruments the value of which correlates with these, as 
well as commodity derivatives There was support for further cl arification of what is a 
transaction. Respondents were not convinced about extending requirements on transaction 
reporting. Some argued it is mainly relevant to equities and equity related instruments. For 
example, the risk of market abuse relating to interest rates and foreign exchange is much 
lower. For other asset classes different tools are required. Th ere was support for the use of 
client identifiers. But some argued that passing through of client identifiers is not practical. 
One suggested increased use of the Business Identifier Code (BIC) (ISO 9362) which is 
already the basis for entity identification in transaction reports under MiFID. There were 
doubts that a trader iden tifier would work and th ere is no common identifie r that can be used 
for all traders. There were doubts about whether reporting of orders will work as many orders 
are not submitted to or by investment firms. 
17. Require reporting through Approved Repo rting Mechanisms and enable reporting 
of derivatives through trade repositories There was support for the use of ARMs. 
 
 324    18. Direct reporting to ESMA after transition A number of respondents did not support 
this proposal. 
20. Market operators to report on be half of their non-MiFID members The practical 
issue was raised that the market operator will not have all of the necessary data to be able to 
make a transaction report under MiFID. 
22. Narrow scope of commodity  derivative exemptions There was some opposition to 
removing the specialist commodity exemptions as no regulatory failure has been identified 
and there is no appropriate regul atory regime developed for co mmodity firms, especially no 
appropriate capital regime. 
23. Classify emission allowances as financial instruments There was some opposition with 
the argument being made that these are spot contracts. 
24. Require the application of key MiFID prin ciples for national Article 3 regimes A 
number of responses disagree d with proposals to apply MiFID type ob ligations to firms 
"receiving and transmitting orders". Some firm s only receive instructions from clients and 
pass these on to a broker. They should only be required to pass  a fit and proper test for 
authorisation and be under a duty to act in the best interests of the client. 
25. Extend MiFID conduct of business and conflict of interest rules to structured 
deposits There was some support for this proposal. 
26. Narrow list of non-complex products, specify  when investment advice is independent, 
and require annual assessment of the advice provided There was opposition to abolition of 
the execution only regime. This was on the ba sis that clients should have the choice of 
receiving advice or not and deletion of the possibility for execution only woul d be detrimental 
to investors. A number of re sponses argued that all UCITS products should be non-complex. 
Also that further clarity is re quired about instrume nts currently included  or excluded under 
article 19(6).  
27. Apply general conduct of bus iness principles between e ligible counterparties and 
exclude municipalities from th e list of professional clients Some responses opposed 
applying principles to ECP clie nts as it is unnecessary and they have the contracts and 
resources to protect themselves. There was al so opposition to further limiting the ECP regime 
according to products or other criteria. Some pointed out that the Co mmission has failed to 
appreciate that many new and OTC markets do not involve retail but wholesale clients. 
Therefore underlying assumptions for some pr oposals are not correct. There was support for 
classifying local authorities as professional investors. But a need  to clearly define what is 
meant by municipalities, as it can mean very diverse associations. 
28. Reinforce information obligation in relation to complex products and strengthen 
associated reporting requirements There was some support fo r strengthened reporting 
requirements but only where the adviser and customer agree to  it. It was argued it is not 
necessary for eligible counterparties. There wa s support for quarterly valuations of complex 
products. 
29. Ban inducements for independent inves tment advice and portfolio management 
There was support for advisers be ing required to cons ider a sufficient range  of products and 
for the rationale for advice being set out in writing. But review  of investments should not be 
 
 325    automatic but a matter for agreement with client s. For portfolio management there should be 
disclosure of inducements not a ban. 
30. Require trading venues to publish data on execution quality and improve 
information to clients on best execution There were mixed views about whether data on 
execution quality would be very useful. Some be lieve it would be helpful for firms. Others 
argued it should be mandatory. There was support for the idea that information to clients on 
best execution should be improved. 
31. Strengthen role of directors  in relation to internal control functions and when 
launching new products and services There was support for proposals in this area. 
32. Require specific arrangements for por tfolio management and underwriting  
33. Minimum regime for telephone and electronic recordings (129-132) 
There was support for further harmonisation. One re spondent argued faciliti es are available to 
retain records for 10 years. A nother thought 3 years was a reasona ble period to retain records. 
Others  (approximately 55 replies)  
1. Align requirements for ve nues and introduce OTFs Support for creation of OTFs 
including from issuers, capturing all transactions  and that these are suitably regulated in line 
with RMs and to avoid arbitrag e. Limited support for possibili ty of genuinely ad hoc OTC 
trading to be excluded. Generally str ong support for the measures proposed, though 
opposition to forcing non-financial counterpartie s to clear derivatives. One respondent felt 
that OTFs should only be used for a minority of bilateral OT C transactions, with RMs and 
MTFs absorbing the remainder of activity . One respondent cautioned against including 
venues whose sole purpose is to arrange ta ilor-made, non-standardised products. Opposition 
to automatic conversion of OTFs to MTFs.  
2. Mandatory trading of clearing eligible a nd sufficiently liquid derivatives on organised 
venues Considerable support for cleared, standa rdised, eligible a nd sufficiently liquid 
derivatives to be traded on regulated markets. Large size of OTC markets hampers price 
formation. ESMA to take into  account large buy/ sell-side im balances into account. All 
commodity derivatives should be exchange trad ed. Call for position limits, especially in the 
case of food derivatives. Blame against exces sive speculation for commodity prices. Support 
for OTC markets to be subject to proposed transparency requirements. On respondent 
suggested following EMIR. Some concerns regarding non-financials and support for 
exempting them. 
3. Introduction of tailored regime for SME markets Some opposition on grounds of the 
difficulty of devel oping a definition. 
4. Authorisation of and increase in organisational requirements for all HFT firms Broad 
support for more regulation of H FT, and concern that some mark et players might have access 
to information earlier than others. There was some concern regarding the potential negative 
effectives of HFT. 
5. Additional requirements for firms provi ding sponsored or direct market access 
Agreement on additional requirements and desire  to maintain level playing field. General 
support for these measures. 
 
 326    6. Reinforcement of organisational requirements for organised venues Call for risk 
controls re. automated trading, introduction of  circuit breakers, specification of minimum 
order sizes and general concern of any party having privile ged access to information. General 
support for further organisationa l and oversight requirements. 
7. Introduction of order-to-execution ratio Some support among thos e providing responses. 
8. Harmonised application of pre-trade tran sparency waivers, reduction of post-trade 
delays and extension of transparency to shares  traded only on MTFs or OTFs (including 
new SME markets) General support for increasing tr ansparency in line with G20 
commitments. Some are against main taining large in size waivers. 
9. Calibrated pre- and post-trade transparency regime for bonds, structured finance 
products, and derivatives There is very strong support for pr e- and post-trade  transparency 
to be strengthened regardless of the venue to improve price formation and reduce information 
asymmetries. "Burden of proof that higher tran sparency will reduce liqui dity should be on 
those arguing against!" Some ca lled for the transparency proposals to go even further. Only 
one respondent felt that current transpar ency requirements were sufficient. 
10. Unbundling of data, ESMA guidance on "reasonable price", introduction of 
Approved Publication Arrangements General support . Calls to guarantee the quality of 
data; support for publication thr ough a single consolidated tape. While transparency and data 
consolidation is seen as a priority in equi ty markets, there is support for extending the 
measures to bonds, structured products and st andardised derivatives. There was support for 
reducing the cost of data, unbundling data, and wi despread concern about  the contribution of 
market fragmentation to the increasing cost of data, with some calling for harmonisation of information and format. There were calls to l earn from the US consolidated tape. Respondents 
called for EMIR / MiFID consistency. 
11. Consolidated tape by a pproved commercial provider(s) There is strong support for this 
measure, with many raising concerns about mark et fragmentation increasing costs. There was 
further support for this measure, with some saying that this is of such high priority that the EU 
cannot wait for commercial providers to step  in, with several respondents favouring the 
centralised non-profit solution. Only one resp ondent felt that there was no need for a 
consolidated tape, pr eferring rather the improvement a nd harmonisation of existing data. 
12. Mechanism for banning products, services or activities There was signif icant support, 
but generally only in the case of clearly defi ned situations. One respondent did not support 
this measure, preferring more  stringent initial cr iteria for product approval. One respondent 
felt that banning products should be based less  on the effect on the market as a whole, but 
rather on the underlying product. In general, respondents felt that bann ing a product should 
only be used as an exceptional measure.  
13. Reinforcement of oversight of positions in derivatives, including possible position 
limits There was some support for the adoption of hard position limits, but only in limited and 
clearly pre-defined situations. There was significant concern th at more and more actors in 
commodity markets were not commercial but fi nancial players whose participation in the 
markets is fundamentally removed from the physical realities of the actual commodities 
involved. There was support for applying posit ion limits both at firm and vehicle level. 
14. Third country regime There was general support provided there was a strict assessment 
of equivalence, and fears that without such a regime, access to capital could be limited.  
 
 327    15. Common minimum rules for administrative  sanctions and requirement for criminal 
sanctions There was some support, though also some  concern about sh ifting blame from 
institutions to individuals. There was support for whistleblowing functions. Some felt that 
administrative sanctions alone would not act as a deterrent unless they  were significantly 
increased in scale. Respondents proposed transparency in resp ect of sanctions against firms.  
16. Extension of transaction reporting to all instruments admitted to trading on 
organised venues and all OTC instruments the value of which correlates with these, as 
well as commodity derivatives There was concern among responde nts to ensure that MAD 
be extended to encompass the relationship between the imp act of commodity derivative 
markets. 
17. Require reporting through Approved Repo rting Mechanisms and enable reporting 
of derivatives through trade repositories A number of respondent s agreed with the 
clarification and waiving requirements. 
18. Direct reporting to ESMA after transition There was some support for direct reporting 
to ESMA, provided there is sufficient resource involved.  
19. Market operators to store order data There was some support for market operators 
being obliged to store data.  
20. Market operators to report on beha lf of their non-MiFID members (72) 
21. System of position reporting by types of traders on commodity derivative markets 
There was general support for position trading by t ypes of traders in order to assess impact 
and the expected support for th e trading of the vast majority  of commodity derivatives on 
exchanges, in line with most respondents' cal ls for significant extens ion of transparency 
requirements. However, one respondent had conc erns about confidentialit y of order initiators.  
22. Narrow scope of commodity  derivative exemptions There was some support for these 
measures, although one respondent felt that th e current regime should be maintained.  
23. Classify emission allowances as financial instruments There was some support amongst 
respondents who answer ed this question.  
24. Require the application of key MiFID prin ciples for national Article 3 regimes There 
was support for the applicati on of key MiFID principles.  
25. Extend MiFID conduct of business and conflict of interest rules to structured 
deposits There was general support for extending the rules. 
26. Narrow list of non-complex products, specify  when investment advice is independent, 
and require annual assessmen t of the advice provided There was some support for these 
measures, including informing clients of the ba sis on which advice is given, although some 
had concerns about the cost of  more documentation. Some favoured intermediaries simply 
confirming if the advice they ga ve was on a one-off or long-term basis, with requirements in 
line with this. A few responses felt that executi on only regime should be abolished. There was 
general support for investors knowing the basis on which advice was given.  
27. Apply general conduct of bus iness principles between e ligible counterparties and 
exclude municipalities from the list of professional clients Some respondents feared this 
would adversely affect m unicipalities if they were simply cl assed as retail i nvestors and most 
 
 328    proposed keeping the current classifications. There was lim ited support for a different 
categorisation that recognised the fact that such bodies manage public debt.  
28. Reinforce information obligation in relation to complex products and strengthen 
associated reporting requirements Aside from seeking clarification on what constitutes a 
complex product, respondents supported the a dditional information reporting requirements.  
29. Ban inducements for independent inves tment advice and portfolio management 
There was some support and some opposition to banning inducements, with some calling for 
evidence of investor detriment in this respec t. In addition to those who suggested banning 
inducements, some said that there should be very  clear disclosure of a ny direct or indirect 
inducements. 
30. Require trading venues to publish data on execution quality and improve 
information to clients on best execution Respondents generally supported the requirement 
to publish this data. 
31. Strengthen role of directors  in relation to internal control functions and when 
launching new products and services There was support for reinforcing the importance of 
directors and strengt hening of the regime in relation to control functions, but some felt that 
the current regime simply needed firmer enforcement by supervisors. 
32. Require specific arrangements for portfolio management and underwriting There 
was strong support for reducing and disclosing conflicts of inte rest. There was a mixture of 
support and opposition to the title transfer collateral arrangements proposed changes in 
respect of professional client s. There was generally more support for allowing professional 
clients to act on the same basis as they currently do. 
33. Minimum regime for telephone  and electronic recordings Some opposed this because 
of the prior need to document in wr iting, however there was also support. 
 
 329    24. ANNEX 14: COMPARISON OF MIFID  REVIEW WITH RELATED US NEW REGULATION  
In July 2010, the Dodd -Frank Wall Street Reform and Co nsumer Protection Act was signed 
into law. This Act aims to promote the fina ncial stability of the United States by improving 
accountability and transparency in the financial system, to end to o big to fail, to protect the 
American taxpayer by ending ba ilouts, and to protect consum ers from abusive financial 
services practices. 
In order to achieve this, the Dodd-Frank Act mandates the Securities and Exchange 
Commission (SEC) and the Commodity Future s Trading Commission (CFTC) to write rules 
for a number of key parts of the financial sect or. The most important of these is the area of 
OTC derivatives, where the SEC and CFTC were previously pr ohibited from setting financial 
rules. The SEC has regulatory authority over security-based swaps,  while the CFTC has 
primary regulatory authority over all other swap s, such as energy and agricultural swaps. 
Other areas where new rules are being introduced  include clearing and settlement, and trading 
rules. 
The CFTC and SEC are required to act jointly to define key definitional terms and market 
intermediaries, as well as prescribe requireme nts for trade repository recordkeeping, and 
books and records requirements. 
The SEC and CFTC are required to  consult with each other and the Federal Reserve Board in 
the non-joint rulemakings (and with the other prudential re gulators on capital and margin 
rules). The CFTC, SEC and U.S.  prudential regulators also are consulting with foreign 
regulatory authorities on the establishment of c onsistent international standards with respect 
to products and entities in this area. 
Most of these rulemakings are re quired to be completed within 360 days of enactment of the 
Dodd-Frank Act, which means by July 15, 2011. Both SEC and CFTC ar e likely to miss this 
deadline in a number of areas. The SEC and CFTC have published many proposed rules for 
consultation. In some areas, no pr oposals are as yet available. 
As things stand, the proposed revisions in the MiFID and the draft rules of the CFTC and the 
SEC would ensure very close a lignment between the EU and the US. In terms of legislative 
approach, the structure whereby Dodd-Frank establishes general rules leaving the details to 
SEC and CFTC is somewhat similar to the Eu ropean Lamfalussy structure. However, in 
Europe the rule making powers for the European  agencies are more limited. Another notable 
difference between Europe and the US is that there is no distinction between securities and 
commodity derivative markets in Europe, and monitoring and enforcement are done at the 
national level and not at EU level. 
In terms of content, the Dodd-Frank act places restrictions on proprie tary trading for banks, 
lays down rules for derivatives clearing and de rivatives trading, and rules for consumer 
protection. These areas are covered by different pieces of EU legislation. 
There are no provisions in the proposed EU le gislative reforms that would require EU banks 
to limit their OTC derivatives business. The D odd-Frank Act prohibits federal assistance to 
any swap dealer or major swap participant. Insured banks are exempt if they limit their 
derivatives activities to hedging and dealing in interest rate swaps, foreign exchange transactions and a limited class of other deriva tives business. Dodd-Frank also introduces the 
Volcker rule, restricting the proprietary trading op erations of bank groups. 
 
 330    EU rules for derivatives cleari ng are being introduced through EMIR, which may apply to all 
derivatives (not just OTC). EU rules for de rivatives trading are be ing introduced through 
MiFID, which captures all financial instrument s trading (not just de rivatives). Consumer 
protection is also being impr oved through MiFID, the notable difference with the US being 
that there will be no separate agency  to supervise consumer interests. 
The SEC provides an overview of its regulato ry proposals here http://sec.gov/spotlight/dodd-
frank.shtml 
The CFTC proposals can be found here 
http://cftc.gov/LawRegulat ion/DoddFrankAct/index.htm 
 
– TABLE 50: Comparison US and MiFID proposed revisions of 
regulations  
Area of 
Comparison Current and proposed legislation in the 
US Proposed revisions in the MiFID 
0. General 
Both the EU and the US are introduci ng a new type of trading platform wh ich seeks to regulate all types of 
organised trading. In the US, this type of platform, the SEF, is lim ited to derivatives trading while in 
Europe, the OTF will also be used for trading in all fi nancial instruments. While in the US a platform needs 
to reach a certain volume before it is fully regulated (e .g. in terms of transparency), in Europe all trading 
platforms will be in scope. 
In line with the G20 commitments, the US and the EU are mandating that derivatives  need to be traded on 
platforms. Both the US and the EU are intending to increase transparency in the derivatives markets by 
mandating trading to move on to transparent organised venues. The scope of derivatives covered in the EU 
and the US would broadly include all derivatives which are cleari ng eligible and sufficiently liquid for 
trading on organised platforms, and th e type of platforms that would be eligible to trade these instruments 
are set up according to the same basic structure.  
In both the US and the EU, trading on platforms needs to be transparent. The transparency requirements 
differ depending on the nature of the instru ment (shares, bonds, and derivatives).  
For pre-trade transparency, the US requires pre trade transparency only for shares traded on exchanges or 
larger ATSs. For other instruments pre-trade transpar ency is required of the tr ading venue. The EU will 
require more harmonised pre-trade transparency for all financial instruments and ir respective of the type of 
venue (whether traded on a regulated market, MTF, OTF or bilaterally over the counter). 
For post trade transparency, the US requires post trade transparency for shares and bonds, and, with Dodd-
Frank, derivatives. The EU will require post trade transparency for all financial instruments and again irrespective of where the instrument is traded. 
The US already has a consolidated tape in place for shares. A similar system will be set up in Europe for 
shares, but provided for by competing firms. Post trading information in  the bonds markets is already being 
published in the US th rough the TRACE system. 
Regulators in both the US and the EU will have full acces s to records at all stages in the order execution 
process, from the initial decision by the investor to trade, through to its execution. This will be achieved by 
 
 331    an audit trail in the US, and in Eu rope by making the order trail fully accessible to competent authorities 
upon request through recordkeeping of orders by tradi ng venues and by requiring reporting of transactions 
by investment firms to competent authorities. 
With regards to commodity derivative s, position limits are already in pl ace in the US agricultural futures 
markets. The US supervisor (the CFTC) has been  empowered by the Dodd- Frank Act to extend these 
position limits to other commodity derivatives markets including ener gy and OTC markets, whenever 
appropriate. Similarly in the EU, position limits w ould be set by national competent authorities under the 
coordination of ESMA where needed, with the possi bility of harmonisation by the Commission in 
delegated acts. While the US already has a system th at makes traders' positions by categories of traders 
visible to the market, in the EU  there will be a similar system implemented through the platforms. 
The US Rules currently provide va rious exemptions for third country  firms allowing them to provide 
services in the US in cer tain situations and under defined conditions . If a third country firm wishes to 
engage in any activity beyond the situat ions defined in the exemptions it will need authoris ation. There is 
no special authorisation regime for third country firms. Unlike the US rules, the EU does not provide for 
any exemptions for third country firm s to provide services in  the EU in defined situ ations. Instead it is 
proposed that third country firms must  be authorised under a specific third country regime if they wish to 
provide any services in the EU. 
Finally, both the EU and the US are working to stre ngthen organisational require ments and best execution 
rules. 
1. Developments in market structures 
Organised trading venues US regulation distinguishes between 
securities and non-security markets. This distinction also applies to swap markets (i.e. OTC derivatives markets), where there is a distinction between s ecurity based and non-
security based swaps. This distinction follows the competences of the SEC and CFTC. 
In order to ensure that all derivatives are 
traded in an organise d way, the Dodd Frank 
Act has introduced the "Swap Execution Facility" (SEF). Both the SEC and CFTC have presented proposal s to further define 
this concept for thei r respective markets. 
The final form has not yet been determined. 
A SEF would be a form of organised trading 
facility, bringing together multiple participants and ex cluding single-dealer 
platforms. This platform  would be subject to 
real time post-trade transparency with delays for large trades ("block trade exemptions"). The level of pre-trade transparency will depend on the type of trading model the SEF definition will EU regulation does not distinguish organised 
trading venues in terms of financial instruments traded thereon. Venues for trading shares, bonds, and derivatives are defined in a general way. 
Irrespective of the ty pes of instruments 
traded, organised trad ing which currently 
takes place OTC would be moved onto "Organised Trading Facilities" (OTF). 
Operating such a system that brings together buying and selling interests and orders would become a regulated activity a ssuch. 
If an OTF should wish to allow trading in 
sufficiently liquid derivatives and eligible for clearing, it needs to meet requirements on multilateral participation (exluding single –dealer platforms) and pre- and post-trade 
transparency. 
 
 
 332    encompass. 
It is thought that for the most liquid swaps a 
SEF would be similar in operation to a traditional exchange, whilst for less liquid swaps the operation would be more similar to that of an executio n facility. For very 
illiquid swaps the SEF would process, and confirm/affirm trades. 
Broker systems A broker trading system, such as a crossing 
system, needs to be registered as an Alternative Trading System. Below a threshold of 5% of trading volume in all securities the system trades, lighter requirements apply. Above that level, the system is considered a significant market whose best prices in  shares should be 
transparent. Pre-trade transparency also applies for shares and only where the threshold of 5% is met.  For the moment, the threshold is to be calculated on a security by security basis. However, a system that trades more than the volume threshold in a substantial number of securities could be considered to be a significant market.  Matching of client orders by brokers will be 
brought under increased regulation. The operation of such crossing networks would be a form of Organi sed Trading Facility. 
This regime is limite d to non-proprietary 
dealing. 
Broker systems are regulated based on the 
nature of their activity. No thresholds apply. 
Trading of OTC derivatives  Dodd-Frank requires ma ndatory centralised 
clearing of all liquid and sufficiently standardised deriva tives. End users are 
exempt from this requirement when hedging commercial risk. There is also an exemption for block trades under certain conditions. Eligibility of instruments for mandatory clearing is to be determined by CFTC and SEC. 
Clearable swaps would be required to be 
traded either on a SEF, or a designated contract market (DCM). The latter is similar 
to the concept of re gulated markets in 
Europe, except they are limited to futures trading. The platforms would need to make firm quotes accessible to all. Trading could take place in an order book, on a request for quote or on a voice basis. EMIR requires centralised clearing for 
derivatives trading th at occurs OTC and on 
certain venues. ESMA will determine clearing eligibility. 
All financial instruments eligible for clearing 
and that are sufficiently  liquid would need to 
be traded on an organised platform. This includes the existing regulated markets (RM), multilateral tradi ng facilities (MTF), 
and other OTF. Eligibility requirements are to be reviewed and implemented by ESMA. 
 
 333    Market 
surveillance requirements Operators of national exchanges are 
required to have i ndependent monitoring 
functions. In addition,  the self regulatory 
organisation FINRA carri es out oversight in 
securities markets. 
SEFs would have to comply with a number 
of core principles, which include that they monitor trading. All venues and facilities will have the 
obligation to monitor trading in order to identify market abuse. 
Operators of regulated markets, MTFs and 
other organised tradin g facilities (OTFs) 
which trade the same financial instruments would be required to cooperate and exchange information in order to better detect market abuse and misconduct. 
Automated and HFT trading and related issues The Dodd-Frank Act gives the SEC and 
CFTC the authority to prohibit trading practices deemed to di srupt fair and orderly 
markets. 
The CFTC and SEC are currently reviewing 
rules on Automated Trading and HFT. They are working together with the markets to consider recalibrating the existing market-wide circuit breakers. 
The SEC is assessing it s circuit breaker pilot 
program for trading in individual securities. 
They are also considering additional mechanisms, such as a limit up/limit down procedure for individual trades. 
SEC requirements focus on exchanges and 
larger Alternative Trading Systems (ATSs). 
The SEC has placed requirements on firms 
providing direct el ectronic access to 
markets. This restricts the giving of so called unfiltered or naked access to markets. 
The SEC has not proposed: - order to transaction ratios -  minimum tick sizes; or - the flagging of algorithms in orders. The CFTC has publishe d proposals targeted 
at specialist automatic trading rules as part of the rules for the newly introduced Swap Dealers and Major Swap Participants. Proposed rules include procedures governing use, supervision, maintenance, testing and inspection of programs. They would apply to all algorithms in use, Persons involved in "automated and high-
frequency trading" who are a direct member 
of a regulate dmarket or MTF will be required to be authori sed and supervised as 
investment firms. 
There will be specialist rules for firms 
involved in algorithmic  trading including 
compliance, risk controls, and notification to regulators of algorithm s. In addition firms 
will be required to flag the use of algorithms in transactions and orders. 
Firms providing direct electronic access to 
clients will need to meet various compliance and risk management requirements.  
Market operators (i.e. operators of regulated 
markets and MTFs) will need to have risk controls in place dealing with capacity and resilience of their systems and to reduce risks from algorithmic trading and direct electronic access. They will also need circuit breakers in place. 
Market operators will need to give equal and 
fair access to co-location facilities. 
Market operators will also need to ensure 
that orders do not exce ed specified order to 
transaction executed ratios and trades are not below prescribed minimum tick sizes. Technical details need  to be set by ESMA. 
 
 334    including those sourced from third parties. 
2. Pre- and post-trade transp arency & data consolidation 
Equity 
markets  
 In the US the Consolidated Tape Association 
(CTA) oversees the dissem ination of real-time 
trade and quote information in New York Stock Exchange and American Stock Exchange listed securities. 
All exchanges which trad e in these securities 
send their trades and quotes to a central consolidator where the Consolidated Tape System (CTS) and Consolidated Quote System (CQS) data streams are produced and distributed worldwide in  real time. Combined, 
these data feeds provide the market with pre- and post-trade transparency information. 
This information includes real-time 
information on the best-priced quotations and 
real-time reports of trades as they are 
executed. 
There is a general exception from the public 
display requirement for a block size order. Trading platforms publicly report their executed trades in the consolidated trade data. 
The SEC has proposed requiring real-time 
disclosure to include the identity of dark pools 
and other ATSs on the reports of their executed trades. This should help investors to identify where liquidity is. In the EU, a post-trade consolidated tape 
system for all types of  financial instruments 
would be set up. 
The conditions for the application of the 
pre-trade transparency waivers would be clarified. The large in scale waivers, including stubs of large orders, would be reviewed.  
Post trade information would need to be 
published as close to instantaneously as 
technically possible. Real time reporting would be shortened fr om 3 to 1 minute(s), 
and systems are to publish data live rather than in batches. 
 
The delays for deferred post trade 
publication for large transactions would be reduced, the intra day period would be shortened from 3 to 2 hours, and the intra 
day transaction size threshold would be 
lowered. 
Bonds and Asset Backed Securities  In July 2002 FINRA introduced the Trade 
Reporting and Compliance Engine (TRACE). 
The system captures and disseminates 
consolidated information on secondary market transactions in publicly traded 
TRACE-eligible securities (investment grade, high yield and convertib le corporate debt) 
representing all over- the-counter market 
activity in these bonds. 
The TRACE does not provi de pre trade data 
and only provides post trade information; 
such as date, time, price, quantity. The TRACE does not provide data on exchange 
executed transactions. There is a delay of 15 
to 30 minutes depending on how trades are Calibrated pre and post trade transparency 
requirements would be extended to all bonds and structured products with a prospectus or which are admitted to trading either on a regulated market or MTF. 
 
 335    confirmed and executed. 
TRACE has been recently extended to some 
of the ABS products. 
OTC Derivatives including Swaps CFTC and SEC proposals aim to increase pre-
trade transparency for swaps, notably the order data provided by SEFs. 
In their draft rules RFQ trades would need to 
be made available to one person for security based swaps, and to five for all other swaps. 
Real time prices and volume disclosure for all 
cleared and non cleare d swaps will be 
required to enhance post trade transparency. 
Data is anonymised so that the identity and 
positions of participants cannot be deduced by others and delays for block trades are foreseen. Calibrated pre- and post-trade transparency 
requirements would be extended to all derivatives eligible for central clearing, and post-trade requirements to all those submitted to trade repositories.. 
3. Commodity derivatives markets 
Position Transparency  The CFTC currently publishes the 
Commitments of Traders (COT) report on a weekly basis. The reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above certain reporting levels established by th e CFTC. The data is 
broken down into four categories of traders: Producer/Merchant/Processor/User; Swap Dealers; Managed Money; and Other 
Reportables.. Organised trading venues would be 
required to publish harmonised position information to regulators in detail, and the public in aggregate for markets with a 
given number of active participants. The positions would be broken down into different categories of traders according to tehir regulatory status. 
Position Limits Under the Dodd-Frank Act, the CFTC is 
required, as appropriate, to impose position limits on energy, metal and agricultural commodity derivatives. The mandate given to the CFTC to exercise th is discretionary power 
is broad: to combat excessive speculation, to prevent market manipulation, to ensure sufficient market liquidity, and to preserve the price discovery functi on of the underlying 
market. After a heated debate, the CTC has recently proposed rules to limit the amount of positions, other than bona fide hedge positions, that may be held by any individual trader in 28 core commodity derivatives contracts traded on or ganized trading venues 
and their economically equivalent OTC The MiFID review also aims at reinforcing 
oversight and transparency of commodity derivatives markets, notably by requiring 
regulators to assert comprehensive oversight over positions, including in the shape of position limits when deemed necessary. Platforms should adopt limits or alternative arrangem ents in support of 
market integrity and liquidity, which could be harmonised through Commission delegated acts. 
 
 
 336    derivatives. These rule s are now open up for 
public comment for two months.  
Regulated vs. exempt entities The Dodd-Frank Act creates an end-user 
clearing exception that exempts clearing for a 
swap transaction if one party to the transaction is not a financial entity, is using the swap to hedge or mitigate commercial risk, and notifies the SEC of CFTC how it meets its financial obligations for the non-cleared swaps. 
The Dodd-Frank Act provisions for Major 
Swap Participants a nd Swap Dealers do not 
apply when dealing activity remains below the de minimis exception thresholds set by SEC and CFTC. Dealing on own account in financial 
instruments (excluding by executing client orders, as a market maker, or as a member or participant of a regulated market or MTF) and the provision of investment services relating to commodity derivatives as an ancillary activity to another main commercial business will continue to be exempt. 
The specific exemption for commodity 
derivative trading firms would be deleted. 
Spot carbon trading A Federal interagency working group 
mandated by the Dodd-Frank Act 
recommends carbon oversight is brought 
under the existing financial regulation. This would apply to carbon derivatives markets and closely linked derivative markets, such as those based on energy commodities. Emission allowances would be classified as 
financial instruments, harmonising their 
legal status across th e EU, and bringing the 
spot and derivatives markets for these contracts under an integrated regulatory framework. 
4. Transparency towards regulators 
Scope of transaction reporting The reporting of transact ions to regulators is 
generally done through data transmission by exchanges, self regul atory bodies, and other 
market participants such as trade repositories. Reporting requirements may differ for different types of instruments. 
OTC trades, including in bonds and in the 
future also asset backed securities, are sent directly to FINRA. This uses the same system as for post trade transparency, TRACE. 
In line with the enhancements to the swaps 
market, the Dodd Frank Act also introduces the requirement for th e reporting of swaps 
data to central Swap Data Repositories. In addition to providing ce ntralised storage of 
contracts data, regulatory bodies will have access to this data for monitoring purposes. The CFTC would rely on data stored in the swap data repositories to carry out its surveillance duties. Investment firms are required to send 
details on all transac tions in financial 
instruments traded on regulated markets to regulators. 
The scope of transaction reporting would 
be extended to include transactions in all financial instruments that are admitted to trading on an MTF or other OTF, financial (OTC) instruments the value of which depends on or can influence the value of financial instruments that are admitted to trading, and comm odity derivatives. 
Trade repositories could report derivatives 
transactions on behalf of investment firms. 
 
 337    Information 
on the order book In the US, reporting ob ligations extend to 
both transactions and orders. A route report needs to be sent each time an order is transmitted for further handling. 
The SEC is working on the set up of an audit 
trail to give the regulators an overview of the entire order book among different trading platforms. 
For Nasdaq and OTC equity securities there 
is an integrated audit trail of order, quote, 
and trade information, the Order Audit Trail System (OATS). Order information would not need to be 
reported, but would need to be stored by the platforms under general data requirements. Such information would then be accessible upon request to regulators. 
5. Investor Protection 
Conduct of business rules and internal 
organizationa
l requirements The Dodd Frank Act provides for the SEC to 
strengthen investor pr otection via enhanced 
broker dealer regulation. 
This includes requirements on enhanced 
duty of care, classifica tion of clients, and 
enhanced/harmonised rules for the SEC to investigate and prosecute cases of misconduct. 
Conduct of business rules are also 
introduced for the newly defined Major Swap Participants and Swap Dealers. The MiFID revision provides enhanced 
clarification of the conduct of business rules already present in the MiFID. This includes specific rules on investment 
advice, inducements, classification of 
clients, and dealing on own account. 
The high level principle to act honestly, 
fairly and professiona lly would apply to 
dealings with all types of clients. 
Requirements to disclose inducements 
would be enhanced.Inducements for portfolio management would be prohibited and investment advisers would be prevented from describing themselves as independent if they receive inducements.. 
Best execution In the US, execution platforms are required 
to route orders in equities to another platform if the order can be executed at better terms there. Market participants have access to a consolidated tape for equities. Execution venues are required to publish execution quality data. 
The broker must evaluate the orders it 
receives from all customers in the aggregate and periodically assess which competing markets, market makers, or electronic communications networks (ECNs) offer the most favourable terms of execution. 
There are specific best execution 
requirements for Major Swap Participants In the EU, the obligation to provide best 
execution falls on the investment firm and applies to all financial instruments. 
In addition to the requirements on brokers 
to ensure best execution for clients, brokers must also provide information to clients clearly setting out how they satisfy the best 
execution requirements for their clients.  
Execution venues will be required to 
publish data on execution quality concerning the financial instruments they trade. 
 
 338    and Swap Dealers in the Dodd Frank Act. 
Third country 
access Foreign persons wishing to provide 
investment services into the USare exempted from the need to be registered as a broker/dealer in the US in various defined situations, for example: 
1) where the foreign pe rson provides certain 
services to an investor in the US as a result 
of unsolicited or indirect contacts from the US investor, 
2) where the foreign person provides 
investment research to institutional investors in the US, 
3) where the foreign pe rson directly contacts 
investors in the US  but the resulting 
transaction is then executed through a US broker or dealer, 
4) where the foreign pe rson directly contacts 
certain categories of persons (e.g. registered broker dealers, banks, certain international 
organisations), even where transactions are not executed through a US broker or dealer, 
5) where a foreign priv ate adviser has less 
than 15 US clients and less than $25 million of assets under management attributable to clients in the US. 
If the foreign firm provides services beyond 
these exemptions or ha s physical operations 
in the US (such as an office or branch) it will 
usually need to be re gistered as a broker 
dealer. No special regime exists for foreign authorised branches. 
There is no concept of mutual recognition of 
securities regulatory systems under U.S. laws. MiFID contains no equi valent exemptions 
for third country firms to provide services 
in Europe in such situations. Instead, it is proposed to require third country firms to be authorised under a special regime for such firms. The MiFID revision will introduce a third country regime by which the provision of services to retail clients by third country firms always requires the establishment of a branch in the Union. The provision of services without branches is 
only limited to non-retail clients. 
Based on a decision of the national 
competent authority that the third country firm is subject and complies with legal requirements in a number of relevant areas (authorisation, criteria for appointment of managers, capital, organisational requirements), access to the EU could be granted subject to a ppropriate cooperation 
agreements between the relevant third country authority a nd the EU competent 
authority and compliance by the firm with key MiFID operati ng and investor 
protection conditions. 
The proposal recognises that EU investors 
can receive services by third country firms 
at their own exclusive initiative. 
 
 339    25. ANNEX 15: COMPARISON MIFID  REVIEW AND KEY IOSCO  PRINCIPLES  
25.1. Overview 
The International Orga nization of Securities Commissions (IOSCO) is  an association of 
organisations that regulate global securiti es and futures markets. IOSCO members are 
committed to developing, implementing and promoting adherence to internationally 
recognised and consistent standa rds of regulation, oversight and enforcement in order to 
protect investors, maintain fair, efficient an d transparent markets, and seek to address 
systemic risks. 
In the last two years, IOSCO has conducted specific review wo rk in areas of key market 
interest (e.g. Conflicts of Interest, Direct Market Access and Transparency of Structured 
Products). Presented below is a high level overv iew of where the MiFID revision extends into 
areas for which IOSCO has deve loped international principles and/or where it has done 
review work on those principles. 
25.1.1.  Principles for Direct Electronic Access to Markets August 2010 
http://www.iosco.org/libra ry/pubdocs/pdf/IOSCOPD332.pdf 
Key themes and details from IOSCO 
Principles/ Review Work Alignment with the MiFID revision. 
• Published in August 2010, in this paper 
IOSCO discusses the current market practises 
regarding direct electr onic access also known 
as direct market access (DMA). A number of 
principles and specific provisions are proposed which are designed to enhance the controls over direct  electronic access. 
• Although the details are of  a technical nature, 
the following provide an overview of the key areas of focus. 
• Intermediaries: should have binding robust 
agreements in place with clients and minimum standards establishing the customer's creditworthiness, knowledge of applicable market rules and ability to comply 
and ability to correctly use the order entry system. They should identify DMA customers to the markets to assist in surveillance. They should also ensure they have in place risk management controls over  the client's trading. 
• Markets: should provide intermediaries with 
adequate real time information to enable the 
intermediaries to introduce effective monitoring and risk assessment controls. They • The majority of principles are already 
addressed in the existing MiFID 
provisions, which c ontains rules on the 
types of firms which may be admitted as members of regulated markets. 
• The MiFID proposals will introduce 
specific requirements in relation to DMA access used by Automated Trading firms. Intermediaries who provide DMA for Automated Trading 
firms will be required to have in place 
robust risk controls and filters to detect errors or attempts to misuse facilities. 
 
 340    should have systems and controls designed to 
minimize market integrity concerns (e.g. disorderly trading) aris ing from direct access 
customers' activities.  
• Clearing firms: should have operations and 
technical capabilities to  manage risks arising 
from direct access. 
25.1.2.  Guidelines for the Regulation of Conflicts of  Interest Facing Market Intermediaries 
November 2010 
http://www.iosco.org/libra ry/pubdocs/pdf/IOSCOPD342.pdf 
Key themes and details from IOSCO 
Principles/ Review Work Alignment with the MiFID revision. 
• In November 2010, IOSCO published a 
paper exploring guidelines for regulating conflicts of interest. The paper builds on existing regulation and best practice from around the world (incl uding provisions 
already contained in the MiFID) and sets 
out key areas for global harmonisation and improvement. IOSCO has identified the following as key areas: 
• Active involvement by senior management 
of market intermediaries; 
• Clear and concise polic ies to be adopted 
by intermediaries; 
• Adequate disclosure to be made; 
• Information barriers (Chinese walls) need 
to be created; 
• Effective procedures to manage conflicts 
of interest must be put in place; 
• Separation of remuneration for activities 
that entail conflicts of interest; 
• Maintaining record of activities from 
which conflicts of inte rest have previously 
arisen and how they were managed. • Existing MiFID provisions for managing 
conflicts of interest are contained in Articles 13(3) and 18 of the MiFID Level 1 and Articles 21 to 25  of the MiFID Level 
2. These provisions ar e aligned with the 
guidelines provided for in the IOSCO paper. 
• Whilst current provisions are already 
provided for, implementation in member 
states differs. In line with the general IOSCO objective of harmonization of 
conflicts of interest rules, the MiFID review provides ESMA with powers to implement technical st andards to further 
promote the uniform application of these provisions. 
25.1.3.   Issues Raised by Dark Liquidity October 2010 
http://www.iosco.org/libra ry/pubdocs/pdf/IOSCOPD336.pdf 
 
 341    Key themes and details from IOSCO 
Principles/Review Work Alignment with the MiFID revision. 
• In October 2010, the technical committee 
of IOSCO published a consultation report into Dark Pools. The report provides six draft principles to address regulatory concerns: 
• The price and volume of firm bids and 
offers should generally be transparent to the 
public; 
• Information regarding trades executed in 
dark pools or as a re sult of dark orders 
entered in transparent markets should be transparent to the public; 
• Transparent orders sh ould have priority 
over dark orders at the same price within a 
trading venue; 
• Regulators should have a reporting regime 
and/or means of accessing information regarding orders and trade information in venues that offer trad ing in dark pools or 
dark orders; 
• Dark pools and transparent markets that 
offer dark orders s hould provide market 
participants with sufficient information to understand how their orders are handled and executed; 
• Regulators should periodically monitor 
dark pools and dark orders in their 
jurisdictions to ensure the efficiency of price formation on displayed markets, and take appropriate action as needed. • MiFID already cont ains pre and post 
trade transparency requirements, which ensure that firm quot es and transactions 
are made public. It also contains the obligation for financial firms to report all trades in financial instruments that are admitted to trading on regulated markets 
to competent authorities. 
• The MiFID proposals would extend pre 
trade transparency to actionable indications of interest  (i.e. an indication 
of interest that includes all necessary information to agree on a trade). 
• Also, post trade information would be 
published as close to instantaneously as is 
technically possible. Large orders would need to be published no later than the end of the trading day, and only the very largest trades that occu r late in the trading 
day would need to be published before the opening of the following trading day. 
• In addition, execution venues would need 
to publish data on execution quality 
concerning financial instruments they trade. 
25.1.4.   Transparency of Structured Finance Products July 2010 
http://www.iosco.org/library /pubdocs/pdf/IOSCOPD326.pdf  
Key themes and details from IOSCO 
Principles/ Review Work Alignment with the MiFID revision. 
• This report follows a period of consultation 
and review by the technical Committee of 
IOSCO; it lists the factors that market authorities should use in determining • The MiFID proposals w ould extend pre- 
and post-trade transparency requirements 
to all trades in structured products with a prospectus or which are admitted to 
 
 342    which structured fi nance products should 
be made transparent, and how this could best be implemented. 
• In response to the survey part of the 
review, IOSCO found that most market 
participants felt that a carefully developed post-trade transparency regime with a phased implementation would be beneficial to market efficiency.  
• In their conclusions and recommendations 
IOSCO state that jurisdictions may wish to 
consider some form of post trade transparency regime. Such a regime would include the publication of trade-by-trade transparency information or publication of aggregate trade inform ation (such as high, 
low, and average prices) on a periodic basis. 
• In addition to the pr oposals on post-trade 
transparency, IOSCO note that some 
member jurisdictions may find it helpful to 
also consider factors such as the availability and quality of information about the underlying a ssets of Structured 
Finance Products, including through indices.  trading either on a regulated market or 
MTF, whether executed on regulated markets, MTFs, organised trading facilities or OTC. These new requirements would be differentiated by asset class. 
25.1.5.   Task Force on Commodity Futures Markets 
Final Report – March 2009 https://www.iosc o.org/library/pubdocs/pdf/IOSCOPD285.pdf 
Report to the G-20 – June 2010 http:// www.iosco.org/library /pubdocs/pdf/IOSCOPD324-
325.pdf  
Key themes and details from IOSCO 
Principles/ Review Work Alignment with the MiFID revision. 
• The Task Force on Commodity Futures 
Markets was set up in 2008 by the G-8 
Finance Ministers, as a response to concern over price increases and volatility in oil and food products. Covering a wide range of markets and participants the work by the Task Force touches both physical market and financial market regulators.  
• The Task Force's most relevant 
recommendation is to ensure that futures • In its Communication of 2 June 2010, the 
Commission set out a wide range of 
initiatives touching upon commodity derivatives markets. The review of MiFID is an integral part of this effort and complements others such as the proposal on short-selling and certain aspects of credit default swaps and the review of the Market Abuse Directive. 
• The MiFID proposals would: 
 
 343    market regulators have the necessary 
legal framework to detect and take enforcement action with respect to manipulation. 
• (Other recommendations are 
improvements in transparency with 
respect to the availabi lity and quantity of 
information on commodities, greater cooperation and the sharing of information among futures market regulators, and meeti ng regularly for the 
purpose of informal sh aring of concerns 
on trends and developments in commodity markets as well as the sharing of market surveillance and enforcement approaches.) (a) Require organised commodity 
derivative trading ve nues to design 
contracts in a way that ensures convergence between futures and spot prices; 
(b) Modify or remove the exemption in 
the MiFID for commercial firms active in commodity markets and who provide investment services; 
(c) Increase transparency by: 
–
 requiring trading venues to make 
available to regul ators (in detail) 
and the public (in aggregate) harmonised position information by type of regulated entity to the public; 
–
 requiring the disclosure of 
harmonised position data by type 
of regulated entity for all OTC commodity derivatives; 
–
 extending transaction reporting to 
commodity derivatives that are not admitted to trading or traded on a regulated market, a MTF or an organised trading facility. 
 
 344    26. ANNEX 16: NUMBER OF INVESTMENT FIRMS AND  CREDIT INSTITUTIONS IN THE EU 
We set out below the universe of investment fi rms in the EU. These data have been collected 
via a survey of the national competent author ities. Only data from Lithuania were not 
available — the data on its di stribution of activities is ba sed upon the median from across 
those 26 Member States reporting and the number of authorised  firms in Lithuania (which is 
known). 
The data relate to the position at 30th June 2010 (or  as at 31st December 2009 when more 
recent data was not available). 
– TABLE 51 : The Universe of EU Investment Firms 
Reception 
and 
transmission 
of ordersExecution of 
orders on 
behalf of 
clientsPortfolio 
managementInvestment 
adviceUnderwriting 
and placingDealing on 
own accountTotal 
Number of 
Investment 
Firms
Austria 197                   -                    64                      199                   -                    -                    199                   
Belgium 39                      18                      32                      34                      29                      11                      48                      
Bulgaria 56                      55                      30                      61                      23                      20                      61                      
Cyprus 69                      50                      51                      45                      14                      37                      84                      
Czech Republic 26                      24                      14                      23                      14                      15                      26                      
Denmark 46                      38                      38                      85                      1                        13                      90                      
Estonia 7                        7                        6                        6                        6                        3                        8                        
Finland 54                      31                      37                      53                      18                      10                      59                      
France 72                      43                      9                        35                      25                      28                      81                      
Germany 611                   607                   513                   690                   49                      310                   706                   
Greece 65                      55                      38                      63                      19                      22                      67                      
Hungary 16                      24                      11                      15                      5                        13                      26                      
Ireland 113                   47                      94                      114                   11                      24                      144                   
Italy 52                      24                      47                      105                   56                      17                      113                   
Latvia 5                        5                        16                      4                        4                        -                    20                      
Lithuania                       17                       11                       13                      17                        6                        5 21                     
Luxembourg 103                   83                      75                      99                      6                        11                      111                   
Malta 43                      20                      34                      43                      32                      3                        64                      
Netherlands 211                   75                                          195 235                 9                      21                    276                  
Poland 25                      25                      23                      16                      13                      21                      48                      
Portugal 12                      9                        33                      30                      8                        2                        37                      
Romania 60                      60                      50                      47                      31                      35                      60                      
Slovakia                       17                       17                       14                      16                        4                        8 18                     
Slovenia 24                      21                      20                      22                      20                      22                      24                      
Spain 93                      54                      65                      124                   65                      43                      151                   
Sweden 113                   100                   97                      103                   38                      21                      142                   
United Kingdom 2,237                1,064                884                   2,171                376                   409                   2,337                
4,383                2,567                2,503                4,455                882                   1,124                5,021                
 
We set out below the universe of credit institut ions authorised to provide investment services 
in the EU. These data have again been coll ected via a survey of the national competent 
authorities. The data relate to the position at 30th June 2010. Here, data on Belgium, 
Germany, Luxembourg, Lithuania and the Nether lands were not availabl e. These gaps have 
been filled in the same way as above in orde r to gauge the approxima te size of the overall 
number of banks authorised to be active. 
 
 345    – TABLE 52:  The Universe of Credit Institutions Providing Investment 
Services in the EU 
Reception 
and 
transmission 
of ordersExecution of 
orders on 
behalf of 
clientsPortfolio 
managementInvestment 
adviceUnderwriting 
and placingDealing on 
own accountTotal of CIs 
providing 
investment 
services
Austria 769                   722                   781                   781                   180                   722                   781                   
Belgium                       58                       53                       38                      56                      51                      49                       66 
Bulgaria 22                      22                      na na na 11                      25                      
Cyprus 11                      8                        7                        9                        3                        7                        12                      
Czech Republic 12                      12                      6                        12                      12                      11                      12                      
Denmark 112                   99                      106                   154                   154                   154                   154                   
Estonia                         3                         3                         2                        3                        2                        2 5                       
Finland                     171                     156                     112                    165                    151                    144 307                  
France 237                   79                      98                      190                   224                   142                   275                   
Germany                 1,024                     931                     672                    985                    902                    863                 1,164 
Greece 22                      17                      10                      13                      14                      16                      23                      
Hungary 11                      19                      7                        16                      15                      18                      20                      
Ireland 13                      11                      7                        9                        4                        12                      18                      
Italy 693                   529                   203                   684                   686                   528                   712                   
Latvia 19                      18                      10                      8                        6                        17                      21                      
Lithuania                       10                         9                         7                      10                        9                        8                       11 
Luxembourg                       82                       75                       54                      79                      73                      70 148                  
Malta 7                        7                        7                        7                        7                        3                        8                        
Netherlands                     109                       99                       72                    105                      96                      92 196                  
Poland 34                      21                      2                        11                      10                      20                      47                      
Portugal 49                      38                      56                      63                      41                      38                      77                      
Romania 8                        7                        8                        7                        7                        7                        14                      
Slovakia                       11                       11                         9                      11                      11                      11                       11 
Slovenia 15                      13                      12                      14                      14                      15                      15                      
Spain                       53                       47                       35                      39                      28                       45 207                  
Sweden 78                      74                      18                      76                      27                      69                      141                   
United Kingdom 46                      45                      39                      44                      38                      45                      46                      
3,679                3,125                2,378                3,551                2,765                3,119                4,516                
 
 
 346    27. ANNEX 17: LITERATURE REVIEW OF MARKET IMPACT OF HFT  AND AUTOMATED 
TRADING  
Source: Europe Economics 
Hendershott, Jones and Menkveld (2010) note that nearly every large broker-dealer offers a 
suite of algorithms to its institutional customer s to help them execute orders and reduce the 
market impact of orders, not least by s licing large orders into smaller pieces.cdlxxxii These 
algorithms constantly monitor market condi tions across different securities and trading 
venues, are highly sophisticated and typically determine the timing, price, quantity and execution venue. A mix of active and passive st rategies is generally  employed, using both 
limit orders and marketable orders, and hen ce algorithmic traders are sometimes liquidity 
demanders and sometimes liquidity suppliers. 
Hendershott and Riordan (2009) note  that the trading process is  central to e fficient risk 
sharing and price efficiency and investigate how algorithmic trading is used and what role it 
plays in the price formation process.
cdlxxxiii Using a sample of DAX stocks, with data 
identifying whether or not each trade’s buyer and seller generated their order with an 
algorithm, the authors find that algorithmic tr aders are more sensitive to human trading 
activity than humans are to algorithmic trading activity, which is consistent with algorithmic 
traders closely monitoring the market for trading opportunities. 
Brogaard (2010) investigates the behaviour and impact of high fr equency traders,  finding that 
they tend to follow a price reversal strategy dr iven by order imbalances and do not seem to 
systematically engage in a non- HFT anticipatory trading strategy.cdlxxxiv Furthermore, HFTs 
appear to follow a distinct strategy that bears little resemblance to strategies followed by other 
types of traders. 
The impact of automated trading and HFT on th e market is currently an active area of 
research and hence the volume of literature ava ilable at present is limited. Nonetheless, we 
have reviewed a number of working papers and published articles that ha ve sought to assess 
the impact of automated and high frequency tradi ng on market characteristics such as liquidity 
and volatility. A discussion of these papers  is provided in the following paragraphs. 
Impact on liquidity Hendershott, Jones and Menkveld ( 2010) note that there has been a rapid growth in automated 
trading since the mid-1990s and th at there has been a dramatic improvement in liquidity over 
the same time period. However, the authors stat e that it is not at a ll obvious a priori that 
automated trading and liquidity should be  positively related.  The authors note: 
“If algorithms are cheaper and/or better at supp lying liquidity, then AT may result in more 
competition in liquidity provision, thereby lo wering the cost of immediacy. However, the 
effects could go the other way if algorithms are used mainly to demand liquidity. Limit order 
submitters grant a trading option to others, and if algorithms make liquidity demanders better 
able to identify and pick off an in-the-money trading option, then th e cost of providing the 
trading option increases, in which case spreads must widen to compensate. In fact, AT could 
actually lead to an unproductive arms race, wher e liquidity suppliers and liquidity demanders 
both invest in better algorithms to try to take  advantage of the other side, with measured 
liquidity the unintended victim.” 
 
 347    As a result of the theoretical uncertainty regarding the relationship between automated trading 
and liquidity, a growing body of em pirical literature has considered  the issue. Indeed, mindful 
of the fact that correlation between automate d trading and liquidity does not imply causation, 
Hendershott, Jones and Menkveld (2010) investig ate the issue on the basis of NYSE data. The 
authors find that, for large stocks in particul ar, algorithmic trading narrows spreads, reduces 
adverse selection, and reduces tr ade-related price discovery. Hence,  the evidence suggests that 
algorithmic trading leads to liquidity impr ovements and enhances the relevance and 
informative content of quotes. However, no signi ficant effect is identi fied for smaller-cap 
stocks, a finding that the author s suggest may be explained by w eak instrumental variable and 
a consequent lack of statistical power rather than the idea that there may truly be no effect.  
Based on probity models of algorithmic trad ing, Hendershott and Ri ordan (2009) find that 
algorithmic traders are more likely to initiate trades when liquidity is high (where high 
liquidity is measured by narrow bid-ask spreads and higher mark et depth). They further find 
that while liquidity demanding trad es of algorithmic traders are not related to volatility in the 
prior 15 minutes, algorithm-initiated trading is negatively related to volume in the prior 15 minutes. These results suggest that algorithmic traders monitor liquidity and information in 
the market, consuming liquidity when it is cheap  and supplying liquidity when it is expensive. 
Hence, algorithmic trading helps to  smooth out liquidity over time. 
Impact on volatility Hendershott and Riordan (2009) not e that while, in theory, the demanding for liquidity by 
algorithmic traders during times when liquidity  is low could result in an exacerbation of 
volatility; there is no evidence of this from  their empirical analys is. Similarly, while 
algorithmic trading could theoretically exacerba te volatility by not s upplying liquidity when 
the liquidity dries up, they ag ain find no evidence for this hypot hesis and, in fact, find the 
opposite to be true. 
Brogaard (2010) finds that there is only a very limited change in the tradi ng levels of high 
frequency traders in response to volatility incr eases and suggests that high frequency traders 
may dampen intraday volatility. Similarly, Hasb rouck and Saar (2010) fi nd, using data in the 
millisecond environment, that algorithmic trading is especially beneficial in reducing volatility for small stocks during stressful times.
cdlxxxv 
Gsell (2008) using a simulation approach to asse ss the impact of algorithmic trading. He finds 
that that specific algorithmic trading concepts considered in the simulation have an impact on 
both prices and volatility.cdlxxxvi More specifically, low latency showed the potential to 
significantly lower market volatility while la rge volume orders had a negative impact on 
prices. However, Gsell emphasises that only simp le algorithmic trading strategies have been 
implemented within the simulation environment to  date and hence it is not valid to conclude 
that the algorithms actually implemented by traders are not capable of handling large order volumes appropriately. It is fu rther noted that more  sophisticated algor ithms might actually 
have a lower impact on the market than those implemented to date. 
However, Zhang (2010) finds that HFT may be harmful to market volatility.
cdlxxxvii In 
particular, he finds that HFT is  positively correlated with pri ce volatility after controlling for 
various exogenous determinants of volatility, ba sed on a sample of US stocks. He finds that 
the positive correlation is stronger among the larg est 3,000 stocks by market capitalisation 
and among stocks with high in stitutional holdings. The correl ation is found to be stronger 
during periods of high market uncertainty. 
 
 348    Impact on price formation and price discovery 
Hendershott and Riordan (2009) examine the retu rn-order flow dynamics for both algorithmic 
trades and human trades. The authors find that algorithmic liquidity de manding trades play a 
more significant role in discove ring the efficient price than do human trades. The magnitude 
of effect appears to be quite significant: algorithm-initiated trades have a more than 20 per 
cent greater permanent price imp act than human trades. Similarl y, Brogaard (2010) finds that 
high frequency traders add substantiall y to the price discovery process. 
Hendershott and Riordan (2009) also examine the role of the quotes of algorithmic traders in 
the price formation process, findi ng that the quotes of algorithmic trader ar e relatively more 
important in the price formation process than the share of trading vol ume would suggest. The 
authors also find that algorithmi c traders contribute more to the efficient price by having more 
efficient quotes and algorithmic traders demanding liquidity so as to move the prices towards 
the efficient price. 
Brogaard (2010) finds that high fr equency traders prov ide the best bid and offer quotes for a 
significant portion of the trading day and do so strategically so as  to avoid informed traders, 
but provide only one-fourth as much book depth as non-high fr equency traders. 
 
 349    28. ANNEX 18: SUMMARY OF TRACE  INITIATIVE AND ITS ANALYSIS  
Source: Europe Economics 
In July 2002 the National Association of Securities Dealers (NASD) initiated the Trade 
Reporting and Compliance Engine (TRACE) system. 
TRACE was fully phased in by January 2006, and of fers real-time, public dissemination of 
transaction and price data fo r all publicly traded corporat e bonds –– including intra-day 
transaction data and aggregat e end-of-day statis tics (most active bonds, total volume, 
advances and declines and new highs and lows).cdlxxxviii This data is available through all 
major market data vendors and on certain public websites. TRACE currently captures and 
disseminates secondary market transaction inform ation in over 30,000 eligible securities from 
2,000 firms regulated by the US Financial Industry Regulatory Authority and registered to 
trade corporate bonds.cdlxxxix 
Impact of TRACE on the corporate bond market  
The introduction of TRACE tran saction reporting and the subse quent shift in the post-trade 
transparency of the US corporate bond market provide a unique experiment for assessing the 
impacts of transparency. Three seminal studie s examined the impacts of the TRACE reporting 
system on the US corporate bond market  shortly after it was initiated.cdxc 
Edward, Harris, and Piwowar (2007) analyse the transactions costs of all bond trades reported 
to TRACE in 2003, including both  retail and institutional trades. They estimate cross-
sectional regressions where th e dependent variable is th e bond spread and explanatory 
variables include vari ables indicating whether the bond was price transparent. They also 
employ a pooled time-series model, in which they  compare transactions costs for bonds that 
became transparent under TRACE with those for comparable bonds that were either never 
TRACE-transparent, or we re TRACE-transparent th roughout the whole period. 
Goldstein, Hotchkiss and Sirri (2 006) conduct a real scale experi ment in which they form a 
sample of 90 BB rated bonds, for which transp arency was introduced, and compare it to a 
matched sample of bonds for which transparency was not introduced to id entify the effects of 
transparency.  
Bessembinder, Maxwell and Venkataraman (2006) focus on institutional trades (bonds traded 
by insurance companies), and compare the transaction costs for bonds with prices 
disseminated by TRACE with non-disseminated bonds. 
The studies all employ similar methodologies  for assessing the impacts of TRACE, 
comparing the changes in transa ctions costs over time for diffe rent samples of bonds – those 
transparent under TRACE and those not. This method, known as difference in difference 
analysis,cdxci enables the effects of TRACE to be is olated from other possible changes over 
time and thus provides a robust way of evaluatin g the impacts of increased transparency.  
The conclusions of the three studies are very similar: 
(a) Bid-ask spreads decrease with trade size. When estimating the transactions costs for 
the respective samples, the authors found th at larger trade sizes incurred smaller 
transactions costs. This resu lt contrasts with the results obtained in the equity market, 
 
 350    where transactions costs increase with risk  and thus trade size. The authors suggest 
that this is explained by the differences in the two market structures, with the most important difference being transparency; sma ller traders in an opaque market are less 
able to accurately evaluate the costs they pay. 
(b) Increased transparency under TRACE significantly reduces transaction costs 
(spreads). With the exception of a few tr ade size groups, the spreads of all bonds 
whose prices become transparent under TRACE decline by more than those of the control groups. Goldstein et al. find that this effect is strongest for small and 
intermediate trade si zes (between 101 and 250 bonds). These results are consistent 
with investors’ ability to negotiate better terms of trade with dealers once they have 
access to broader bond-pricing data. These resu lts suggest that public traders benefit 
significantly from price transparency. If tran sactions costs are a deterrent to retail 
interest, it can be expected that retail inte rest should increase with lower transaction 
costs associated with transparency. In addition, Bessemb inder et al. find this effect 
evident even with large institutional trades. 
(c) Increased transparency does no effect tr ading volume. Goldstein et al. (2006) were 
the only authors to measure the impact of  increased transparency on both average 
daily trading volume and average number of  trade per day, and they find it to be 
insignificant for all trade sizes, as well as  for investor and inter-dealer trades.  
(d) Increased transparency does not reduce li quidity. Goldstein et al. (2006) find that 
increased transparency has either a neut ral or positive effect on liquidity, as 
measured by trading volume or estimated bi d-ask spreads. Edward s et al. argue that 
given the great liquidity observed in the re latively more transparent equity markets 
(where the management of inventory pr oblems is arguably greater), and their 
empirical results, it is extremely unlikel y that increased bond ma rket transparency 
would lower liquidity.  
(e) Additional transparency is likely to encourage the creation of more efficient market 
structures and innovative deali ng strategies that can further reduce transactions costs.  
In addition to these general conclusions, Bessembi nder et al. also find the large dealer cost 
advantage and market chares previously documented in othe r studies (see Schultz 2001) is 
reduced post-TRACE, which may have implic ations for the competitiveness of the bond 
market. 
Consistent with the existence of liquidity ex ternalities, Bessembinder et al. document that 
trading costs for non-TRACE eligible bonds d ecreased after transaction reporting was 
initiated through TRACE in July 2002. For non-TR ACE eligible bonds issued by firms in the 
same industry as a firm with at least one bond issue eligible for TRACE reporting the 
reductions in trading costs are larger.  
The table below summarises the empirical results for the three studies on the impacts of 
TRACE in the US corporate bond market. 
 
 351    – TABLE 53: Summary of the empirical results obtained for the US bond 
market 
Study Data Measurement 
of transaction cost Transaction cost 
decrease with trade size? Transparency reduces 
transaction costs? 
    Basis points (per 
trade size) Per cent 
Yes for eligible bond transactions > $1 million 3.4bp ($2 
million) 7.5bp ($5 million) 50% 
Bessembinder et al. (2006)* Institutional 
(insurance company) trades in corporate bonds One-way 
trading Yes for non-eligible 
bond transactions ≥ $4 
million 2.8bp ($4 
million) 4.0bp ($5 million) 9.5bp ($10 million) 20% 
Goldstein et 
al. (2006)†  BBB-rated 
bonds Dealer round-
trip (DRT) Varies with trade size 
and pre-dissemination level of activity 0 – 67bp  
Edwards et al. (2007)‡ All 
corporate bonds  One-way 
trading Yes (includes eligible 
and non-eligible) 0.9bp ($10,000) 
2.9bp ($20,000) 3.8bp 
($100,000) 
2.2bp ($1 
million) 25% 
(trades of 1,000 bonds) 
7-10% 
(trades of smaller sizes) 
* Use National Association of Insuran ce Commissioners (NAI C) data set.  
† Use TRACE data set. Includes 99.9% of 4888 total bonds tr ades (0.01% pertains to trading activity 
on NYSE’s Automated Bond System , not reported through TRACE) 
‡ Use TRACE data set. Model uses an iterated we ighted least-squares me thod requiring that a bond 
trade at least nine times s.t. estimates may not be representative of less active bonds i.e. 20% (5,369 of 
27,342) of bonds are excluded. 
Other Impacts of TRACE  
TRACE data show strong retail pa rticipation in all cr edit qualities. For the past seven years, 
approximately 68 per cent of overall customer  transactions are below $100,000 in par value, 
the size widely used by the industry to distin guish between retail and institutional trades. 
While retail-sized tran sactions represent a large part of  reported trades, they account for 
approximately 1.8 per cent of pa r value traded. Retail-sized tran sactions, especially those in 
Investment Grade securities, have significantly contributed to the recent increases in the number of trades: TRACE now records twice as many retail sized transactions as it did in 
October 2008.
cdxcii
 
 352    29. ANNEX 19: OVERVIEW OF MAIN LEGISLATIVE INITIATIVES IN THE FIELD OF SECURITIES MARKETS  
30. N MARKETS  
Name of Directive/Regulation 
MiFID MAD Short selling Prospectus ICSD EMIR Transparency 
Directive 
Main objective of the 
text or its revision in 
case of existing text To improve transparency 
of financial markets for 
market participants and 
regulators, especially in 
the areas of bonds and 
derivatives, to extend 
market requirements to 
broker facilities, to 
regulate new forms of 
algorithmic trading and to 
increase the powers of 
regulators and to raise the 
level of investors 
protection To extend the scope of MAD to 
instruments traded on newer types 
of markets, broker facilities and 
OTC, to extend and improve the 
disclosure of information to the 
market regarding instruments 
admitted to trading on those 
various markets and facilities and 
reinforce the prevention, detection, 
investigation and sanctioning of 
insider trading and market 
manipulation To provide increased 
transparency to regulators 
and market participants on 
short selling activities for 
equities and sovereign 
bonds, to prevent settlement 
risk and to enable national 
regulators and ESMA to 
intervene in case of 
emergency to restrict or 
forbid certain practices To improve the 
disclosure of 
comprehensive 
pre-market 
information by 
publishing a 
prospectus when 
securities are 
offered to the 
public or admitted 
to trading on a 
regulated market  To reinforce the 
investors protection 
in case of fraud or 
operational 
dysfunctioning by an 
investment firm 
resulting in an ability 
of this investment 
firm to render 
financial asset held 
on behalf of retail 
investors To improve the safety 
and transparency of  
OTC derivatives 
markets by mandating 
reporting of OTC 
derivative contracts to 
trade repositories and 
clearing through 
central counterparties 
(CCP) To harmonise the 
transparency 
requirements in relation to 
information about issuers 
whose securities are 
admitted to trading on a 
regulated market.  
        
Topics In In In In In In In 
General structure of 
markets      
authorisation 9     
organisational 
requirements 9    9 
organisation of trading 9     
market surveillance by 9 9   9 
 
 353    Name of Directive/Regulation 
MiFID MAD Short selling Prospectus ICSD EMIR Transparency 
Directive 
Main objective of the 
text or its revision in 
case of existing text To improve transparency 
of financial markets for 
market participants and 
regulators, especially in 
the areas of bonds and 
derivatives, to extend 
market requirements to 
broker facilities, to 
regulate new forms of 
algorithmic trading and to 
increase the powers of 
regulators and to raise the 
level of investors 
protection To extend the scope of MAD to 
instruments traded on newer types 
of markets, broker facilities and 
OTC, to extend and improve the 
disclosure of information to the 
market regarding instruments 
admitted to trading on those 
various markets and facilities and 
reinforce the prevention, detection, 
investigation and sanctioning of 
insider trading and market 
manipulation To provide increased 
transparency to regulators 
and market participants on 
short selling activities for 
equities and sovereign 
bonds, to prevent settlement 
risk and to enable national 
regulators and ESMA to 
intervene in case of 
emergency to restrict or 
forbid certain practices To improve the 
disclosure of 
comprehensive 
pre-market 
information by 
publishing a 
prospectus when 
securities are 
offered to the 
public or admitted 
to trading on a 
regulated market  To reinforce the 
investors protection 
in case of fraud or 
operational 
dysfunctioning by an 
investment firm 
resulting in an ability 
of this investment 
firm to render 
financial asset held 
on behalf of retail 
investors To improve the safety 
and transparency of  
OTC derivatives 
markets by mandating 
reporting of OTC 
derivative contracts to 
trade repositories and 
clearing through 
central counterparties 
(CCP) To harmonise the 
transparency 
requirements in relation to 
information about issuers 
whose securities are 
admitted to trading on a 
regulated market.  
market operators 
trade transparency to 
market participants 9 9 9  9 9 
trade transparency to 
regulators 9  9  9 9 
       
Specific clauses for 
SMEs/SME markets 9 9  9  
       
Commodities markets 9 9    
       
Transaction reporting 9    9 9 
       
 
 354    Name of Directive/Regulation 
MiFID MAD Short selling Prospectus ICSD EMIR Transparency 
Directive 
Main objective of the 
text or its revision in 
case of existing text To improve transparency 
of financial markets for 
market participants and 
regulators, especially in 
the areas of bonds and 
derivatives, to extend 
market requirements to 
broker facilities, to 
regulate new forms of 
algorithmic trading and to 
increase the powers of 
regulators and to raise the 
level of investors 
protection To extend the scope of MAD to 
instruments traded on newer types 
of markets, broker facilities and 
OTC, to extend and improve the 
disclosure of information to the 
market regarding instruments 
admitted to trading on those 
various markets and facilities and 
reinforce the prevention, detection, 
investigation and sanctioning of 
insider trading and market 
manipulation To provide increased 
transparency to regulators 
and market participants on 
short selling activities for 
equities and sovereign 
bonds, to prevent settlement 
risk and to enable national 
regulators and ESMA to 
intervene in case of 
emergency to restrict or 
forbid certain practices To improve the 
disclosure of 
comprehensive 
pre-market 
information by 
publishing a 
prospectus when 
securities are 
offered to the 
public or admitted 
to trading on a 
regulated market  To reinforce the 
investors protection 
in case of fraud or 
operational 
dysfunctioning by an 
investment firm 
resulting in an ability 
of this investment 
firm to render 
financial asset held 
on behalf of retail 
investors To improve the safety 
and transparency of  
OTC derivatives 
markets by mandating 
reporting of OTC 
derivative contracts to 
trade repositories and 
clearing through 
central counterparties 
(CCP) To harmonise the 
transparency 
requirements in relation to 
information about issuers 
whose securities are 
admitted to trading on a 
regulated market.  
Powers of regulators      
market surveillance 9 9 9 9 9 
oversight of positions 9    9 
ban on product and 
services 9  9  9  
       
Conduct of business 
rules      
authorisation 9    9  
corporate governance 9    9 
organisational 
requirements for specific 
activities 9    9 9 
 
 355    Name of Directive/Regulation 
MiFID MAD Short selling Prospectus ICSD EMIR Transparency 
Directive 
Main objective of the 
text or its revision in 
case of existing text To improve transparency 
of financial markets for 
market participants and 
regulators, especially in 
the areas of bonds and 
derivatives, to extend 
market requirements to 
broker facilities, to 
regulate new forms of 
algorithmic trading and to 
increase the powers of 
regulators and to raise the 
level of investors 
protection To extend the scope of MAD to 
instruments traded on newer types 
of markets, broker facilities and 
OTC, to extend and improve the 
disclosure of information to the 
market regarding instruments 
admitted to trading on those 
various markets and facilities and 
reinforce the prevention, detection, 
investigation and sanctioning of 
insider trading and market 
manipulation To provide increased 
transparency to regulators 
and market participants on 
short selling activities for 
equities and sovereign 
bonds, to prevent settlement 
risk and to enable national 
regulators and ESMA to 
intervene in case of 
emergency to restrict or 
forbid certain practices To improve the 
disclosure of 
comprehensive 
pre-market 
information by 
publishing a 
prospectus when 
securities are 
offered to the 
public or admitted 
to trading on a 
regulated market  To reinforce the 
investors protection 
in case of fraud or 
operational 
dysfunctioning by an 
investment firm 
resulting in an ability 
of this investment 
firm to render 
financial asset held 
on behalf of retail 
investors To improve the safety 
and transparency of  
OTC derivatives 
markets by mandating 
reporting of OTC 
derivative contracts to 
trade repositories and 
clearing through 
central counterparties 
(CCP) To harmonise the 
transparency 
requirements in relation to 
information about issuers 
whose securities are 
admitted to trading on a 
regulated market.  
       
Investors protection      
product information 9     
protection of investments     9  
control of inducements 9     
       
Algorithmic and 
automated trading      
Authorisation 9     
risk control requirements 9     
  
 
 356     
                                                 
 
1  The Mifid review is based on the "Lamfalussy process" (a four-level regulatory approach recommended by the Committee of 
Wise Men on the Regulation of European Secu rities Markets, chaired by Baron Alexandr e Lamfalussy and adopted by the Stockholm 
European Council in March 2001 aiming at mo re effective securities markets regulation) as developed further by Regulation (EU) No 
1095/2010 of the European Parliament and of the Council, establishing a European Supe rvisory Authority (European Securities and  Markets 
Authority): at Level 1, the European Parliament and the Council adopt a directive in co-decision which contains framework princ iples and 
which empowers the Commission acting at Leve l 2 to adopt delegated acts (Art 290 The Treaty on the Functioning of the European Union C 
115/47) or implementing acts (Art 291 The Treaty on the Functioning of the European Union C 115/47). In the preparation of the delegated 
acts the Commission will consult with experts appointed by Member States with the Eu ropean Securities Committee. At the request  of the 
Commission, ESMA can advise the Commission on the technical details to be included in level 2 legislation. In addition, Level 1  legislation 
may empower ESMA to develop draft regulat ory or implementing technical standards acc ording to Art 10 and 15 of the ESMA Regulat ion 
which may be adopted by the Commission (subj ect to a right of objection by Council and Parliament in case of regulatory technic al 
standards). At Level 3, ESMA also works on recommendations, guidelines and compares re gulatory practice by way of peer review t o ensure 
consistent implementation and app lication of the rules adopted at Levels 1 and 2. Finally, the Commission checks Member States'  
compliance with EU legislation and may take legal action against non-compliant Member States. 
2 Directive 2004/39/EC (MiFID Framework Directive)  
3 Directive 2006/73/EC (MiFID Implementi ng Directive) implementing Directive 2004/39/EC (MiFID Framework Directive) 
4 Regulation No 1287/2006 (MiFID Implem enting Regulation) implementing Directive 2004/39/EC (MiFID Framework Directive) 
as regards record-keeping obligations for investment firms, tr ansaction 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) 
5 Monitoring Prices, Costs and Volumes of Tr ading and Post-trading Services, Oxera, 2011 
6 See (COM (2010) 301 final) Communication From The Commissi on To The European Parliament, The Council, The European 
Economic And Social Committee And The European Central Bank: Re gulating Financial Services For Sustainable Growth, June 2010 
7 See G-20 Leaders' statement of Pittsburgh Summit, 24-25 September 2009, 
http://www.pittsburghsummit.gov/mediacenter/129639.htm 
8 As a result, the Commission issued (COM (2009) 563 final) Co mmunication by the Commission on ensuring efficient, safe and 
sound derivatives markets: futu re policy actions, 20 October 2009 
9 See (COM (2010) 484) Proposal on Regulation on OTC derivatives , central counterparties and trade repositories, September 2010 
10 See Report, High-level Group on Financial Supervision in the EU , chaired by Jacques de Larosière, February 2009, and Council  
conclusions on strengthening EU fina ncial supervision, 10862/09, June 2009 
11 Specific national discretions which have not been used by an y Member State will not be part of this impact assessment. 
12 On transparency for non equity markets; commodity derivatives related work-streams; high frequency trading; waivers from pre -
trade transparency & dark pools/crossing networks; best execution/ conduct of business rules; and data consolidation/consolidate d tape. See 
Annex 10 for the list of participants. 
13 The summary is enclosed in Annex 12 
 
 357                                                                                                                                                             
14 See responses to public consultation on the review of MiFID: 
http://circa.europa.eu/Public/irc/markt/mark t_consultations/library?l=/financial_servi ces/mifid_instruments&vm=detailed&sb=Titl e  
15 See Annex 10 for the full list of the reports published by CESR on the MiFID related issues 
16 These studies have been completed by two external consultant s that were selected according to  the selection process establis hed 
within the rules and regulations of the European Commission. Th ese two studies do not reflect the views or opinions of the Euro pean 
Commission 
17 In accordance with the rules for the elabor ation of impact assessments the minutes of the last meeting of the steering group  have 
been submitted to the Impact Assessment Boar d together with this impact assessment. 
18  Annex I Section C of Directive 2004/39/EC 
19  See Thomson Reuters Europe Monthly Market Share Report from January 2010 to December 2010 by 
countries 
20  BIS Quarterly Review, June 2011 
21  BIS Quarterly Review, June 2011 
22 See CESR Technical advice dated 29 July 2010 and Report to  the Minister for the Economy, Industry and Employment on the 
Review of the Markets in Financial Instru ments Directive (MiFID), Pierre Fleuriot, February 2010, p 29 and Interview with J.Har dt, L'Echo, 
12 January 2010 
23 A systematic internaliser is an invest ment firm which, on an orga nised, frequent and systematic  basis, deals on own account by 
executing client orders. It is a form of bilateral trading. S ee Article 4.1(7) of Directive 2004/39/EC (MiFID Framework Directi ve) 
24 See MiFID: Spirit and Reality of a Europ ean Financial Markets Directive, Celent a nd Goethe Universitat Frankfurt am Main, 
September 2010 p 49 and Report to the Minister for the Economy, Indus try and Employment on the Review of the Markets in Financi al 
Instruments Directive (MiFID), Pi erre Fleuriot, February 2010, p 31. 
25 Technical Advice to the European Commission in the context of the MiFID Review – Equity Markets, 
CESR/10-802, 29 July 2010, pp 34-35. Based on data collected by CESR from 11 investment firms.  
26 See Tradenews article on " US dark pool regulations on ice as volumes grow" dated 4 February 2011 
and US broker Rosenblatt Securities’ annual report on US dark trading 
27 According to the Act, "swap execution fac ility means a trading system or platform in  which multiple participants have the ab ility 
to execute or trade swaps by accepting bids and offers made by multiple partic ipants in the fac ility or the system…" 
28  Findings regarding the market events of May 6, 2010; Report of the Staffs of the CFTC and SEC to the 
Joint Advisory Committee on emerging regulatory issues; 30 September 2010 
29 Article 2.1(d) of the of Directive 2 004/39/EC (MiFID Framework Directive) for persons who are only dealing on their own 
account 
30 Technical Advice to the European Commission in the context of the MiFID Review – Equity Markets, 
CESR/10-802, 29 July 2010 
31 High Frequency Trading Technology, A TABB Anthology, TABB Group, August 2009 
32 The September 2009 G20 summit concluded th at "all standardized OTC derivative contracts should be traded on exchanges or 
electronic trading platforms, where appr opriate, and cleared through central count erparties by end-2012 at the latest."  
 
 358                                                                                                                                                             
33 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. Issues raised by dark liquidity, Consultation Report, IOSCO, CR05/10, October 2010, p 4.  
34 As regards to trading in equity markets, trading under pre-tr ade waivers have slowly increased over the last years from c.6%  in 
2008 to nearly 10% end of 2009. This means that as of today a bit more than 90% of trading on organised public markets is pre-t rade 
transparent. OTC trading is not subject to  any pre-trade transparency requirements. Mention trading executed on BCN which is in cluded in 
OTC trading figures. 
35  MiFID: Spirit and Reality of a European Financia l Markets Directive, Celent and Goethe Universitat 
Frankfurt am Main, September 2010. 
36  It should be noted that the % of OTC trading in the equities markets is subject to debate as trades in the 
OTC space are not reported in a reliable way. This will be addressed by improving the content of the transaction 
reporting (see Annex 9.4). According to a recent Association for Fina ncial Markets in Europe report (Market 
Analysis, The Nature and Scale of OTC Equity Trading in Europe, April 2011), the often reported 40% of European equities trading that is over-the-counter (‘OT C’) is incorrect and have estimated the proportion of 
equities trading represented by ‘real’ OTC trades to be actually around 16%. 
37 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 waiv er is essential in striking the right balance between market tr ansparency and 
protecting legitimate interests of market participants w ho are essential contributors to the liquidity of markets.  
38 Publication of trade reports must generally take place in real -time, and in any case within 3 minutes, but for large transac tions 
delays between 60 minutes and up to 4 tradi ng days are allowed, depending on the liquidity of the share and the size of the tra nsaction. See 
Technical Advice to the European Commissi on in the context of the MiFID Review – Equity Markets, CESR/10-802, 29 July 2010 
39 Technical Advice to the European Commission in the context of the MiFID Review – Equity Markets, CESR/10-802, 29 July 
2010 
40 These instruments are mostly depositary receipts, excha nge traded funds and certificates issues by companies. 
41 Technical Advice to the European Commission in the Contex t of the MiFID Review: Non-e quity Markets Transparency, 
CESR/10-799, 29 July 2010 
42 Prior to MiFID trade data would typically  be available from the incumbent exchange  in each Member State while OTC trades 
were sometimes not reported at all. MiFID on the one hand, has spurred competition among trading and reporting venues while on the other 
hand, has required post-trade reporting of OTC trades and. This ha s made the trade data environment more complex with more comp lete 
information but originating from far more diversified sources. Therefore, this has ma de proper trade data consolidation more im portant. See 
Technical Advice to the European Commission in the context of the MiFID Review – Equity Markets, CESR/10-802, 29 July 2010 p 28  for 
further information. 
43 See e.g. Rapport du groupe  de travail sur la volatilité des pr ix du pétrole, sous la présiden ce de Jean Marie Chevalier, Min istère de 
l'économie et de l'emploi, Februa ry 2010, and Rapport d'étape: Prévenir et gérer l’instabilité des marchés agricoles, Jean-Pier re Jouyet, 
Christian de Boissieu et Se rge Guillon, 23 September 2010 
44 For example, European Parliament resolution on derivatives markets: future policy actions (A7-0187/2010), 15 June 2010, call s 
for a ban on "purely speculativ e trading in commodities". 
45 Article 2(1)(i) and (k) of Directive 2004/39/EC (MiFID Fram ework Directive) exempts the same firms from the Capital 
Requirements Directive (CRD) as well. 
 
 359                                                                                                                                                             
46 See Rapport du groupe de travail sur la volatilité des prix du pétr ole, sous la présidence de Jean Marie Chevalier, Ministèr e de 
l'économie et de l'empl oi, February 2010, p52f. 
47 This section also refers to other compliance units under the EU ETS like Certified Emission Reductions (CERs) stemming from 
the Clean Development Mechanism (CDM) and Emission Reducti on Units (ERUs) from Joint Implementation (JI) projects.  
48 As created by Directive 2003/87/EC of th e European Parliament and of the Council. 
49 A key future segment in the primary mark et, auctions, will come in full under the market oversight regime set out by the 
Commission Regulation (EU) No 1031/2010 of  12 November 2010 on the timing, administra tion 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 s cheme for 
greenhouse gas emission allowances trading w ithin the Community, OJ L 302, 18.11.2010, p 1 (the Auctioning Regulation), irrespe ctive of 
whether the auctioned product qualifies as a financial instrument or not. The Regulati on stipulates that auctions shall only be  conducted on 
an auction platform authorised as a regulated market by a Mi FID supervisor and in accordance w ith rules implementing the MiFID to the 
extent relevant. Under the Regulation, recep tion, transmission and submissi on of bids provided by investment firms in that mark et is also to 
be governed by the MiFID. Cf. Art. 6(5) and 35 of the Auctioni ng Regulation. Moreover, to the extent that the allowance derivat ives market 
is within the scope of financial markets legislation, it benefits from the regular safeguards and supervisory arrangements that  apply to any 
other market for commodity derivatives. 
50 E.g. Germany and France 
51 Article 25(3) of Directive 2004/39/EC (MiFID Framework Dir ective) and Articles 10 to 14 of Regulation No 1287/2006 (MiFID 
Implementing Regulation). 
52 MAD is likely to be extended to financial instruments admitted to  trading or only traded on MTFs as well as to instruments t hat 
can influence the price of a financial in strument traded on a regulated market. 
53 (COM (2010) 484) Proposal on Regulation on OTC derivatives, central counterparties and trade repositories, September 2010 
54 Article 50 of Directive 2004/39/EC (MiFID Framework Directive) 
55 Through MiFID, Member States already have the power to ca rry on site inspections and to request the freezing of assets. 
Additional powers could consist in giving them the power to ask a judicial author ity to enter private premises and seize docume nts relevant 
for the enforcement action. 
56 See e.g. Article 9 of Regulation (EU) No 1095/2010 of the Eur opean Parliament and of the Council, establishing a European 
Supervisory Authority (European Securities and Markets Authority) 
57 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), CESR/08-220, February 2009. 
58 Article 3 of Directive 2004/39/EC (MiFID Framework Directive) 
59 See Consultation of Commission services on legislative steps for the Packaged Retail Invest ment Products initiative of 26 
November 2010 and (COM (2009) 204 final) Communication on Packag ed Retail Investment Products, April 2009, Update on Commission  
work on Packaged Retail Investment Products, December 2009 a nd update in the form a working paper on 16 December 2009.  
60 CESR, CEIOPS and CEBS have also developed their thinking  concerning the work on PRIPs. See CESR / CEBS / CEIOPS 
Report of the 3L3 Task Force on Packaged Retail Investment Products (PRIPs), CESR/10-1136 and CEBS 2010 196 and CEIOPS-3L3-54-
10, 6 October 2010, p 18  
 
 360                                                                                                                                                             
61 Responses to Questions 15-18 and 20-25 of the European Comm ission Request for Additional In formation in Relation to the 
Review of MiFID, CESR/10-860, 29 July 2010, p 3 
62 Article 19(6) of Directive 2004/39/ EC (MiFID Framework Directive) 
63 This was underlined by 675 replies receive d from citizens to the MiFID consultation. Investors across Member States vary in their 
use of execution-only services, but estimates suggest it can reach  up to a third of all retail transactions in some Member Stat es (source: 
Europe Economics).  
64 The Final Report, Prepared for: European Commission, Dir ectorate-General Health and Cons umer Protection, Synovate, 2011, 
recently assessed the quality of advice acro ss the EU based on a mystery shopping exercise. Weaknesses emerged in the ability o f advisors 
across the EU to recommend suitable products to investors. Anot her study, Consumer Decision-Maki ng in Retail Investment Service s: A 
Behavioural Economics Perspective, Final Report, Decision Technology Ltd, N Chater, S Huck, R Inderst, November 2010, sought 
behavioural economics insights on different factors relevant to investor decision making. 
65 Article 26 (b) of Directive 2006/73/EC (MiFID Implementing Directive). 
66 Responses to Questions 15-18 and 20-25 of the European Comm ission Request for Additional In formation in Relation to the 
Review of MiFID, CESR/10-860, 29 July 2010, p 6 
67 Responses to Questions 15-18 and 20-25 of the European Comm ission Request for Additional In formation in Relation to the 
Review of MiFID, CESR/10-860, 29 July 2010, p 8. The report: C onsumer Market Study on Advice within the Area of Retail Investme nt 
Services – Final Report, Prepared for: European Commission, Di rectorate-General Heath and Cons umer Protection, Synovate, 2011 r ecently 
assessed the quality of advice across the EU based on a mystery s hopping exercise. Weaknesses emerged in the ability of advisor s across the 
EU to recommend suitable products to investors.  
68           See definitions and Annex II of Directive 2004/39/EC for further details  
69 A number of alleged cases of misselling of derivatives ( normally swaps) and other comp lex products have involved the 
relationship between municipalities and large credit institution operating at national level and across the EEA. These cases ha ve emerged in 
different Member States, such as France (dep artment of Seine-Saint-Denis and others), Italy (City of Milan, Region of Apulia), Germany (a 
company owned by German cities including Ra vensburg and Weingarten) and Norway.    
70 CESR Technical Advice to the European Commission in th e context of the MiFID review – Investor protection and 
Intermediaries – CESR/10-859, p 18. Data gathering and analysis in the context of the MiFID review, Final Report for Directorat e General 
Internal Market and Services, European Comm ission, PricewaterhouseCoopers, 13 July 2010, p 363  
71 Articles 13(2) and (3) of Directive 2004/39/EC (MiFID Framework Directive) 
72 It has to monitor that firms implement and maintain polic ies and procedures to detect and minimize the risk of non-
compliance with their obligations under MiFI D and to assess the adequacy and effectiven ess of such policies and procedures. Cf Article 6 of 
Directive 2006/73/EC (MiFID  Implementing Directive) 
73 It has to identify risks relating to the firm's activities and set, where appropriate,  the level of risk tolerated by the fi rm. Cf 
Article 7 of Directive 2006/73/EC (MiFID Implementing Directive) 
74 It is required to establish an audit plan to evaluate th e overall adequacy of the firm's systems and internal control 
mechanisms. Cf Article 8 of Directive 2006/73/EC (MiFID Implementing Directive) 
75 (COM (2010) 284 Final) Green  Paper on Corporate Governance in financ ial institutions and remuneration policies 
 
 361                                                                                                                                                             
76 Responses to Questions 15-18 and 20-25 of the European Comm ission Request for Additional In formation in Relation to the 
Review of MiFID, CESR/10-860, 29 July 2010, p 4 
77 The review of the published annual reports of financial servi ces ombudsmen did reveal some problems arising in relation to 
discretionary portfolio management services. In particular, thes e were highlighted by the ombudsmen in Belgium, the Czech Repub lic, 
France, Germany, Ireland, Luxembourg, Spain and the UK. In th e 2010 Annual Report published by the UK Ombudsman, it noted that the 
complaints made about discretionary portfo lio management services typically involved the following issues: (i) A failing of adm inistration of 
their portfolio; (ii) The portfolio was not managed in a ways th at was initially agreed; (iii) A failure by the manager to dive rsify the 
investments made in the portfolio; (iv) A ma nager that made too many, or too few, ch anges to the portfolio over a certain perio d of time. 
Only a few of the ombudsmen identified the number of cases relatin g to discretionary management. For instance, the German priva te 
banking ombudsman identifies 274 cases relating to discretionary portfolio management (9  per cent of the cases it handled in th e securities 
area, 4 per cent of its total cas es workload); in Luxembourg seven of the cases  settled related to this area (being three per c ent of the total).  
78 CESR Technical Advice to the European Commission in th e context of the MiFID review – Investor protection and 
Intermediaries – CESR/10-859, p 6; See also Annex 5.2.11 Table 32 
79  Technical Advice to the European Commission in  the context of the MiFID Review – Investor 
Protection and Intermediaries, CESR/10-859, 29 July 2010, p.8 
80  Directive 2003/6/EC (M arket Abuse Directive) 
81  (COM (2010) 484) Proposal on Regulation on OTC derivatives, central counterparties and trade 
repositories, September 2010 
82  (COM (2010) 482) Proposal on short selling and certain aspects of Credit Default Swaps, September 
2010 
83  (COM (2010) 726) Proposal for a Regulation of the European Parliament and of the Council on energy 
market integrity and tran sparency, December 2010 
84 (COM (2009)114) Communication for the spring European Council, Driving European recovery, March 2009 
85 (COM (2010) 301 final) Communication From The Commission To The European Parliament, The Council, The European 
Economic And Social Committee And The European Central Bank: Regul ating Financial Services For Su stainable Growth, June 2010, p  7 
86 (COM (2010) 482) Proposal on short selling and certain aspects of  Credit Default Swaps, September 2010 
87 (COM (2010) 484) Proposal on Regulation on OTC derivatives, central counterparties and trade repositories, September 2010 
88 Directive 2003/6/EC (Market Abuse Directive)  
89 (COM (2010) 726) Proposal for a Regulation of the European Pa rliament and of the Council on energy market integrity and 
transparency, December 2010 
90 Article 51 of Charter of Fundamental Rights of the European Union (2000/C 364/01) 
91  Article 9(5) of Regulation (EU) No 1095/2010 of the European  Parliament and of the Council, establishing a European 
Supervisory Authority (European Securities and Markets Authority),  amending Decision No 716/20 09/EC and repealing Commission 
Decision 2009/77/EC 
92  Commission Regulation (EU) No 1031/2010 of 12 November 2010 on the timing, administration and 
other aspects of auctioning of greenhouse gas emission allowances 
 
 362                                                                                                                                                             
93  See Annex 2.1.2 Table 2 
94  See Annex 2.1.2 Derivatives markets 
95  Report on Trading of OTC Derivatives, OICV-IOSCO, FR03/11, February 2011 
96  Principles for Direct Electronic Access, Final Report, IOSCO, FR08/10, August 2010 
97  See Goethe Universität report on High Frequency Trading, Prof. Dr. Peter Gomber 
98  Consultation paper, Guidelines on systems and controls in a highly automated trading environment for 
trading platforms, investment firms and competent authorites, 20 July 2011, ESMA/2011/224 
99  ICE Futures Europe has started recently to publish information about the open position held by different 
types of traders for its Brent and gasoil futures and options . Euronext Liffe is expected to follow in the next few 
months for its soft commodities futures contracts. See article "Transparency boost for Brent", Finnacial Times, 
21 June 2011. 
100  Article 48 of the Directive 2006/49/EC of the European Parliament  and the Council of 14 June 2006 on the capital adequacy of 
investment firms and credit institutions. The review of the exemptions will take place before their expiry end of 2014. 
101  CESR/CEBS Technical Advice to the European Commission on the review of commodities business, 
CESR/08-752, 15 October 2008 
102  G20 Communiqué, Meeting of Finance Ministers and Central bank Governors, Washington DC, 14-15 
April 2011 
103 Recommendation 10, Report, High-level Group on Financial Supervision in the EU, chaired by Jacques de Larosière, February 
2009 
104 Regulation No 1287/2006 (MiF ID Implementing Regulation) 
105  See G-20 Leaders' statement of Pittsburgh Summit, 24-25 September 2009, 
http://www.pittsburghsummit.gov/mediacenter/129639.htm 
106  See G-20 Leaders' statement of Pittsburgh Summit, 24-25 September 2009, http://www.pittsburghsummit.gov/mediacenter/129639.htm
 
107  See G-20 leader's statement of Seoul Summit, 11-12 November 2010, http://www.g20.org/Documents2010/ 11/seoulsummit_declaration.pdf
 
108 Based on (COM (2010) 573), Strategy for the effective implemen tation of the Charter of Fundame ntal Rights by the European 
Union, October 2010, particularly the check list.  
109 This is based on the banking sector in the EU having opera ting expenditure of about €448 billion in 2009. OECD, Income 
statement and balance sheet, OECD Banking Statistics Database, 2010, and EE analysis. 
110 Study on the Cost of Compliance with Selected FSAP Measures: Final Report, Europe Economics, January 2009. The data 
referred to are the medians gathered from a total sa mple of 40 banks and a fu rther 18 investment banks.  
111 A report by Morgan Stanley and Oliver Wyman in the context of  US OTC derivative reform indicat es that they expect the OTC 
derivative markets to be significantly resh aped by the reforms (which include simila r central clearing requirements to the EMIR  legislation in 
addition to exchange trading of derivatives).  In relation to spreads, th ey assume that “the sell-side margin erosion will be la rgely offset by 
 
 363                                                                                                                                                             
increased volumes, improved cost structure a nd balance sheet efficiency.” However, they  do also emphasise th at an unintended co nsequence 
of enforced exchange trading in terms of  a severe loss in liquidity are a distinct  possibility. (Source: Derivative uncertainty  likely to hit 
banks’ revenues, Financial Times, 21 March 2010) 
112 See Bessembinder H, Maxwell W and Venka taraman K (2006) ‘Market transparency, liquidity externalities and institutional 
trading costs in corporate bonds’ Journal of Financial Economi cs Vol 82, pp 251 – 288; Goldstein M, Hotchkiss E and Sirri, E (2 006) 
‘Transparency and liquidity: a controlled e xperiment on corporate bonds’ The Review of  Financial Studies Vol 20 (2), pp 235 – 2 73; and 
Edwards A, Harris L and Piwowar, M (2007) ‘Corporate bond market tr ansaction costs and transparency’ The Journal of Finance, Vo l LXII 
(3) 
113 Data gathering and analysis in the context of the MiFID re view, Final Report for Directorat e General Internal Market and 
Services, European Commission, PricewaterhouseCoopers, 13 July 2010 
114  Citadel Securities, Nordic Trading Landscap e Evolution – Impact of MiFID on Retail Flow Providers, February 2010; and Data 
gathering and analysis in the context of the MiFID review, Fina l Report for Directorate General Internal Market and Services, E uropean 
Commission, PricewaterhouseCoopers, 13 July 2010 
115  The impact of the UK FSA’s Retail Distribution Review (RDR) dealing with the regulation of inducements when advice is 
provided could be used a referenc e point. It should be mentioned, however, that the RDR proposes more st ringent restrictions on  the 
treatment of inducements since it deals homogeneously with induc ements provided for in any form  of advice (not only independent ); 
furthermore, the RDR deals with produc ts and entities which are not covered under MiFID (i.e. entities providing insurance prod ucts). In 
addition it also includes measures on professional standards (i.e . professional qualifications of advisors). Lastly it should b e taken into 
account that there is a broader population of  investment advisors in the UK, including a significant proportion of small adviso rs. Having said 
than, it is anticipated that, 23 pe r cent of UK advisory firms might exit the market  as a result of the RDR, with a much higher  ratio amongst 
the smallest advisers (those with annual incomes below €50,000). Overall, adviser numbers would fall by about 11 per cent. This  includes, 
for instance, small providers which are close to retiring and will not find worthwhile to make investments to adapt to the new rules (Retail 
Distribution Review proposals: Impact on mark et structure and competition, Oxera, 2010). 
116 European Fund Industry Breakfast Briefing, Thom son Reuters and Lipper, Ed Moisson, December 2010 
117 Cf. article 4 of Directive 2004/39/EC  for legal defi nitions of terms used in this Directive and annex 4 
for glossary of main terms empl oyed in this Impact Assessment 
118 The concentration rule set out in Article 14 of Directive 1993/22/EEC (Directive on investment services 
in the securities field) enables Member States to requir e orders from investors in that Member Sate to be 
executed only on regulated markets 
119 All European Equities Market Activity by Trade Type (January 2010 to January 2011), Thomson 
Reuters, 2011: 
http://thomsonreuters.com/products_services/financial/fin ancial_products/equities_derivatives/europe/market_sh
are_reports/#tab2   
120  A systematic internaliser (SI) is an investment firm which, on an organised, frequent and systematic 
basis, deals on own account by executing client orders. It is  a form of bilateral trading. The core requirement for 
systematic internalisers 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 (Article 27 of Directive 
2004/39/EC (MiFID Framework Directive)).  To date, only 10 investment firms have been registered as 
systematic internalisers. CESR data suggests that syst ematic internalisers do not represent a large proportion of 
equity trading within Europe – with estimates in the region  of 2% of all European equi ty trading. See: Impact of 
MiFID on equity secondary markets functioning, CESR/09-355, June 2009. 
121 MiFID 2.0: Casting New Light on Europe's Capital markets, Report of the ECMI-CEPS Task Force on 
the MiFID Review, chaired by Pierre Francotte, Centre for European Policy Studies Brussels, February 2011 
 
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122 Report to the Minister for the Economy, Industry and Employment on the Review of the Markets in 
Financial Instruments Directive (MiFID), Pierre Fleuriot, February 2010, p 16 
123 Impact of MiFID on equity secondary markets functioning, CESR/09-355, June 2009 
124 See Thomson Reuters Europe M onthly Market Share Reports: 
http://thomsonreuters.com/products_services/financial/fin ancial_products/equities_derivatives/europe/market_sh
are_reports/#tab2 
125 The organisational requirements for regulated market s are set out in Article 39 of Directive 2004/39/EC 
(MiFID Framework Directive), while the corresponding requ irements for MTFs are provided in Article 13 of the 
same Directive. 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 (MiFID 
Framework Directive). 
126 See Technical Advice to the Eu ropean Commission in the context of the MiFID Review – Equity 
Markets, CESR/10-802, 29 July 2010 and Report to the Minister for the Economy, Industry and Employment on 
the Review of the Markets in Financial Instruments Directive (MiFID), Pierre Fleuriot, February 2010, p 29 and 
Interview with J.Hardt, L'Echo, 12 January 2010 
127 Article 13(4) of Directive 2004/39/EC (MiFID Framew ork Directive) stipulates that an investment firm 
shall take reasonable steps to ensure continuity and regu larity in the performance of investment services and 
activities. To this end the investment firm shall employ  appropriate and proportionate systems, resources, and 
procedures. 
128  Technical Advice to the European  Commission in the context of the MiFID Review – Equity Markets, 
CESR/10-802, 29 July 2010, p 33. 
129  Directive 2003/6/EC (Market Abuse Directive), on insider dealing and market manipulation. Adopted 
in early 2003, the Market Abuse Directive (MAD) has introduced a comprehensive framework to tackle insider dealing and market manipulation practices, jointly refe rred to as "market abuse". The Commission is carrying 
out a review of the Directive aiming at clarifying some of its provisions and increasing its effectiveness. A 
proposal for amending the Directive is scheduled to be adopted by the College before the summer. 
130 Broker Crossing Networks are requ ired for example to comply with conduct of business and best 
execution provisions (Articles 19, 20, 21 and 22 of Directive 2004/39/EC (MiFID Framework Directive)) as well 
as to publish transactions in shares admitted to trad ing on a regulated market (Article 28 of Directive 
2004/39/EC (MiFID Framework Directive)), to have arra ngements in place to prevent conflicts of interest from 
damaging clients' interests (Article 18 of Directive 200 4/39/EC (MiFID Framework Directive)) , and to notify 
competent authorities when they suspect a transaction might constitute insider dealing or market manipulation 
(Article 6(9) of Directive 2004/72/EC (Market Abuse Directive)) . 
131  Investment firms operating MTFs are subject to the overall organizational requirements applicable to 
investment firms (Article 13 of Directive 2004/39/EC  (MiFID Framework Directive)), as well as additional 
requirements relating to the trading process to ensure  fair and orderly trading (Article 14 of Directive 
2004/39/EC (MiFID Framework Directive)). MTFs are requ ired to have monitoring tools in place to detect 
market abuse cases (Article 26 of Di rective 2004/39/EC (MiFID Framework Directive)), and are subject to full 
pre-trade and post-trade transparency requirements (Articles 29 and 30 of Directive 2004/39/EC (MiFID 
Framework Directive)).  
132 See MiFID: Spirit and Reality of a European Fi nancial Markets Directive, Celent and Goethe 
Universitat Frankfurt am Main, September 2010, p 49 and Report to the Minister for the Economy, Industry and 
Employment on the Review of the Markets in Financial Instruments Directive (MiFID), Pierre Fleuriot, February 2010, p 31. 
133 Article 27 for SIs, Article 29  for MTFs and Article 44 for RMs of Directive 2004/39/EC (MiFID 
Framework Directive) 
 
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134 Article 26 for MTFs and Article 43 for RMs of Directive 2004/39/EC (MiF ID Framework Directive) 
135 Technical Advice to the European Commission in the context of the MiFID Review – Equity Markets, 
CESR/10-802, 29 July 2010, pp 34-35. Based on data collected by CESR from 11 investment firms.  
136 See Report to the Minister for the Economy, Industry and Employment on the Review of the Markets in 
Financial Instruments Directive (MiFID ), Pierre Fleuriot, February 2010 
137 See Tradenews website and US br oker Rosenblatt Securities’ annual  report on US dark trading 
138 Electronic Trading of Bonds in Europe: Wea thering the Storm, Celent, October 2009  
139 PWC estimates based on FESE data, from their report prepared for Commission services. 
140 PWC estimates based on data from UK FSA, from their report prepared for Commission services. 
141 Report on trading of OTC Derivatives, OICV-IOSCO, FR03/11, February 2011, p 4 
142  Report on trading of OTC Derivatives, OICV-IOSCO, FR03/11, February 2011, p 6 
143 BIS, Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2007, see 
http://www.bis.org/statistics/  
144 Report on trading of OTC Derivatives, OICV-IOSCO, FR03/11, February 2011, p 9  
145  Report on trading of OTC Derivatives, OICV-IOSCO, FR03/11, February 2011, p 8  
146  BIS Quarterly Review, September 2010 International banking and financial market developments, Bank 
for International Settlements 
147 The September 2009 G20 summit concluded that "all standardized OTC derivative contracts should be 
traded on exchanges or electronic trading platforms, where appropri ate, and cleared through central 
counterparties by end-2012 at the latest."  
148 Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173), 21 July, 
2010 is a federal statute in the United States that wa s signed into law by President Barack Obama. The Act, 
which was passed as a response to the financial crisis, is the most sweeping change to financial regulation in the United States since the Great Depression. It was named after the two members of Congress, Barney Frank and 
Chris Dodd, because of th eir involvement in the drafting of this Act. 
149 According to the Dodd-Frank Act, "swap execution facility means a trading system or platform in 
which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by 
multiple participants in the facility or the system…" 
150 Although there is debate about how HFT 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. 
151 Technical Advice to the European Commission in the context of the MiFID Review – Equity Markets, 
CESR/10-802, 29 July 2010 
152 High Frequency Trading Technology, A TABB Anthology, TABB Group, August 2009 
153 MiFID 2.0: Casting New Light on Europe's Capital markets, Report of the ECMI-CEPS Task Force on 
the MiFID Review, chaired by Pierre Francotte, Centre for European Policy Studies Brussels, February 2011 
 
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154 Does bad liquidity drive out good liquidity?, Credit Agricole Chevreux, 24 November 2010 
155 Two years after MiFID: No turning back for the eq uities markets, Celent, June 2009: "In the case of 
MTFs, the average size of transactions is between 750 and 1,000 shares per trade. This is much lower than the 
range of 2,500-4,000 shares per trade for the exchanges. " 
156 Issues raised by dark liquidity, Consultation Report, IOSCO, CR05/10, October 2010 
157 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. Cf Report of the staffs of the CFTC and SEC to the joint advisory committee on 
emerging regulatory issues, Findings regarding the market events of May 6 2010  
158 Micro-structural issues of the European equity markets, CESR/10-142, April 2010 
159 Technical Advice to the European Commission in the context of the MiFID Review – Equity Markets, 
CESR/10-802, 29 July 2010 
160 Principles for Direct Electronic Access, Fi nal Report, IOSCO, FR08/10, August 2010 
161 MiFID: Spirit and Reality of a European Financial Markets Directive, Celent and Goethe Universitat 
Frankfurt am Main, September 2010. 
162 Rapport sur la révision de la Directive MiF, AMF, 11 June 2010 
163 (COM (2010) 484) Proposal on Regulation on OTC derivatives, central counterparties and trade 
repositories, September 2010 
164 (COM (2010) 482) Proposal on short selling and ce rtain aspects of Credit Default Swaps, September 
2010 
165 The September 2009 G20 summit concluded that "all standardized OTC derivative contracts should be 
traded on exchanges or electronic trading platforms, where appropri ate, and cleared through central 
counterparties by end-2012 at the latest."  
166  International Swaps & Derivatives Association et al., Input into the work of the IOSCO Task Force on 
OTC Derivatives Regulation: Exchange and Electronic Trading (“ISDA Memo”) 4 (December 2010) (on file 
with the IOSCO General Secretariat), quoted in Report  on trading of OTC Derivatives, OICV-IOSCO, FR03/11, 
February 2011 
167 To increase transparency, mitigate systemic  risk, and protect against market abuse. 
168 While it is important to consider which different kinds of trading venues correspond to the G20 
characterisation of exchanges and elect ronic 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 internationa lly agreed principles, thereby minimisi ng the risk of regulatory arbitrage. 
169  Data presented by FESE at a European Commission SME Finance Forum in January 2011 
170 According for instance to Article 2(1)(f) of Di rective 2003/71/EC (Prospect us Directive), 'small and 
medium-sized enterprises' means comp anies, which, according to their la st annual or cons olidated accounts, 
meet at least two of the following thr ee criteria: an average number of em ployees during the financial year of 
less than 250, a total balance sheet  not exceeding €43m and an annua l net turnover not exceeding €50m. 
171 Liquidity is a function of both volume and volatility. Liquidity is positively correlated to volume and 
negatively correlated to volatility. A stock is said to be liquid if an investor can move a high volume in or out of 
the market without materially moving the price of that stock. If the stock price moves in response to investment 
or disinvestments, the stock becomes more volatile. 
 
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172 For instance, concerning the Mark et Abuse Directive (MAD), some Me mber States have extended some 
or all the provisions of this Directive to MTFs. But in  some Member States MTFs (e.g. AIM in the UK) benefit 
from an adapted regime to keep costs of listing down fo r SME issuers. Some stakehol ders argue that if all the 
MAD obligations are extended without adaptation to instruments only traded on MTFs, small caps listed on, or 
considering a listing on, this type of markets would face higher costs to access the market (cf. response by 
European Issuers to public consultation, 27 July 2010, p 2).  
173 Few markets such as London Stock Exchange's Altern ative Investment Market (AIM), but recently also 
Bourse de Luxembourg's EuroMTF attracts even third country issuers (see Bourse de Luxembourg Fact Book 
2010, p 81); however, most other markets have only a regional or local focus. 
174 See Mendoza, Securities Regulation in Low-Tier Lis ting Venues: the Rise of the Alternative Investment 
Market, Fordham Journal of Corporate and Financial Law, vol. XIII , pp 257, 326, where the example of AIM's 
subsidiary in Italy, AIM Italia, as a pan-European trading platform is given. 
175 See Articles 14(6) and 40(5) of Directive 2004/39/EC (MiFID Framework Directive).. 
176 One first example for a pan-European equity market for SME’s is the cooperation between Munich 
Stock Exchange and PLUS markets of UK with the aim of generating additional trading volumes and liquidity and potentially also expanding the serv ice to non-equity securitie s. This network also pr ovides access to all stock 
admitted to the London Stock Exchange's Alternative Investment Market (AIM). 
177 According to the City of London, as of September 2009, over 3000 companies had joined AIM since 
1995, although the current number is substantially lower: fewer than 1300, of which 19% are from outside the 
UK. Most AIM-quoted companies have small market va lues – approximately 25% of companies have a value 
under £5 million and 78% have a market value of less than £50 million. The City's Role in Providing for the 
Public Equity Financing Needs of UK SMEs, G Openshaw, D Widger, Professor C Mason, L Jones, S Wells, 
City of London, March 2010, p 31 
According to Mendoza, the majority of the delisting in  AIM was due to either a listing move to a senior 
exchange or company takeover/reverse  takeover proceedings. According to research cited, only a reduced 
number of firms delist because their shares have lost c onsiderable value. See Mendoza, Securities Regulation in 
Low-Tier Listing Venues: the Rise of the Alternative Investment Market, Fordham Journal of Corporate and 
Financial Law, vol. XIII , pp 257, 283 et seq., in particular p 298.  
178 PLUS-Quoted is also operating in the London market, but focuses on smaller companies (most of its 
companies have a market cap of aro und £5 million). Additionally, it contemplates special proceedings for AIM 
companies' cross-listings. Allegedly, the cost of going and being listed in Plus-Quoted are lower than in AIM. 
Regulation is also lighter than in AIM. See The City's Role in Providing for the Public Equity Financing Needs 
of UK SMEs, G Openshaw, D Widger, Professor C Mason, L Jones, S Wells, City of London, March 2010, p 32 
179 An EU-Listing Small Business Act, March 2010, F Demarigny, MAZARS Group, March 2010, p 20 et 
seq. 
180 Article 27, 29 and 44 of Directive 2004/39/EC (MiFID Framework Directive) provides for the general 
obligation of systematic internalisers, MTFs and regu lated markets to make pre-trade transparency data 
available. Article 29 and 44 of the same Directive make refe rence 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 regula ted market or MTF and "transactions that are large in 
scale". The waivers for pre-trade tran sparency are further defined in Ar ticle 18 and 20 of Regulation No 
1287/2006 (MiFID Implementing Regulation). 
181 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. Issues raised by dark liquidity, Consultation Report, IOSCO, CR05/10, 
October 2010, p 4.  
182  Articles 18, 19 and 20 of Regulation No 1287/2006 (MiFID Implementing Regulation) 
 
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183 Issues raised by dark liquidity, Consultation Report, IOSCO, CR05/10, October 2010 
184 Article 28, 30 and 45 of Directive 2004/39/EC (MiFID Framework Directive) provides for the general 
obligation of investment firms (including systematic internalisers), MTFs and regulated markets to make post-trade transparency data available
. 
185 Article 28 of Regulation No 1287/2006 (MiFID Implementing Regulation) 
186 The Structure, Regulation and Transparency of Eu ropean Equity Markets under MiFID, CFA Institute, 
January 2011 
187 See Technical Advice to the Eu ropean Commission in the context of the MiFID Review – Equity 
Markets, CESR/10-802, 29 July 2010 
188 These instruments are mostly depositary receipts, exchange traded funds and certificates issued by 
companies. 
189 Article 14(1) of Directive 2004/39/ EC (MiFID Framework Directive) 
190 Technical Advice to the European Commission in the Context of the MiFID Review: Non-equity 
Markets Transparency, CESR/10-799, 29 July 2010 
191 Initiatives mentioned by CESR in the bonds market include the data reporting/publication service of the 
International Capital market Association and price information website "investing-in-bondseurope" by the 
Securities Industry Financial Markets Association. 
192 Transparency of corporate bond, structured finance product and cr edit derivatives markets, CESR/09-
348, July 2009 
193 Transparency of corporate bond, structured finance product and cr edit derivatives markets, CESR/09-
348, July 2009 
194 Prior to MiFID trade data would typically be available from the incumbent exchange in each Member 
State while OTC trades were sometime s not reported at all. MiFID on the one hand, has spurred competition 
among trading and reporting venues while on the other hand, has required post-trade reporting of OTC trades 
and. This has made the trade data environment more complex with more complete information but originating 
from far more diversified sources. Therefore, this has ma de proper trade data consolidation more important. See 
Technical Advice to the European Comm ission in the context of the MiFID Review – Equity Markets, CESR/10-
802, 29 July 2010, p 28 for further information. 
195 Commodity derivatives are financial instruments as provided in of Annex I Section C (5) to (7) and (10) 
of Directive 2004/39/EC (MiFID Framework Directive) , and Articles 38 and 39 of Regulation No 1287/2006 
(MiFID Implementing Regulation) 
196 (COM (2010) 726) Proposal for a Regulation of the European Parliament and of the Council on energy 
market integrity and tran sparency, December 2010 
197 Inflation protection is doubtful, Financial Times, 13 December 2010 
198 Food and Agriculture Organization of the United Nations (FAO), Economic a nd Social Perspectives, 
Policy Brief 9, June 2010 
199 See for example Rapport du groupe de travail sur la volatilité des prix du pétrole, sous la présidence de 
Jean Marie Chevalier, Ministère de l'éco nomie et de l'emploi, February 2010  
200  (COM (2010) 301 final) Communication From The Commission To The European Parliament, The 
Council, The European Economic And Social Committee And The European Central Bank: Regulating Financial 
Services For Sustaina ble Growth, June 2010 
 
 369                                                                                                                                                             
201 (COM (2011) 25 final) Tackling the challenges in commodity markets and on raw Materials, February 
2011 
202  (COM (2009) 591) Communication from the Commission to the European parliament, the Council, the 
European Economic and Social Committee and the Committee of the Regions A better functioning food supply 
chain in Europe and accompanying Commission Staff workin g document (SEC (20 09) 1447) Agricultural 
commodity derivative markets: the way ahead, 28 October 2009  
203 These commodity traders act as intermediaries, selling commodities on a forward basis, and hedging 
themselves in both the commodity and derivatives markets. They will therefore also be the counterparty to many 
derivatives trades. See the website of the Geneva Trading and Shipping Association at: http://www.gtsa.ch/geneva-global-trading-hub/key-figures 
204 The December 2010 average daily volumes for mai ze futures contracts in Ch icago equalled 183,150, 
while the Paris maize contract average daily volume equalled 1,264 contracts. See: Monthly Agricultural Update and data supplied by NYSE-Euronext, CME Group, December 2010 
205 Task Force on Commodity Futures Markets, Report to G-20 and Final Report, IOSCO, March 2009 
206 Task Force on Commodity Futures Markets, Report to G-20 and Final Report, IOSCO, March 2009 
207 (COM (2010) 484) Proposal on Regulation on OTC derivatives, central counterparties and trade 
repositories, September 2010 
208 As a result of current negotiations at the Council, th e reporting obligation to trade repositories might be 
extended to all derivatives (currently only OTC derivatives). 
209 OTC derivatives markets have grown 10 times (in terms of notional amounts outstanding) between 
1998 and 2008. See Commission Staff working paper, (SEC 2009) 905), 3 July 2009 for further information  
210 European Parliament resolution on derivatives mark ets: future policy actions  (A7-0187/2010), 15 June 
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 pr oducts, and the imposition of strict position limits 
especially with regard to their possible impact on the pr ice of essential food commodities in developing countries 
and greenhouse gas emission allowances. 
211 Reforming OTC Derivative Market s - A UK perspective, UK FSA and HM Treasury, December 2009, 
p 33  
212 Article 2(1)(i) and (k) of Directive 2004/39/EC (MiFID Framework Directive) exempts the same firms 
from the Capital Requirements Directive (CRD) as well. 
213 Rapport du groupe de travail sur la volatilité des prix du pétrole, sous la présidence de Jean Marie 
Chevalier, Ministère de l'économie et de l'emploi, February 2010, p 52f. 
214 CESR / CEBS Technical Advice to the European Co mmission on the review of commodities business, 
CESR/08-752 and CEBS 2008 152 rev, 15 October 2008. 
215 This section also refers to other compliance units  under the EU ETS like Cer tified Emission Reductions 
(CERs) stemming from the Clean Development Mechanism (CDM) and Emission Reduction Units (ERUs) from 
Joint Implementation (JI) projects.  
216 As created by Directive 2003/87/EC of the European Parliament and of the Council establishing a 
scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 
96/61/EC (13 October 2003). 
 
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217 Carbon trading – an outbreak of fraud in the European emissions trading scheme has battered the 
credibility of the bloc's chief weapon in the fight against global warming, Financial Times, 15 February 2011 
218 A number of Member States qualify emission allo wances as property rights. One Member State, 
Romania, classified them as financial instruments.  
219 The problem of carbon emissions frau d first came to light in summer 2009, when cases were detected in 
France, UK and Netherlands. On 28 April 2010, the German  authorities carried out a massive raid concerning  
230 targets including Deutsche Bank, premises of differe nt companies as well as private houses. The searches 
were done because of suspicion of tax evasion in connection with the trade of emission rights (value added tax 
carrousel). This investigation started in spring 2009. Late r in the year, investigations were launched and arrests 
took place also in Belgium and the UK. Lastly, in December 2010, Ita lian tax police started investigating 
numerous small Italian firms for VAT fraud in carbon trad ing resulting in 500 million euros of unpaid tax. Italy’s 
energy markets operator GME suspended spot trade in Eu ropean carbon permits on 1st December after it said it 
was looking into “abnormal trading” and “presumed irregular or unlawful behaviour,” following record trade in 
undervalued spot carbon permits. While presenting a serious problem, this type of fraud is not specific to the 
carbon market and has in the past occurred on other markets as well. The Commission worked closely with Member States to combat this problem, and a new Di rective on the application of the VAT reverse charge 
mechanism for emissions  trading was adopted 
(http://europa.eu/rapid/pressReleas esAction.do?reference=IP/09/1376
)  on 16 March 2010 and came into force in 
April 2010 helping to close off opportunities for fraud. The Directive on reverse charges for emissions trading 
allows member states to implement, on an optional and temporary basis (up to 2015), a reversal of liability for 
the payment of VAT (value-added tax) on greenhouse gas emission allowances. The aim is to close off certain 
forms of tax fraud, in particular so-called carousel schemes whereby supplies ar e traded several times by 
different suppliers without VAT being paid to the tax au thorities. Applying a "reverse charge" principle allows 
liability for the payment of VAT on emission allowances  and services to be shifted from the supplier (as 
normally required by EU rules) to the customer. It should be stressed however that if a Member State applying 
the VAT reverse charge is automatically closing off the possibility to steal VAT from its budget, the national CO2 market can still be used to commit VAT fraud in an other Member State who has not opted for the reverse 
charge mechanism, which explains why a strict control of national registries is of utmost importance.   
220 Directive 2005/60/EC (Anti-Money Laundering Direc tive) requires credit institutions and investment 
firms to verify the identity and nature of their clients or counterparties activities and, in doubt, refer the matter to 
relevant anti-money laundering authorities (cf. Art. 7, 8 an d 20 in connection with Art. 2(1)). Given that other 
participants in the carbon market are not currently covered by the AML Directive, concerns have been raised 
about the market’s exposure to money-laundering risks (cf. La régulation des marchés du CO2: Rapport de la 
mission confiée à Michel PRADA,  Inspecteur général des Finances honoraire, April 2010)  
221 A key future segment in the primary market, auctions, will come in full under the market oversight 
regime set out by the Commission Regulation (EU) No 1031/2010 (Auctioning Regulation) 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 of the Council establishing a scheme for greenhouse gas emission allowances trading within the Community, OJ L 302, 18.1 1.2010, p 1 (hereinafter: the Auctioning Regulation), 
irrespective of whether the auctioned product qualifies as a financial instrument or not. The Regulation stipulates 
that auctions shall only be conducted on an auction platform authorised as a regulated market by a MiFID 
supervisor and in accordance with rules implementing th e MiFID to the extent relevant. Under the Regulation, 
reception, transmission an d submission of bids pr ovided by investment firms in that market is also to be 
governed by the MiFID. Cf. Art. 6(5) and 35 of the Auctioning Regulation.  
 Moreover, to the extent that the allowance derivativ es market is within the scope of financial markets 
legislation, it benefits from the regular safeguards and supervisory arrangements that  apply to any other market 
for commodity derivatives. 
222 E.g. Germany and France 
223 Article 25(3) of Directive 2004/39/EC (MiFID Framework Directive) and Articles 10 to 14 of 
Regulation No 1287/2006 (MiFID Implementing Regulation). 
 
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224 MAD is likely to be extended to financial instrument s admitted to trading or only traded on MTFs as 
well as to instruments that can infl uence the price of a financial instru ment traded on a regulated market. 
225 Response to the European Commission's call for evidence on the review of Directive 2003/6/EC 
(Market Abuse Directive), CESR, June 2009, p 6 
226 Task Force on Commodity Futures Markets, Report to G-20 and Final Report, IOSCO, March 2009 
227 In November 2007, the Transaction Reporting Exch ange Mechanism (TREM) was set up to facilitate 
the transactions between EEA financial regulators 
228 Article 25(5) of Directive 2004/3 9/EC (MiFID Framework Directive) 
229 (COM (2010) 484) Proposal on Regulation on OTC derivatives, central counterparties and trade 
repositories, September 2010 
230 Article 50 of Directive 2004/39/E C (MiFID Framework Directive) 
231 See e.g. Article 9 of Regulation (EU) No 1095/201 0 of the European Parliament and of the Council, 
establishing a European Supervisory Authority  (European Securities and Markets Authority) 
232 Article 41 of Directive 2004/39 /EC (MiFID Framework Directive) 
233 This is 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. In practice, this means that third country firms mu st be subject to a regulatory regime which is at least 
equivalent to that offered by the MiFID. 
234 Report on the mapping of supervisory powers, supervisory practices, administrative and criminal sanctioning 
regimes of Member States in relation to the Markets in Fi nancial Instruments Directive (MiFID), CESR/08-220, February 
2009. 
235  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), CESR/08-220, February 2009, pp 22-26 
236 See (COM (2010) 716) Communication from the EC on Reinforcing sanctioning regime in the financial services 
sector 
237 Consumer Decision-Making in Retail Investment Services: A Behavioural Economics 
Perspective: Final Report, Decision Technology Ltd et al., November 2010, p 6 
238 See Consultation by Commission Services on legislative steps for the Packaged RetailInvestment 
Products initiative, 26 November 2010 and (COM (2009) 204 final) Communication on Packaged Retail 
Investment Products, April 2009, Update on Commission work on Packaged Retail Investment Products, 
December 2009 and update in the form a working paper on 16 December 2009.  
239 CESR, CEIOPS and CEBS have also developed their thinking concerning the work on PRIPs. See 
CESR / CEBS / CEIOPS Report of the 3L3 Task Fo rce on Packaged RetailInv estment Products (PRIPs), 
CESR/10-1136 and CEBS 2010 196 and CEIOPS-3L3-54-10, 6 October 2010, p 18  
240 (COM (2009) 204 final) Communication on Packaged Retail Investment Products, April 2009, Update 
on Commission work on Packaged Retail Investment Products, December 2009, p 44 
241 Responses to Questions 15-18 and 20-25 of the European Commission Request for Additional 
Information in Relation to the Review of MiFID, CESR/10-860, 29 July 2010, p 3 
 
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242 Responses to Questions 15-18 and 20-25 of the European Commission Request for Additional 
Information in Relation to the Review of MiFID, CESR/10-860, 29 July 2010  p 2 
243 Article 19(6) of Directive 2004/39/ EC (MiFID Framework Directive) 
244 This was underlined by 675 rep lies received from citizens to the Mi FID consultation. Investors across 
Member States vary in their use of ex ecution-only services, but estimates su ggest it can reach up to a third of all 
retail transactions in some Member St ates (source: Europe Economics).  
245 The Final Report, Prepared for: European Commi ssion, Directorate-Genera l Health and Consumer 
Protection, Synovate, 2011, recently a ssessed the quality of advice across the EU based on a mystery shopping 
exercise. Weaknesses emerged in the ability of advisors  across the EU to recommend suitable products to 
investors. Another study, Consumer Decision-Making in Retail Investment Services: A Behavioural Economics 
Perspective, Final Report, Decision Technology Ltd, N Chater, S Huck, R Inderst, November 2010, sought 
behavioural economics insights on different factors relevant to investor decision making.  
246 UK Financial Ombudsman Service, Annual Review 2009 – 2010 
247 Ombudsmann der Privaten Banken, Tätigkeitsbericht 2009 
248 Hellenic Ombudsman for Banking-Investment Services, Annual Report 2009 
249 Article 26 (b) of Directive 2006/73/EC (MiFID Implementing Directive). 
250 Responses to Questions 15-18 and 20-25 of the European Commission Request for Additional 
Information in Relation to the Review of MiFID, CESR/10-860, 29 July 2010, p 6 
251 Responses to Questions 15-18 and 20-25 of the European Commission Request for Additional Information in Relation to the Rev iew of MiFID, CESR/10-860, 
29 July 2010, p 8. In addition the Final Report, Prepared for: European Commission, Directorate-General Health and Consumer Pro tection, Synovate, 2011, recently assessed 
the quality of advice across the EU based on a mystery shopping exercise. Weaknesses emerged in the ability of advisors across the EU to recommend suitable products to 
investors. 
252 Europe Economics: MiFID Review – Data Ga thering and Cost-Benefit Analysis, Appendix 7 
253 Europe Economics: MiFID Review – Data Ga thering and Cost-Benefit Analysis, Chapter 7 
254 Article 21 of Directive 2004/39/EC (MiFID Fram ework Directive) and Artic les 44-46 of Directive 
2006/73/EC (MiFID Implementing Directive) 
255 For instance, the number of orders cancelled prior to execution or the speed of execution 
256 Technical Advice to the European Commission in  the context of the MiFID Review – Investor 
Protection and Intermediaries, CESR/10-859, 29 July 2010, p 18. Data gathering and analysis in the context of the MiFID review, Final Report for Directorate General Internal Market and Servi ces, European Commission, 
PricewaterhouseCoopers, 13 July 2010, p 363
  
257 Articles 9 and  Articles 13(2) and (3) of Direc tive 2004/39/EC (MiFID Framework Directive); 
Articles 6, 7 and 8 of Implementing Directive 2006/73/EC (MiFID Implementing Directive)  
258 See (COM (2010) 284 Final) Green Paper on Co rporate Governance in financial institutions and 
remuneration policies; Directorate for Financial and Enterprise Affairs, OECD Steering Group on Corporate Governance, Paper: Corporate Governan ce and the Financial Crisis: Conclusions and emerging good practices to 
enhance implementation of the Principles, February 2010, p 20 
259 Responses to Questions 15-18 and 20-25 of the European Commission Request for Additional 
Information in Relation to the Review of MiFID, CESR/10-860, 29 July 2010, p 4 
260 Articles 13 and 19 of Directive 2004/39/EC (MiFID Framework Directive) 
 
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261 Europe Economics: MiFID Review – Data Ga thering and Cost-Benefit Analysis, Chapter 7 
262 Annual Review, financial year 2009 – 2010 of cons umer complaints about insurance, credit, banking, 
savings and investments, UK Financial Ombudsman Service 
263 Annex I, Section A(6) and (7) – Section B(3) and (6) of Directive 2004/39/EC (MiFID Framework 
Directive) 
264 Some specific practices have recently attracted  attention. Based on contributions from CESR 
(Responses to Questions 15-18 and 20-25 of the European Commission Request for Additional Information in 
Relation to the Review of MiFID, CESR/10-860, 29 July 2010) and market participan ts, 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 allocati on 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 issuer s rather than investors (or, also, institutional investors 
rather than issuers) and the unfair tr eatment of different investors (or categories of investors) in the allotment of 
the securities. 
265 Technical Advice to the European Commission in  the context of the MiFID Review – Investor 
Protection and Intermediaries, CESR/10-859, 29 July 2010, p 6 
266 COM (2010) 484 Proposal on Regulation on OTC derivatives, central counterparties and trade 
repositories, September 2010 
267 More information on the programme can be found on the website of the Competitiveness and 
Innovation Framework Programme (CIP): http://ec.europa.eu/cip/  
268 See, for instance, the example of Deutsche Börs e's Neuer Markt, in: Burg hof and Hunger, Access to 
Stock Markets for Small and Medium Sized Growth Fi rms: the Temporary Success and Ultimately Failure of 
Germany’s Neuer Markt, October 2003 p 20 et seq. 
269 On the new markets, see Goergen et al., The rise and Fall of the European New Markets: on the Short 
and Long-run Performance of High-tech Initial Public  Offerings, ECGI Finance Working Paper N°27/2003, 
September 2003. 
270 Mendoza, Securities Regulation in Low-Tier Listing Venues: the Rise of the Alternative Investment 
Market, Fordham Journal of Corporate and Financial Law, vol. XIII, pp 257, 291. 
271 Mendoza, Securities Regulation in Low-Tier Listing Venues: the Rise of the Alternative Investment 
Market, Fordham Journal of Corporate and Financial Law, vol. XIII, pp 257, 274. 
272 Article 29 Working Party in its Opinion 1/2006 on the application of EU data protection rules to 
internal whistle blowing schemes in the fields of accoun ting, internal accounting controls, auditing matters, fight 
against bribery, banking and financial crime available at 
http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2006/wp117_en.pdf   
 
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273 Article 29 Working Party in its Opinion 1/2006 on the application of EU data protection rules to 
internal whistle blowing schemes in the fields of accoun ting, internal accounting controls, auditing matters, fight 
against bribery, banking and financial crime available at http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2006/wp117_en.pdf
  
274 In response to market demand NYSE LIFFE is cu rrently trialling a similar reporting system for its 
agricultural contracts (see http://www.euronext.com/fic/000/059/500/595009.pdf ). ICE Futures Europe has 
introduced a similar facility for its oil contracts having a price linkage with US listed contracts, as a condition for 
continued access to US markets. 
275 See e.g. "Populists vs. theorists: futures markets and the volatility of prices" David Jacks – Explorations 
in Economic History, June 2006 and Testimony of Steven H. Strongin, Goldman Sachs to the US Senate 
Subcommittee on Investigations, July 2009 
276 Article 48 of Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions 
(recast) 
277 While the information available on the size of these firms is limited, it is understood that the majority 
are small firms or even sole-traders. The latest availa ble data indicates that in Austria, the average annual 
revenue from the relevant services is €105,000; in the UK the median firm generated €175,000 (with the average 
firm having revenue of €820,000 with some firms clearly well in excess of that). Furthermore, in a number of 
cases investment services represent a minority of income for these firms (so that, say, in Germany the majority 
of revenue is related to insurance and pension products). 
278  Article 9(5) of Regulation (EU) No 1095/2010 of the European  Parliament and of the Council, establishing a European 
Supervisory Authority (European Securities and Markets Authority),  amending Decision No 716/20 09/EC and repealing Commission 
Decision 2009/77/EC 
279 Most are owned and operated by large investment banks with examples being (with the owner in 
brackets): Sigma X (Goldman Sachs), DBA (Deutsche Bank), Citi Match (Citi Group), CS Crossfinder (Credit 
Suisse), NX (Nomura), JPM-X (JP Morgan Cazenove), MS Pool (Mor gan Stanley) and UBS PIN (UBS) 
280 In terms of the monitoring of trading we note that it is possible to purchase security market surveillance 
software from independent software vendors as well as to develop in a bespoke way. For example, SMARTS 
Group (itself owned by NASDAQ OMX) provides such software (in varying degrees of functionality) to 
regulators, markets and individual broke r-dealers. Subject to the functiona lity involved, a one-off cost of €200–
€600,000 may be applicable per affected entity, with on-going maintenance fees likely to be 20–30 per cent of 
the initial investment. Considering the six crossing systems that do not have or are not yet seeking MTF status 
and the 10 to 12 non-MTF electronic platforms, we an ticipate one-off costs towards the lower end of this 
spectrum, €3.2–€10.8 million in aggregate, with ongoing costs of €0.6-€3.2 million 
281 Source: Europe Economics interview with a HFT. In ad dition this estimate is supported by a response to 
Micro-structural issues of the European equity markets, CESR/10-142, April 2010, in which it is stated that 35-40 members of a major European exchange for cash equity trading are HFT firms.  
282 We assume that 25 firms would require authorisati on (so that senior management were judged fit and 
proper and capital adequacy tests were passed). Whilst th e compliance cost of the fit and proper process would 
be de minimis for such a small population of firms the cost of holding increased capital may not be. The current 
levels of capital holding by non-authorised firms is not known — however, we assume an increase in capital holding of €0.75 million per firm and an annual holding cost of five per cent then across the sub-set of 25 firms 
the on-going cost implication would be €0.9 million per annum. 
283 With regard to the proposed requirement for firms involved in automated trading to notify their 
competent authority of the computer algorithm(s) they employ, including an explanation of its design, purpose 
and functioning about the notification of algorithms, it is considered that the costs would be relatively limited. It 
has been suggested that the development of such a document may take approximately two man-weeks. Assuming that the wage of the IT employee is around €100,000 per annum, this would imply an average cost of 
 
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around €4,000 per firm. Assuming that there would be 250 firms affected by this proposal, the total cost would 
be approximately €1.0m. 
284  LSE (2011), “Trading Services (On- Exchange and OTC) Price List With Effect From 1 April 2011”. 
285  LSE (2011), “Trading Services (On- Exchange and OTC) Price List With Effect From 1 April 2011”, 
Page 4. 
286 Based on the number of transactions 
287 We estimate the number of dealers with automated pricing systems to be 54 for bonds and structured 
products, and 34 for derivatives. Even though dealers ma y be operating in all markets, we assume that the 
pricing systems required for derivatives to be substan tially different to that for bonds and SFP (based on 
information received from interviews with dealers), and t hus there will not be overlap. This figure is estimated 
from information receive d in interviews by Europe Economics, and is  in line with the over all assumptions about 
the number of market particip ants in each product group.  
288 We estimate the number of smalle r dealers with manual pricing systems to be 100 for bonds and SFPs 
and 76 for derivatives: information r eceived from MTFs and elect ronic platforms suggests there is a far smaller 
number of dealers on these platforms with manual pricing systems (on average 3) but that overlap between platforms will not be large (e.g. smaller dealers tend to belong to only one or two platforms), thus putting the 
total number of smaller, manual dealers at around 176 for platforms in all countries, not just those where Recital 
46 has not been exercised (as this does not apply to OTC markets).  
289 Based on information from Data gathering and analysis in the context of the MiFID review, Final 
Report for Directorate General Internal Market and Services, European Commission,  PricewaterhouseCoopers, 
13 July 2010, this amounts to approximately 26 MTFs offering bonds and 20 offering derivatives. 
290 We assume roughly the same universe of firms as  for pre-trade transparency. Although pre-trade 
responsibilities only apply to the sell-side, we assume the trade reporting will only be undertaken by one side of 
the trade (to avoid double counting) and that this would be done by the sell-side (as with equities). We have 
included 50 additional firms from the buy-side to account fo r large firms that would be likely to also report 
trades automatically. Number of affect ed market participants based on interviews with stakeholders and cross-
checked with total number of market participants fro m FESE and International Financial Services London. 
291 This includes the time spent by smaller firms in manually sending information to the trade reporting 
platforms, estimated at 1 to 1.5 hours a day per firm for 100 smaller dealers 
292 We estimate the number of major firms that would develop the feeds to be 14; the number of other 
firms with automated reporting to be 60 (20 dealers and 40 large buy-side firms) and the number of smaller 
dealers with manual reporting to be 76. 
293 End in sight for European post-trade data impasse, The Trade News, 3 March 2010 
294 For example, Eurex, based in Germany, has contracts for interest rate and equity derivatives and has 
regulatory provisions to set position limits; and EDX in London has provisions to set limits, although these are not used in practice 
295 To recap, these include NYSE Euronext.Liffe; Eurex; LME; ICE Futures; European Energy Exchange; 
and European Climate Exchange. 
296 These are Eurex; Borse Italiana; EDX; Mercado Español de Futuros Financieros and NYSE 
Euronext.Liffe 
297 The 29 MTF and 10 electronic platforms trading derivatives would need to create or enhance 
surveillance departments that would be responsible for requesting and processing in formation from traders and 
their end clients. Depending on the current level of surveillance, these costs may be minimal. If we assume between half and one additional em ployee (FTE) would be required by  each platform to carry out the 
information requesting and processing role, as well as communicate with the competen t authority, then the on-
 
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going cost for MTFs and electronic platforms is estimated  at between just under €1.7 million and €3.1 million 
per year across the EU. These costs estimates are based on between 0,5 and 1 FTE per platform, with compliance 
staff costs of €80,000 each. 
298 Assumes 250 traders across all MTFs and EPs with a requirement of between 5 and 10 days’ time each 
to handle additional information requests relating to this proposal. The estimate of 250 traders is based on the 
approximate number of trades in non-commodity derivativ e markets, in line with our overall assumption on the 
number of market participants (see our horizontal assumptions).  
299 Note that even if there is some overlap betw een traders operating on both commodity and non-
commodity derivative markets, the on-going costs of reporting would be additional.  
300 If all members of MTF and electronic platforms are required to submit information about the contracts 
they enter into (and not just a few reporting members, as  with position reporting by categories of traders), then 
the on-going costs of doing so could range between €2 0 million and €40 million per year. Assuming 1000 traders 
across all MTFs and electronic platforms, with a requirement of 0.25 to 0.5 FTE per year to handle information 
requests 
301 Assuming one-off costs of between €75,000 and €100,000 per MTF, and 29 MTFs across the EU, we 
estimate total one-off costs to range from approximately €2 million to €3 million. Assuming on-going costs of 
between 1.5 and 3 additional employees and IT maintenance costs, we estimate on-going costs for MTFs of 
between €3.5 million to €7 million. 
302 If we assume that electronic plat forms used for OTC trading of derivatives do not currently have any 
position or market surveillance systems in place, the costs of being able to set positi on limits will be relatively 
large. Based on information from exchanges currently engaged in position management, we estimate one-off 
costs of setting up electronic systems to collect, store and monitor position information at between €6 million 
and €10 million across the EU. This assumes the cost of IT systems to be between €600,000 and €1 million across the 10 main electronic platforms. On-going costs of maintaining such systems and staffing surveillance 
departments are estimated at between €3.2 million and €8.1 million. This assumes between 4 and 10 employees 
are needed, based on information received from 3 exchange s with surveillance departments, and that on-going IT 
costs are 10% of one-of IT costs. 
303 Report on the mapping of discretions in MiFID, CESR/09-833, 2010 
304 In the UK (a major centre of OTC derivative trading) the following are excluded: derivatives based 
upon with a basket of underlying instruments; deriva tives on interest rates; derivatives on commodities and 
foreign currency derivatives. 
305 Finland, Germany and Greece also  apply transaction reporting to certain financial instruments not 
admitted to trading on a regulated market. See Report on the mapping of discretions in MiFID, CESR/09-833, 
2010 
306 Europe Economics has modelled the current annual recurring cost in the EU of transaction reporting 
based upon three components: an internal systems cost; labour costs and data cleaning costs (the latter are 
frequently at least partly outsourced to ARMs in a number of jurisdictions, e.g. Germany and the UK). 
Transaction reporting is heavily automated (although the success of that automation does seem to vary somewhat 
from firm to firm, driven in part by the mix of instruments traded). Labour costs were based upon a ratio of one 
Full Time Employee (FTE) being able to oversee between 22,000 and 27,500 transactions per day (this is well 
below the best productivity rate Europe Economics found). Data cleaning costs were proxied by payments to 
ARMs which were taken as 0.6–1.2 cents per transaction. Internal system costs were related to labour costs in 
accordance with the market expe rience that we reviewed. 
307 Indeed, they estimate that the number of transacti ons in instruments where th e primary issuance was on 
an MTF to be about 6 million in 2009. Of these the majority (about 74 per cent) were reportable anyway due to 
the adoption of transaction reporting fo r such trades in certain jurisdictions  (in particular, the UK). Once those 
markets that already have such instru ments within scope are excluded they estimate the increm ental change in 
volume of transactions to be about 0.2 per cent of the equity trades currently processed (1.5 million compared to 
871 million).  
 
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308 Based upon a population of 25 large firms incurring 5–7.5 days of IT department time, 75 medium 
firms using 3.5–5 days and 500 smaller firms requiring 2.5–3.5 days we expect that the one-off cost for set-up 
would be €0.7–1.1 million across the EU. 
309 The publication Derivatives 2010 , International Financial Services  London, December 2010, identifies 
76 per cent of EU-based OTC derivatives trading is conducted from London or Spain (Ireland and Austria are 
not discretely identified).  
310 Based upon information collected by Europe Ec onomics from the market participants they have 
interviewed, an investment of up to €2 million (per firm) would be required for the larger market participants 
(which tend to dominate such trade) to extend reporting from where it is conducted now to th e whole EU. Such 
investment has been scaled back for smaller market participants so that 200 market participants would invest 
€60-€75,000, 36 would invest €300,000-€400,000 and the largest fourteen (i.e. the so called G14) around €1.5–
€1.750 million. This gives an estimated one-off cost of €29–€41 million. To be clear, we are assuming that not all firms authorised to execute client orders (which is ov er 5,000) would be affected — rather that such activities 
are concentrated in a smaller number of firms which cover all instruments. 
311 Information from ISDA on OTC transaction volumes (from the 2010 Benchmarking Survey) and from 
PwC on the share of the largest firms in specific markets lead Europe Economics to estimate a global population 
for derivatives transactions conducted OTC of 21 million. They estimate that once the EU share is taken the total 
would be about 13 million. A further reduction is required to limit the population to those derivatives whose value correlates with a financial instrument admitted to trad ing or are related to the cr edit risk of a single issuer. 
This gives an estimate of about 6.5 million individual transactions in the EU per annum before deducting those 
transactions already being reported. 
312 We use a figure of 1.1 million trades per annum. 
313 Again, Europe Economics uses the ISDA 2010 Benchmarking Survey to provide a global figure and the 
report Derivatives 2010, International Financial Servi ces London, December 2010 in order to estimate the EU 
share of this. 
314 It is important to remember that it is the number of transactions executed that matters. If say the 
notional value outstanding or the gross market value were  compared, then OTC commodity derivatives would be 
only 0.6 per cent or 1.7 per cent respectively of all derivatives traded OTC (based on analysis in Triennial 
Central Bank Survey, Foreign Exchange and Derivatives Market Activity in 2010, Bank for International Settlements, September 2010 
315 See Press Release: Depositary Receipts Show Res iliency in 2009 on Higher Global Trading Volume, 
Program Establishment, Capital Rais ings and Price Returns, According to BNY Mellon Year-End Industry 
Report, BNY Mellon Depositary  Receipts, 13 January 2010. This gives a figure of 19 billion DRs traded in 
Europe, which is 0.9 per cent of the total number of equity shares traded in the EU (NB this is shares traded not 
the number of transactions in  shares as discussed before). This represents about 15 per cent of the global total of 
DRs traded, implying a total value of €281 billion, or 2 per cent of the total value of equity trading in the EU 
(about €15 trillion in 2009). 
316 Secure data storage can cost up to €10 per GB per annum (see 
http://www.phion.com/UK/company/Pages/default.aspx a nd http://www.backupdirect.ne t/offsite-data-storage by 
way of illustration).  
317 Based on information from PwC and ISDA  
318  Data gathering and analysis in the context of the MiFID Review, Pr icewaterhouseCoopers, 13 
September 2010, p 323 
319 For example, feedback from one MTF shows the use of an automated system of warnings (with some 
human oversight) to alert the surveillance team to unusual trading activity. 
 
 378                                                                                                                                                             
320 These include MTFs such as CantorCO2E; GF I EnergyMatch; MF Global  Energy; Tullet Prebon 
Energy 
321 Figure based on Europe Economics research and PWC report. ISDA estimates there are 48 large 
commodity exchan ges worldwide 
322 Feedback from Europe Economics interviews with exchanges that have experience in position reporting 
by client categorisation suggests that  if position reporting already takes pl ace (as in the majority of exchanges) 
then the additional costs of including client categorisation will be negligible. The only cost that would be 
incurred would be on the part of the exchanges in comp iling a COT report, estimated at about a quarter of a full-
time equivalent employee per year. Applying this to 15 commodity exchanges across the EU gives an on-going cost of €300,000 per year. 
323 Using cost information provided by exchanges in the UK, and taki ng into account the estimated number 
of MTFs across the EU that currently do not have a position reporting regime, Europe Economics estimate one-off costs of position reporting will be between €130,000  and €195,000. This assumes 13 main MTFs across the 
EU that do not currently require pos ition reporting, and a one -off cost of developing systems to receive and 
collate position reports of between €10,000 and €15,000. This  incremental costs of a position reporting regime is 
relatively low as it is assumed that the MTFs already operate some position monito ring systems (e.g. systems 
that allow them to monitor trading and view deals being executed), and that the additional capacity needed to 
receive and collate reports will be relatively small. 
324 On-going costs will be greater, given the staff costs required to collate and analyse position information 
as well as on-going IT maintenance costs. Europe Economics estimates on-going costs at between €1.8 million 
and €2.4 million per year across the EU. This assumes IT support and maintenance costs of between €1,000 and 
€1,500 per year, and just between 1.5 and two full-time equivalent employees per year, at €80,000 each. 
325 Feedback from interviews indicates  that reporting members are usually a subset of all members, and are 
mainly clearing firms. For example, only 20 per cent of ICE's members are involved in reporting (approximately 
42).  
326 Costs to market participants (reporting traders) will include the time taken to prepare reports, which will 
depend on how automated their systems are (if systems are linked electronically to the exchange or regulator 
then reports are sent almost automati cally from the back offi ce and on-going costs are largely limited to IT 
maintenance). In the case of electronic systems, one-of f costs of implementing systems will be required. Given 
the fact that the largest commodity derivate traders already undergo position reporting through exchanges, and 
the fact that not all members are required to submit reports, we estimate that there are approximately 104 traders 
across the various commodity derivative MTFs in the EU wh o would be required to report positions on behalf on 
their clients. One-off costs for these tr aders are estimated at between €1.2 an d €1.5 million, based on a cost of 
developing reporting feeds of between €12,000 and €15,000 per trader. On-going costs of IT maintenance and a 
small staff cost are estimated at approximately €2.2 million per year. 
327 The overall impact of MiFID, UK FS A, November 2006. Values converted  to Euros at an exchange rate 
of £1:€1.18 
328 Article 35 of Commission Regulation (EU) No 1031/2010 (Auctioning Regulation) 
329 Costs estimates provided by Europe Economics based o their previous work relating to the FSAP 
compliance costs 
330 Based on Europe Economics costs estimates relating to being authorised as an OTF (see above): a one-
off cost of €200–€600,000 per affected platform, with on-going maintenance fees likely to be 20–30 per cent of 
the initial investment 
331 For example, at present only 4% of 114 members of Bluenext, a leading spot carbon exchange in 
France, are large industrial players w ith EU ETS compliance duties. Unlike  large energy producers, these entities 
are less likely to develop dedicated trading entities. Se e La régulation des marchés du CO2: Rapport de la 
mission confiée à Michel PRADA, Inspecteur gé néral des Finances honoraire, April 2010 , p 84. 
 
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332 Some 20% of 114 members of Bluenext, a leading spot carbon exchange in France, may be qualified as 
non-financial intermediaries. Source: La régulation des marchés du CO2: Rapport de la mission confiée à Michel 
PRADA, Inspecteur général des Finances honoraire, April 2010,  p 84. 
333 Based on The overall impact of MiFID, UK FSA, November 2006 and MiFID Implementation Cost 
Survey of the UK Investment Industry, LECG, October 2005. Values for both converted to Euros at an exchange 
rate of £1:€1.18 
334 These estimates have been developed on the basis of MiFID Implementation Cost Survey of the UK 
Investment Industry, LECG, October 2005. Values converted to Euros at an exchange rate of £1:€1.18 
335 Europe Economics considers that this tightening may affect service providers operating under the 
Article 3(1) exemption in France, Germany, Greece and Ro mania. They have assumed that the completion of a 
more thorough-going authorisation pack would consume one to two days of time. Making due allowance for the 
differences in income between these Member States (so th at the daily cost varies from about €44 in Romania to 
€178 in the Netherlands) they estimate that such an authorisation process would imply a one-off cost across all 
of the affected service providers in these countries of between €15 and €30 million. 
336 See reference to the legislative draft that was consulted upon: 
http://www.bundesfinanzministerium.de/nn_1776/DE/Wirtschaft__und__Verwaltung/Geld__und__Kredit/Kapit
almarktpolitik/18022011-Diskussionsentw-Finanzanlage -anl,templateId=raw,property=publicationFile.pdf ; The 
new statute is expected to be adop ted by the German cabinet shortly. 
337 Data for the structured product markets comes from the European Commission (2008), representing 16 
Member States. Member States not represented are Bu lgaria, Cyprus, Estonia, Greece, Hungary, Lithuania, 
Luxembourg, Latvia, Malta, Romania and Slovenia. Arete does not publish data on these on the grounds of lack 
of market development. We judge it unlikely that these uncovered markets are significant, either individually or 
in aggregate. 
338 Spain and France have only recently overtaken Belg ium, which suffered a 43 per cent drop in sales in 
2008. 
339 Study on the Costs and Benefits of Potential Changes to Distribution Rules for Insurance Investment 
Products and other Non-MIFID Packaged Retail Investment Products: Final Report, Europe Economics, 
September 2010. 
340 In the context of the ongoing work on PRIPS, Europe Economics was mandated by the European 
Commission to assess the likely cost impact of the a pplication of MiFID’s selling rules to deposit-based 
structured products and to certain types of insurance-based investment product on a combined basis. They 
estimated the likely one-off impact of this to be €125–€ 175 million for banks, with recurring costs of €35–€60 
million. This took into account the fact that some ba nks had voluntarily adopted MiFID (or MiFID-like) conduct 
of business measures. In order to assess the impact relevant here they further disaggregated the impacts arising 
on structured term deposits separately to the other categories of non-MiFID PRIP (such as unit-linked life insurance investment products) distributed by credit institutions. In their work they found that the gross sales of 
unit-linked and similar insurance-based investment products exceeded those of deposit-based structured deposits 
by about three to one. On this basis they assume that the one-off impact on credit institutions of this option would be €31–44 million with recurring annual costs of €9–€15 million. 
341 This market segment has experienced growth at 17  per cent annum between 2006 and 2008. If this trend 
continued this would imply a total market of €30 billion in 2010, with €27.7 billion distributed through credit 
institutions. 
342 In general, execution only services involve little f ace-to-face interaction between providers and their 
clients. In the UK, for example, a significant proportion of the execution business (upward of 80 per cent) is 
carried out online.  
343 Retail Investments Product Sales Data (PSD) Trend Report, UK FSA, August 2009 
 
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344 Based on the Eurostat data on the number of households directly investing in stock markets (best proxy 
for the number of execution only clients) and what we  know about market practi ce in Germany, Italy and 
Belgium then we have a population 1.6 to 2.2 million clients. Assuming a ratio of 1:99 between Newcits and UCITS implies that perhaps only 16–22,000 customers would be affected by that option. we consider it unlikely 
that in excess of 50,000 customers would be affected acro ss the EU as a whole. If the transition cost to another 
platform is taken as €2–€3 per client (based upon the view of a retail bank operating both an execution only platform and one with the in-built functionality for an onlin e appropriateness test), then the one-off cost impact 
would be about €0.1—€0.15 million. We remind the reader that this is on the assumption that pure execution 
only providers will discontinue  provision of these products because (a t the moment) these are not particularly 
significant in scale. 
345 Source: Datamonitor Global Wealth Model 
346 Analysis based on European Fund Industry Breakfast Briefing, Thomson Reuters and Lipper, Ed 
Moisson, December 2010 and Data monitor Market Reports on “Finan cial Advice” in these countries. 
347 Past studies have found that banks and direct (tied) sales forces normally required 10–15 minutes for 
product search whereas “whole of ma rket” search has taken 45–60 minutes. Part of the difference is accounted 
for by the greater investment in technology made by banks and agents facilitating greater process automation and 
part is due to the restrictions in scope of the search. Nevertheless, there would likely be a consequence (say 10-
15 minutes) as additional search time implied for any investment advisers extending their search from a restricted one to something like “whole of market”. However, we believe that  the practical effect of this policy 
option here is likely to be limited — indeed those advise rs that are tied or multi-tied will be unable to lengthen 
search strategies, in the short-term at least, and bank s providing advice on their own products will have a strong 
commercial rationale not to extend their search strategies in this way. Equally those that are not tied are likely to 
be conducting a broad search already. Given this, we do not estimate a cost impact due to the extension of search in this way. 
348 40-45 million mass affluent or high net worth individuals less the 7 -7.5 million of the wealthy 
individuals who are alread y receiving advice on an independent basis. 
349 Based on interviews with medium and large retail orientated banks this seems a reasonable assumption. 
350 Economic contribution of UK financial services 2009, International Financial Services London, 
December 2009 
351 The European Structured Retail Product Market 2009 Review, Arete Consulting, EUMR09, April 2009 
352 Based on an interview carried out by Europe Economi cs with a City of London based trade association 
353 Adopting half to three-quarters of  a day on average and applying this  to the product numbers described 
above gives an aggregate cost of €50–€87 million (taking a medium-level compliance op erative at a cost €65,000 
per annum). 
354 Based on Europe Economics past work on the sale of non-MiFID PRIPS 
355 Clients are likely to be involved with multiple produ ct providers. We adopt three–four as a reasonable 
judgement call. At a cost per contact of €1–€2 this means that such a switch would have an on-going cost of 
€1.5–€7.7 million. 
356 7A requirement to notify investors of material change in circumstances is likely to require the 
modification of systems at prod uct providers. However, we consider this likely to be limited in scale because the 
affected parties are likely to  be involved also in discretionary portfolio management and similar activities where 
such a requirement is already built-in. We estimate that between 15 and 20 days of an IT professional (annual 
payroll costs of €100,000) would be necessary for each product provider, in cluding project management of the 
changes. This would therefore result in a one-off cost of €1.7–€2.7 million. 
 
 381                                                                                                                                                             
357 FSA estimate of incremental compliance costs for Retail Distribution Review proposals, UK FSA, 
March 2010. These figures comb ine the cost estimates of AR and DA financial advisers. 
358 The revenue from providing portfolio management services in the EU has been estimated to be at least 
€40 billion (source: Barnes Reports, “Worldwide Portfo lio Management Industry”, 2010; this covers twenty 
Member States). However, this figure is not based upon bottom-up data drawn from the industry itself but rather 
represents a top-down estimate made by a market resear ch firm. More useful data are available for the UK. 
Europe Economics understands from a trade association that perhaps three million discretionary portfolio 
management accounts are operated in the UK, although pe rhaps only two-thirds of these are active. The total 
value of these accounts is th ought to be about € 350-€400 billion in the UK. Whilst fee structures can be complex 
and tailored to individual client circumstances an approximate annual cost of about 1–1.2 per cent of funds 
within the portfolio — this implies revenues not exceeding €3.5–4.8 billion in the UK. They understand from the 
same trade association that the typical UK portfolio manager would not have more than 150 clients (including non-active accounts). Given an estimated three million discre tionary portfolio management clients in the UK this 
implies 20,000 portfolio managers. From analysis of the financial reports of the leading specialist portfolio 
managers in the UK they believe that  there is one member of back-office staff to two portfolio managers, i.e. 
there are 30,000 workers in the industry in the UK. Applying the average revenue per worker (portfolio 
managers and back-office combined) of €150,000 gives an implied revenue on discretionary management 
activity of about €4.5 billion in the UK. This is about two-thirds of the UK-specific figure drawn from the same 
source as the Europe figure of €40 billion.  
359 In the United Kingdom, although the use of inducements is not currently prohibited by regulation, 
standard market practice excludes them. The us e of inducements is prohibited in Italy.  
360 We estimate the Italian employee numbers as being eq uivalent (noting that average per capita financial 
wealth in Italy was €57,711 in 2009 versus £42,500 (€50,150at 1.18:1) in the UK — a ratio of 1.15:1: however, it is not clear that the underlying population of customers is significantly different) to obtain 20,000 as our 
estimate for Italian portfolio managers. So the total unaffected is 40,000 portfolio managers (with 20,000 back 
office staff).  
361 We assume that the additional monitoring for this measure would be relatively slight requiring one tenth 
of an additional FTE compliance staff for every 100 employees. For 60,000 front-office staff, that implies 60 
additional compliance staff. At labour cost of €65,000 per additional compliance employee, these additional staff would cost €3.7m. 
362 A €125,000 annual salary equates to about €560 per working day assuming 225 working days in a year 
363 Based on interviews with two trading venues carried out by Europe Economics 
364 There are currently 84 MTFs dealing in instruments other than shares alone. Together with regulated 
markets and organised trading systems Europe Economics considers that an estimated population of 120 
execution venues to be reasonable.  
365 About 2,500 investment firms are authorised to conduct portfolio management services. Over one third 
of these are located in the UK with another 20 per cent in Germany (see Appendix 11). In addition, we estimate 
that 2,400 credit institutions are authorised for this serv ice, with Austrian and German banks being particularly 
prominent. 
366 MiFID Implementation Cost Survey of the UK Investment Industry, LECG, October 2005 
367 MiFID Implementation Cost Survey of the UK Investment Industry, LECG, October 2005 
368 Europe Economics research indicates under 100 non-international equity book-runners active in the first 
half of 2010. To make allowance for the debt markets and dormant interest (i.e. those firms which would wish to retain a capability even when not active) they assume that  10 per cent of those firms authorised (i.e. a total of 
3,647 as described in Annex 16, being 2,765 credit institutions and 882 investment firms) would undertake such 
a task 
 
 382                                                                                                                                                             
369 Study on the Cost of Compliance with Selected FSAP Measures: Final Report, Europe Economics, 
January 2009 
370 Only about five per cent of those firms authorised within the EU for underwriting or placing activity are 
located in Central and Eastern Europe. We take again take 15 per cent to be active (i.e. giving a population of 27 
firms against the 13 known to be active in equity issuance in the first half of 2010) and further assume that one 
quarter of these will require more substantial investment. The estimates of system implementation related to the UK and were not specifically focused on underwriting and placing — therefore we scale this back to €125–
€250,000 per affected firm. This implies a one-off cost of €2–€4 million. 
371 Although in some countries without legislative or supervisory requirements, investment firms are 
required to keep tapes under the rules of regulated mark ets. For instance in Ireland, the Irish Stock Exchange 
requires members to operate an eff ective telephone recording system and in Germany, Deutsche Börse requires 
specialists to tape every call related to the execution of their tasks. 
372  The legislative proposal is for three years, but the pe riod considered for the cost estimate is to reflect the 
shorter periods in force in vari ous Member States currently.   
373 Consultation Paper 07/9: Conduct of Business regime: non-MiFID deferred matters (including 
proposals for Telephone Recording), UK FSA, May 2007 
 The number of individuals given includes principal dealers and agency brokers (in respect of any type 
or client or counterparty) and the associated sales functions. The individuals may be working for a number of different kinds of firms, including banks, stockbrokers, investment management firms (including CIS and hedge 
funds) and insurance companies. 
 The FSA also states: 
 We also considered the possibility of imposing similar requirements on other types of individuals 
working within financial services firms. Roles examined were those of investment managers who do not have dealing authority, research analysts, corporate finance advisors, and retail financial advisors. Our analysis 
suggested it would be disproportionate on market failure and cost-benefit grounds to impose recording 
requirements on these functions. 
374 This estimate is based on a number of firms noting that they would not typically authorise the use of 
mobile phones for the conduct of business even if robust mobile call recording solutions were available. 
Furthermore, if a mobile phone recording requirement were introduced some firms said they would consider limiting corporate mobiles to senior employees and fund managers to as to avoid recording costs. 
375 See European Commission Imp act Assessment Guidelines, 
http://ec.europa.eu/governance/impact/commission_guidelines/commission_guidelines_en.htm , Part III: 
Annexes to  Impact Assessment Guidelines (‘The Annexes’) (2009)  
376 See ‘Box 1: Types of obligation’, The Annexes 49-50. 
377 See ‘Box 3: Types of required action’, The Annexes 51. 
378 See http://ec.europa.eu/governance/impact/docs/eu_cost_model_report_sheet_v2.xls  
379 Information received from interview with a dealer-to- client electronic platform regulated as an MTF.  
380 Please note this is for illustrative purposes only an d is based on interviews with market participants 
rather than the data for a specific product. 
381 Derivative uncertainty likely to hit banks’ revenues, Financial Times, 21 March 2010 
382 Citi Investment Research and Analysis (2010), accessed online at http://www.zerohedge.com/article/55-
billion-otc-derivative-revenue-question  
 
 383                                                                                                                                                             
383 Derivatives 2010, International Fina ncial Services Lond on, December 2010 
384 Exchange rate average for 2009 (0.71916) from Oanda.com 
385 Derivative uncertainty likely to hit banks’ revenues, Financial Times, 21 March 2010 
386 This is of course a very high-level estimate and would vary across derivative types. 
387 As highlighted by Annette Nazaret h, Director of the Division if Ma rket Regulation of the SEC. See 
European corporate bond markets: tr ansparency, liquidity, efficiency, Ce ntre for Economic Policy Research, 
May 2006 
388 This is corroborated by empiri cal research by Biais et al in European corporate bond markets: 
transparency, liquidity, efficiency , Biais et al, Centre for Economic Policy Research, May 2006 
389 Naik et al. (1999) develop a model.  
390 See Bessembinder H, Maxwell W and Venkataram an K (2006) ‘Market tr ansparency, liquidity 
externalities and institutional trading costs in corporate bonds’ Journal of Financial Economics  Vol 82, pp 251 – 
288; Goldstein M, Hotchkiss E and Sirri, E (2006) ‘Transparency and liquidity: a controlled experiment on 
corporate bonds’ The Review of Financial Studies  Vol 20 (2), pp 235 – 273; and Edwards A, Harris L and 
Piwowar, M (2007) ‘Corporate bond market  transaction costs and transparency’ The Journal of Finance , Vol 
LXII (3) 
391 Summary of Responses to the ICMA Survey on Corporate Bond Markets – Liquidity and Transparency, 
ICMA, June 2010 
392 Summary of Responses to the ICMA Survey on Corporate Bond Markets – Liquidity and Transparency, 
ICMA, June 2010 
393 Bessembinder H, Maxwell W and Ve nkataraman K (2006) ‘Market tran sparency, liquidity externalities 
and institutional trading costs in corporate bonds’ Journal of Financial Economics  82 (2006) pp 251 – 288 
394 Final Report of the IIF Committee on Market Best Practices: Principles of Conduct and Best Practice 
Recommendations Financial Services Industry Response to  the Market Turmoil of 2007-2008, Institute of 
International Finance, July 2008. 
395 A report by the International Accounting Standards Board suggested that transactions prices in inactive 
markets may be inputs when measuring fair value. See IASB Expert Advisory Panel: Measuring and disclosing 
the fair value of financial instruments in markets that are no longer active, International Accounting Standards 
Board, October 2008 
396 Transparency of corporate bond, structured finance product and cr edit derivatives markets, CESR/09-
348, 10 July 2009 
397 Lagana M, Perina M, Von Koppen-Mertes I and Persuad A, ‘Implications for liquidity from innovation 
and transparency in the Eu ropean Corporate bond mark et’, ECB Occasional Paper Se ries No. 50, August 2006 
398 Articles 14(1) and 39(d) of the Directive 2004/39/EC (MiFID Framework Directive) 
399 Cited in Transparency of corpor ate bond, structured finance produc t and credit derivatives markets, 
CESR/09-348, CESR, 10 July 2009 
400 Source: Bloomberg  
401 Transparency of corporate bond, structured finance product and cr edit derivatives markets, CESR/09-
348, CESR, 10 July 2009 
 
 384                                                                                                                                                             
402 1 = same as equities; 2 = no Recital 46 but some other requirements; 3 = no apparent transparency 
403 MiFID Transposition state of play, see 
http://ec.europa.eu /internal_market/securities/isd/ mifid_implementation_en.htm 
404 Federation of European Securities Exchanges 
405 Our difference-in-difference analysis, whereby we compare the change in relative spreads between the 
two groups before and after MiFID, accounts for any group-specific changes that would have occurred across the two time periods. Our student ‘t-test’ for the significance of the difference gave a t-statistic of 205.4, which 
indicates that the difference-in-diffe rence is significant at all levels. 
406 Non-public domestic and international bond trading turnover in 2009 estimated to be around €8 billion 
(source: FESE 2009 and Europe Economics analysis) 
407 Our methodology is based on that used in Bessembinder et al (2006) ‘Market transparency, liquidity 
externalities and institutional trading costs in corporate bonds’ Journal of Financial Economics , Vol 82. We 
multiply the relative spread saving by the total value of trading in bonds on exchanges where there is currently 
no MiFID-like transparency.  
408 See for example Data gathering and analysis in the context of the MiFID review Final Report for 
Directorate General Internal Market and Services, Eu ropean Commission, PricewaterhouseCoopers, 13 July 
2010 and European corporate bond market s: transparency, liquidity, efficiency , Biais et al, Centre for Economic 
Policy Research, May 2006 
409 Data gathering and analysis in the context of th e MiFID review’ Final Report  for Directorate General 
Internal Market and Services, European Commission, PricewaterhouseCoopers, 13 July 2010 
410 Transparency of corporate bond, structured finance product and cr edit derivatives markets, CESR/09-
348, July 2009 
411 This timing of the reporting is significantly longer than the Commission envisages and as set out in 
MiFID (as close to real time as possible).  
412 There have been efforts, however, by brokers to ma intain a level of transparency for bonds not admitted 
to trading on regulated markets (e.g. negotiated exclusively OTC).  
413 Transparency of corporate bond, structured finance product and cr edit derivatives markets, CESR/09-
348, July 2009 
414 NASDAQ OMX Guidelines for Members’ On-Exc hange Trade and Members’ and Non-Members’ 
OTC Trade Reporting in Danish Fixed Income Instruments Version 1.1, September 2008 
415 NASDAQ OMX Guidelines for Members’ On-Exc hange Trade and Members’ and Non-Members’ 
OTC Trade Reporting in Danish Fixed Income Instruments Version 1.1, September 2008 
416 Neither Markit, its affiliates nor any data provider makes any warranty, express or implied, as to the 
accuracy of the data or services or as to results to be attained by subscriber  or others from the use of the data or 
services. Neither Markit, its affiliates nor any of their data provider shall in any way be liable to any recipient of 
the Markit data for any inaccuracies, errors or omissions, regardless of cause, in the Markit data or services 
provided hereunder or for any damages (whether direct or indirect) resulting therefrom. 
 the data incorporated in the research may not be used for investment accounting activities defined as 
back office accounting functions custom ary in the securities in dustry, including but not limited to, trust 
accounting, fund accounting, brokerage activities, trading and settleme nt management and reporting, order 
execution, inventory control, and general management of financial and operations functions. 
 
 385                                                                                                                                                             
417 In addition, investigation into the existence of imp act assessments or analysis relating to similar Frank-
Dodd regulations in the US has yielded no results. See for example the list of SEC accomplishments to date, 
none of which include any formal assessment of the proposals Implementing Dodd-Frank Wall Street Reform and Consumer Protection Act — Accomplishme nts, see: http://www.s ec.gov/spotlight/dodd-
frank/accomplishments.shtml 
418 Consultation Paper: Transparency of corporate bond, structured finance product and credit derivatives 
markets, CESR/08-1014 
419 Occasional paper series no.50: Im plications for liquidity from i nnovation and transparency in the 
European corporate bond market, European Central Bank (Laganá, Pe řina, von Köppen-Mertes and Persaud), 
August 2006 
420 The credit premium is the additional yield that investors demand as compensation for the risk of default 
as well as the volatility and unpredictability of this risk.  
421 See, for example, McCoy (2004) who found that in a number of currency markets with very tight 
quoted spreads decreases in prices increased the number  of sellers rather than stabilising buyers), cited in 
Occasional paper series no.50: Imp lications for liquidity from innovation and transparency in the European 
corporate bond market, European Central Bank (Laganá, Pe řina, von Köppen-Mertes and Persaud), August 2006 
422 See Bessembinder H, Maxwell W and Venkataram an K (2006) ‘Market tr ansparency, liquidity 
externalities and institutional trading costs in corporate bonds’ Journal of Financial Economics  Vol 82, pp 251 – 
288; Goldstein M, Hotchkiss E and Sirri, E (2006) ‘Transparency and liquidity: a controlled experiment on 
corporate bonds’ The Review of Financial Studies  Vol 20 (2), pp 235 – 273; and Edwards A, Harris L and 
Piwowar, M (2007) ‘Corporate bond market  transaction costs and transparency’ The Journal of Finance , Vol 
LXII (3) 
423 Price Transparency in the U.S.  Corporate Bond Markets, J Temp elman, The Journal of Portfolio 
Management, Vol. 35, Spring 2009 
424 Interviews were conducted with 15 high-yield bond portfolio managers including 9 hedge funds, 4 asset 
managers and 2 insurance companies 
425 Provided by SIFMA 
426 Price Transparency in the U.S.  Corporate Bond Markets, J Temp elman, The Journal of Portfolio 
Management, Vol. 35, Spring 2009 
427 See for example Latent Liquidity  and Corporate Bond Yield Spreads, S Mahanti A Nashikkary M 
Subrahmanyamz, 8 August 2007 , which demonstrates that  “the liquidity of the CDS contract influences both the 
liquidity of the bond and the bond price itself”  (p 3).   
428 Price Transparency in the U.S.  Corporate Bond Markets, J Temp elman, The Journal of Portfolio 
Management, Vol. 35, Spring 2009 
429 Bessembinder, H and Maxwell, W (2008) ‘Transparency and the corporate bond market’ Journal of 
Economic Perspectives , Vol 22, No.2, p 228 
430 Price Transparency in the U.S.  Corporate Bond Markets, J Temp elman, The Journal of Portfolio 
Management, Vol. 35, Spring 2009 
431  Looking at investment advisers not directly employed by credit institutions, FECIF’s White Book 
highlights how few of its members are remunerated on a fee basis.  This may be as low as 1–2 per cent in Italy, 3 
per cent in Belgium, Germany and Spai n and 5 per cent in the Netherlands. 
432  The impact of the UK FSA’s Retail Distribution Review (RDR) dealing with the regulation of inducements when advice is 
provided could be used a referenc e point. It should be mentioned, however, that the RDR proposes more st ringent restrictions on  the 
 
 386                                                                                                                                                             
treatment of inducements since it deals homogeneously with induc ements provided for in any form  of advice (not only independent ); 
furthermore, the RDR deals with produc ts and entities which are not covered under MiFID (i.e. entities providing insurance prod ucts). In 
addition it also includes measures on professional standards (i.e . professional qualifications of advisors). Lastly it should b e taken into 
account that there is a broader population of  investment advisors in the UK, including a significant proportion of small adviso rs. Having said 
than, it is anticipated that, 23 pe r cent of UK advisory firms might exit the market  as a result of the RDR, with a much higher  ratio amongst 
the smallest advisers (those with annual incomes below €50,000). Overall, adviser numbers would fall by about 11 per cent. This  includes, 
for instance, small providers which are close to retiring and will not find worthwhile to make investments to adapt to the new rules (Retail 
Distribution Review proposals: Impact on mark et structure and competition, Oxera, 2010). 
433  Retail Distribution Review proposals: Impact on market structure and competition, Oxera, 2010 
434 European Fund Industry Breakfast Briefing, Thom son Reuters and Lipper, Ed Moisson, December 2010 
435  JP Morgan Asset Management, 2010 "The Retail Distribution Review: The challenge and the 
opportunity for wealth managers". 
436  http://www.lipperfmi.com/FERIFMI/Inf ormation/Files/Breakfast%20Briefing%20-
%20Fund%20Fees%20-%207%20Dec10.pdf 
437  The UCITS market by itself is extremely large: w ith, in the EU, at least €5.1 trillion in assets under 
management within UCITS and a further €1.7 trillion in non-UCITS investment funds (such as the Spezialfunds 
in Germany). Source: EFAMA 2010 Fact Book, “Tre nds in European Investment Funds, 8th Edition”. 
438 The obligations of systematic internalisers to publish firm quotes are specified in Article 27 of Directive 
2004/39/EC, while more detailed requirements, including trad e transparency, are laid out in Article 21 to 34 of 
Regulation 1287/2006. 
439 Systematic internaliser is defined in Article 4(1)(7) of Directive 2004/39/EC (MiFID Framework 
Directive), while Article 21 of Regulation No 1287/200 6 (MiFID Implementing Regulation) further specifies 
criteria for determining whether an investment firm is a systematic internaliser. 
440 Articles 25, 29, 30, 44 and 45 of Directive 2004/39/EC (MiFID Framework Directive) 
441 In Article 28 of Directive 2004/39/EC (MiFID Fr amework Directive) and an y relevant new Articles 
referred to in footnote 68 above. 
442 By amending article 5 of Regulation No 1287/2006 (MiFID Implementing Regulation). 
443 By amending Article 25 of Directive 2004/39/EC (MiFID Fr amework Directive) 
444 Amending Article 25(4) of Directive 2004/39/EC (MiFID Framework Directive) and Article 13(4) of 
Regulation No 1287/2006 (MiFID Implementing Regulation)  
445 CESR has already put forward numerous proposals in cluding a third trading capacity (client facilitation) 
in addition to those of agent and principal, and standards for mandatory client and counterparty identifiers (Final Advice to the European Commission in the context of MiFID Review on transaction reporting, CESR/10-808) 
446 Annex I, section B of Directive 2004 /39/EC (MiFID Fram ework Directive) 
447 Annex I, section B(1) of Directive 2004/39/EC (MiFID Framework Directive) 
448 The Commission consulted on the possibility to classify  this MiFID ancillary service as an investment 
service in the context of proposals on legal certainty  of securities holding and dispositions: G2/PP D(2009) 
Legislation on legal certainty of securities holding and dispositions, Consultation document of the Services of 
the Directorate-General Internal Mark et and Services, 16 April 2004, see: 
http://ec.europa.eu/in ternal_market/consultations/docs/2009/secu rities-law/hsl_consultation_en.pdf and DG 
Markt G2 MET/OT/acg D(2010) 768690, Legislation on le gal certainty of securities holding and dispositions, 
 
 387                                                                                                                                                             
Consultation document of the services of the directorate-general internal market and services, see: 
http://ec.europa.eu/internal_market/consultations /docs/2010/securities/consultation_paper_en.pdf 
449 With an amendment to Annex I, Section A of Directive 2004/39/EC (MiFID Framework Directive) 
450 Organisational requirements and certain conduct of business obligations (notably general information 
and reporting obligations) would be particularly important in providing this service (Articles 13, 18, 19, 
paragraphs (1), (2), (3), (7) and (8) of Dir ective 2004/39/EC (MiFID  Framework Directive)) 
451 Paragraphs 3.4 and 6.3. 
452 Additional Information in Relation to Responses to Questions 15-18 and 20-25 of the European 
Commission Request for Additional Information in Relation to the Review of MiFID, CESR/10-860, 29 July 2010 
453 Amending Article 4(1)(5) of Directive 2004/39/EC (MiFID Framework Directive) 
454 Article 4(1)(6) of Directive 2004/39/ EC (MiFID Framework Directive). 
455 Article 2(1)(d) of Directive 2004/39/ EC (MiFID Framework Directive). 
456 As established in recital 69 of Directiv e 2006/73/EC (MiFID Implementing Directive). 
457 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 Directiv e 2004/39/EC (MiFID Framework Directive).  
458 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. 
459 Article 4(1)(6) of Directive 2004/ 39/EC (MiFID Framework Directive) 
460 Article 9 of Directive 2004/39/EC  (MiFID Framework Directive) 
461 See: (COM (2010) 284 Final) Green Paper on Corporate Governance in financial institutions and 
remuneration policies  
462 Article 9 of Directive 2004/39/EC  (MiFID Framework Directive) 
463 New provision in Directive 2006/73/EC (MiFID Implementing Directive) 
464 Article 2 (9) of Directive 2006/73/EC (MiFID Implementing Directive) 
465 Article 13 (3) and 18 of Directive 20 04/39/EC (MiFID Framework Directive) 
466 For instance, the Lehman Brothers case 
467 Section 3, Chapter II of Directive 2006 /73/EC (MiFID Implementing Directive) 
468 Recital 27 of Directive 2004/39/E C (MiFID Framework Directive) 
469 We note that the UK Financial Services Authority is consulting on a similar proposal for retail clients 
assets: see Financial Services Authority Quarte rly consultation (No 25), UK FSA, July 2010. 
470 Article 19 of Directive 2006/73/EC (MiFID Implementing Directive) 
471 Article 32 (7) of Directive 2006/73/EC (MiFID Implementing Directive) 
472 Article 18 of Directive 2006/73/EC (MiFID Implementing Directive) 
 
 388                                                                                                                                                             
473 Article 23(1) of Directive 2004/3 9/EC (MiFID Framework Directive) 
474 Tied agents are defined under article 4 (1) (25) of  Directive 2004/39/EC (MiF ID Framework Directive) 
475 Technical Advice to the European Commission in  the context of the MiFID Review – Investor 
Protection and Intermediaries, CESR/10-859, 29 July 2010, p. 33 
476 Article 23(1) of Directive 2004/39/ EC (MiFID Framework Directive) 
477 Article 23(2) of Directive 2004/39/ EC (MiFID Framework Directive)  
478 Article 32 (2), second paragraph, of Dir ective 2004/39/EC (MiFID  Framework Directive) 
479 Article 31 (2) of Directive 2004/ 39/EC (MiFID Framework Directive) 
480 This would imply qualifying the exclusions in Article 1(2) of Directive 2004/39/EC (MiFID Framework 
Directive) as regards Articles 31 and 32 by stating that  the exclusions do not apply in the case of tied agents. 
481 Namely, urging strong measures to counter speculation in commodity derivatives, and opposition to the 
option raised in the consultation on banning "execution-only" services which allows investors to buy and sell certain non-complex products directly in the market without having to undergo a test of their knowledge and 
experience. 
cdlxxxii Does Algorithmic Trading Improve Liquidity?, T Hendershott, C Jones, and AJ Menkveld, American 
Finance Association Journal of Finance, forthcoming 
cdlxxxiii Algorithmic Trading and Information, T Hendershott,  and R Riordan, NET Ins titute Working Paper No. 
09-08, September 2009 
cdlxxxiv High Frequency Trading and its Impact on Mark et Quality, J Brogaard, 5th Annual Conference on 
Empirical Legal Studies Paper, 22 November, 2010 
cdlxxxv Technology and Liquidity Provision: The Blurring of Traditional Definitions, J Hasbrouck and G Saar, 
30 December 2007 
cdlxxxvi Assessing the Impact of Algorithmic Trading on Markets: A Simulation Approach, M Gsell, Centre for 
Financial Studies Working Paper No. 2008/49, June 2008 
cdlxxxvii High-Freque ncy Trading, Stock Volatility, and Pric e Discovery, F Zh ang, December 2010 
cdlxxxviii Public dissemination of trade information was initially limited to investment grade bonds (rated BBB 
and above) with issue sizes greater than $1 billion, due to concerns that the dissemination of such data for 
smaller and lower grade bonds might have an adverse impact on liquidity. 
cdlxxxix Expansion of TRACE in the U.S. fixed-income OTC market, NO Persson, Director, TRACE and Fixed 
Income Strategy, FINRA 
cdxc See Bessembinder H, Maxwell W and Venkataram an K (2006) ‘Market tr ansparency, liquidity 
externalities and institutional trading costs in corporate bonds’ Journal of Financial Economics  Vol 82, pp 251 – 
288; Goldstein M, Hotchkiss E and Sirri, E (2006) ‘Transparency and liquidity: a controlled experiment on 
corporate bonds’ The Review of Financial Studies  Vol 20 (2), pp 235 – 273; and Edwards A, Harris L and 
Piwowar, M (2007) ‘Corporate bond market  transaction costs and transparency’ The Journal of Finance , Vol 
LXII (3) 
cdxci The difference between the changes in transac tion costs over time fo r Trace and non-Trace bonds 
represents the isolated impact of TRACE. 
 
 389                                                                                                                                                             
cdxcii Expansion of TRACE in the U.S. fixed-income OTC market, NO Persson, Director, TRACE and Fixed 
Income Strategy, FINRA