Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2014/65/EU on markets in financial instruments as regards certain dates
Date: 2016-02-10
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: data collection, financial control, financial instrument, financial legislation, investment company

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   EUROPEAN COMMISSION  Brussels, 10.2.2016  COM(2016) 56 final 2016/0033 (COD)   Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2014/65/EU on markets in financial instruments as regards certain dates  (Text with EEA relevance)  
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

1.1. Reasons for the proposal 

Directive 2014/65/EU (‘MiFID’) together with Regulation (EU) No 600/2014 (‘MiFIR’) was 
adopted  in  the  wake  of  the  financial  crisis.  MiFID  and  MiFIR,  collectively  referred  to  as 
MiFID II, covers securities markets, investment intermediaries and trading venues. The new 
framework reinforces and replaces the current MiFID framework.  

MiFID  II  extends  the  number  of  financial  instruments  covered  by  trading  rules  and  ensures 
that trading takes place on regulated platforms. It introduces rules on high frequency trading. 
It  improves  the  transparency  and  oversight  of  financial  markets  –  including  derivatives 
markets  -  and  addresses  the  issue  of  price  volatility  in  commodity  derivatives.  The  new 
framework  improves  conditions  for  competition  in  the  trading  and  clearing  of  financial 
instruments. Building on the rules already in  place, the revised MiFID rules also strengthen 
the  protection  of  investors  by  introducing  robust  organisational  and  conduct  of  business 
requirements. The MiFID II package consists of a Directive and a Regulation. Member States 
need  to  transpose  the  Directive  by  3  July  2016.  Both  MiFID  and  MiFIR  are  scheduled  to 
apply as of 3 January 2017. 

The purpose of the draft proposal is to extend the entry into application of both instruments 
that  are  comprised  in  the  MIFID  II  package  as  a  result  of  the  technical  implementation 
challenges  met  by  the  European  Securities  and  Markets  Authority  ('ESMA'),  national 
competent authorities ('NCAs') and stakeholders. These challenges are of such magnitude that 
essential data infrastructures will not be in place in time for 3 January 2017.  

During the legislative process, the very high level of complexity of the MiFID II package and 
the need for a significant number of implementing measures were recognised. To this end, a 
period of 30 months was foreseen between the adoption and the entry into application, instead 
of the usual 18-24 months. 

Despite  this  unusually  long  period,  ESMA  has  made  clear  to  the  Commission  that  the 
technical  implementing  challenges  are  of  such  magnitude  that  essential  data  infrastructures 
will not be in place in time for 3 January 2017. If the date of entry into application remains 
unchanged,  this  would  mean,  in  practice,  that  neither  competent  authorities,  nor  market 
participants, would be in a position to apply the new rules on 3 January 2017. This would lead 
to legal uncertainty and potential market disruption. 

In  light  of  these  exceptional  circumstances  and  the  particular  technical  implementation 
challenges  faced  by  ESMA  and  the  competent  authorities  in  this  specific  case,  the 
Commission deems it necessary to extend the entry into application of both instruments that 
are  comprised  in  MIFID  II.  Such  extension  shall  be  strictly  limited  to  what  is  necessary  to 
allow the technical implementation work to be finalised.  

1.2 The 'data' challenge 

ESMA  have  informed  the  Commission  that  neither  they  nor  NCAs  will  be  in  a  position  to 
apply MiFID II as of 3 January 2017. This is a result of significant challenges in collecting the 
data that is necessary for the operation of the MiFID II rules. In order to ensure legal certainty 
and avoid potential market disruption, urgent action is therefore needed to adjust the date of 
entry  into  application  for  MiFID  II.  The  reasons  for  the  urgency  are  linked  to  the  need  to 
establish  new  and  extensive  electronic  data  collection  networks  between  trading  venues, 
national regulators and ESMA.  

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The new framework requires trading venues and systematic internalisers to provide competent 
authorities  with  financial  instrument  reference  data  that  describes  in  a  uniform  manner  the 
characteristics of every financial instrument subject to the scope of MiFID II. Additional data 
are  also  used  for  other  purposes,  in  particular  for  the  calculation  of  various  liquidity  and 
transparency  thresholds  used  for  on-venue  trading  of  all  financial  instruments  covered  by 
MiFID as well as for positions reporting of commodity derivatives.  

In  order  to  collect  data  in  an  efficient  and  harmonised  manner,  a  new  data  collection 
infrastructure must be developed. This obliges ESMA, in conjunction with competent national 
authorities, to establish a Financial Instruments Reference Data System ('FIRDS'). FIRDS will 
need to cover the entire range of financial instruments that are included in the increased scope 
of MiFID II. In accomplishing this task, FIRDS will necessitate linking of data feeds between 
ESMA, NCAs and around 300 trading venues across the European Union. The vast majority 
of the new IT-systems underpinning FIRDS will need to be built from the ground, based on 
new parameters.  

The Commission recognises that as a result of the size and complexity of the data needed to 
be collected and processed for MiFID II to become operational, in particular for transaction 
reporting,  transparency  calculations  and  reporting  of  positions  in  commodity  derivatives, 
neither  stakeholders,  such  as  trading  platforms,  nor  NCAs  nor  ESMA  are  in  a  position  to 
ensure  that  the  necessary  data  collection  infrastructures  would  be  in  place  and  become 
operational  by  3  January  2017.  Therefore,  on  2  October  2015  ESMA  informed  the 
Commission that a delay in the technical implementation of MiFID II was unavoidable. 

1.3. The scope of the proposal 

The absence of data has ramifications across multiple areas of MIFID II.  As regards market 
regulation,  it  is  clear  that  without  the  foundation  of  reference  data  (instrument  ID)  and  the 
additional data infrastructures for transparency calculations and position reporting in place, it 
will not be possible to apply the majority of the market rules. In particular:  

 

 

 

 

Transaction reporting: without reference data, there will be challenges to determine 
what  instruments  are  within  the  scope.  In  addition,  the  necessary  infrastructure  for 
market participants to report to their competent authorities will not be available.  

Transparency  framework:  the  trade  transparency  rules  for  all  financial  instruments 
(equity  as  well  as  non-equity)  cannot  be  established  and  applied.  In  addition,  the 
calculations and thresholds for the liquidity assessment, waivers, deferred publication 
and, in the equity area, the double volume cap (which limits dark trading) cannot be 
established.  

Commodity  derivatives:  in  the  absence  of  position  reporting  for  commodity 
derivatives  it  will  be  very  difficult  to  enforce  position  limits  on  such  commodity 
derivative  contracts.  With  no  position  reporting,  there  is  a  limited  ability  to 
effectively detect breaches of positon limits.  

Microstructural  regulation:  many  of  the  requirements  in  relation  to  algorithmic 
trading/high  frequency  trading  are  by  their  nature  dependent  on  data.  In  particular, 
the  key  provisions  on  tick-size  regime  and  the  obligations  in  relation  to  market 
making obligations and schemes are also tailored on there being a liquid market as 
determined under the transparency framework.  

The  investor  protection  rules,  the  conduct  of  business  rules  and  certain  associated 
organisational requirements under MIFID II will not be directly affected by the lack of data. 
The important exception is the rules on  best execution, where the scope of the disclosure is 

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designed  by  reference  to  there  being  a  liquid  market  and  other  transparency  concepts.  For 
other  investor  protection  rules,  aside  from  issues  relating  to  the  definition  of  financial 
instruments or the scope of the legislation, data inter-linkages generally do not exist, as these 
rules  directly  concern  distribution  and  not  trading.  It  is,  therefore,  recognised  that  an 
alternative approach would be to extend the date of entry into application only for the parts of 
the legislation directly relating to data collection.  

However,  after  a  careful  analysis  of  that  option,  it  appears  that  an  extension  for  the  whole 
package, including investor protection rules, as opposed to a staggered approach is preferable: 

 

 

 

through  a  staggered 

It avoids the risk of causing confusion and unnecessary costs that stakeholders would 
incur 
infrastructures 
simultaneously  –  as  opposed  to  doing  so  in  stages  -  would  make  the  process  more 
cost effective. For example, it avoids situations, where investment firms, involved in 
execution of orders, would have to set up organisational requirements/conduct rules 
in stages, which would be complicated, expensive and costly;  

implementation.  Building  various 

It avoids having to delineate between the areas that can be immediately implemented 
and  those  that  cannot  be,  and,  therefore,  avoids  the  risk  of  causing  unintended 
consequences which may not have been foreseen or sufficiently considered; and  

It  avoids  the  need  for  transitional  rules,  which  by  themselves  would  create  new 
issues  and  divert  resources  of  ESMA,  NCAs  and  stakeholders  from  building  the 
permanent framework.  

On  the  basis  of  the  above  considerations,  extending  the  entry  into  application  for  the  entire 
MiFID II rulebook is therefore necessary and justified. 

1.4. Length of the extension 

(which 

An extension of one year should provide sufficient and reasonable time for ESMA, NCAs and 
operators to put in place the infrastructure for data collection, reporting and the transparency 
threshold  calculations.  There  are  five  steps  in  the  implementation  process:  (1)  business 
technical 
are 
requirements 
standards/implementing  technical  standards),  (2)  specifications,  (3)  development  (4)  testing 
and  (5)  deployment.  ESMA  estimates  that  it  should  complete  these  steps  in  relation  to  the 
reference  data,  transparency  calculations  and  position  reporting  systems  by  January  2018. 
This assumes that there is sufficient legal clarity on the final requirements under the relevant 
regulatory technical standards by mid-2016. On this basis, the draft proposal therefore extends 
the entry into application of the whole framework until 3 January 2018 by one year.  

regulatory 

necessary 

case 

this 

the 

in 

The  extension  of  entry  into  application  of  the  measures  of  the  Member  States  transposing 
Directive 2014/65/EU should not impact adoption of delegated acts and technical standards to 
be developed under Directive 2014/65/EU. The Commission should adopt these measures in 
accordance with the procedure envisaged in order to allow the industry to set up and adjust 
internal  systems  to  ensure  compliance  with  new  requirements  on  the  date  of  entry  into 
application of Directive 2014/65/EU. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The  proposal  is  based  on  Article  53(1)  of  the  TFEU.  It  is  complementary  to  the  proposed 
regulation extending the entry into application of MiFIR. 

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• 

Subsidiarity  

According to the principle of subsidiarity, EU action may only be taken if the envisaged aims 
cannot be achieved by Member States alone. EU intervention is needed to improve the proper 
functioning  of  the  internal  market  and  avoid  the  distortion  of  competition  in  the  field  of 
securities  markets.  In  this  regard,  the  legislation,  that  is  being  amended,  is  adopted  in  full 
compliance  with  the  principle  of  subsidiarity  and  any  amendment  thereto  must  be  made 
through a Commission proposal.  

• 

Proportionality 

This  EU  action  is  necessary  to  achieve  the  objective  of  the  proper  implementation  of  data 
collection infrastructure, as established by MIFID II. The extension as proposed in terms of 
the  scope  and  length  is  necessary  to  allow  for  an  efficient  and  orderly  planning  and 
implementation  by  all  involved  parties.  This  proposal  will therefore  ensure  that  the  original 
purpose  of  MIFID  II  of  achieving  a  fully  functioning  internal  market  for  securities  services 
with a high level of market transparency and investor protection can be attained.  

3. 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

This proposal is not accompanied by a separate Impact Assessment, as an impact assessment 
for MIFID II has already been undertaken. This proposal does not alter MiFID II on substance 
and  does  not  impose  new  obligations  on  investment  firms  and  trading  venues  or  any  other 
operator covered by MiFID II. It only aims at providing - for exceptional reasons in particular 
linked  to  the  high  complexity  of  the  package  and  the  data  collection  tools  needed  –  an 
extension of the date of entry into application of MiFID II by 1 year to provide legal certainty 
and  develop  the  necessary  data  collection  infrastructures  to  ensure  effective  application  and 
enforcement of the new rules by ESMA and NCAs.  

4. 

BUDGETARY IMPLICATIONS 

The proposal does not have a budgetary impact for the Commission. 

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2016/0033 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Directive 2014/65/EU on markets in financial instruments as regards certain 
dates  

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Central Bank1,  
Having regard to the opinion of the European Economic and Social Committee2,  

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

1 
2 
3 

4 

5 

Regulation  (EU)  No  600/2014  of  the  European  Parliament  and  of  the  Council3  and 
Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council4  are  major 
pieces  of  financial  legislation  adopted  in  the  wake  of  the  financial  crisis  as  regards 
securities markets, investment intermediaries and trading venues. The new framework 
reinforces and replaces  Directive 2004/39/EC of the European Parliament  and of the 
Council5. 

Regulation  (EU)  No  600/2014  and  Directive  2014/65/EU  establish  requirements  in 
relation to authorisation and operation of investment firms, regulated markets and data 
reporting  services  providers.  It  harmonises  position-limits  regime  for  commodity 
derivatives to improve transparency, support orderly pricing and prevent market abuse. 
It also introduces rules on high frequency trading and improves oversight of financial 
markets  by  harmonising  administrative  sanctions.  Building  on  the  rules  already  in 
place, the new framework also strengthens the protection of investors by introducing 

OJ C , , p. . 
OJ C , , p. . 
Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council  of  15 May  2014  on  markets  in 
financial  instruments  and  amending  Directive 2002/92/EC  and  Directive 2011/61/EU  (OJ L 173, 
12.6.2014, p. 349). 
Regulation (EU)  No 600/2014  of  the  European  Parliament  and  of  the  Council  of  15 May  2014  on 
markets  in  financial  instruments  and  amending  Regulation  (EU)  No 648/2012  (OJ L 173,  12.6.2014, 
p. 84). 
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial  instruments  amending  Council  Directives  85/611/EEC  and  93/6/EEC  and  Directive 
2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC 
(OJ L 145, 30.4.2004, p. 1). 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

robust  organisational  and  conduct  requirements.  Member  States  are  to  transpose  the 
Directive 2014/65/EU by 3 July 2016.  

The  new  framework  introduced  by  Regulation  (EU)  No  600/2014  and  Directive 
2014/65/EU requires trading venues and systematic internalisers to provide competent 
authorities with financial instrument reference data that describe in a uniform manner 
the  characteristics  of  every  financial  instrument  subject  to  that  Directive.  Those  data 
are also used for other purposes,  for instance  for the calculation of transparency  and 
liquidity thresholds as well as for positions reporting of commodity derivatives.  

In order to collect data in an efficient and harmonised manner, a new data collection 
infrastructure  is  being  developed.  To  this  end,  the  European  Securities  and  Markets 
Authority ('ESMA'), in conjunction with competent national authorities, are obliged to 
establish  a  Financial  Instruments  Reference  Data  System  ('FIRDS').  It  will  cover  a 
wide  range  of  financial  instruments  brought  into  the  scope  of  Regulation  (EU)  No 
600/2014 and it will link of data feeds between ESMA, national competent authorities 
('NCAs') and trading venues across the European Union. The vast majority of the new 
IT-systems  underpinning  FIRDS  will  to  be  built  from  the  ground,  based  on  new 
parameters.  

Pursuant  to  Article  93  of  Directive  2014/65/EU,  the  Member  States  are  to  apply  the 
measures  transposing  that  Directive  from  3  January  2017.  However,  due  to  the  size 
and  complexity  of  the  data  to  be  collected  and  processed  for  the  new  framework  to 
become  operational,  in  particular  for  transaction  reporting,  transparency  calculations 
and  reporting  of  positions  in  commodity  derivatives,  stakeholders,  such  as  trading 
platforms,  ESMA  and  NCAs  are  not  in  a  position  to  ensure  that  the  necessary  data 
collection infrastructures will be in place and become operational by that date. 

The  absence  of  the  data  collection  infrastructures  has  implications  across  the  entire 
scope  of  Regulation  (EU)  No  600/2014  and  Directive  2014/65/EU.  Without  data  it 
will not be feasible to establish a precise delineation of financial instruments that fall 
within the scope of the new framework. Furthermore, it will not be possible to tailor 
the  pre-trade  and  post-trade  transparency  rules,  in  order  to  determine  which 
instruments are liquid and when waivers or deferred publication should be granted.  

Absent  the  data,  trading  venues  and  investment  firms  will  not  be  able  to  report 
executed transactions to competent authorities. In the absence of position reporting for 
commodity derivatives it will be difficult to enforce position limits on such contracts. 
With no position reporting, there is a limited ability to effectively detect breaches of 
the positon limits. Many of the requirements in relation to algorithmic trading are also 
dependent on data. 

The absence of data collection infrastructure will also make it difficult for investment 
firms to apply best execution rules. Trading venues and systematic internalises will not 
be  able  to  publish  data  relating  to  the  quality  of  execution  of  transactions  on  those 
venues.  Investment firms will  not  be provided with  important  execution data  to  help 
them determine the best way to execute client orders.  

In order to ensure legal certainty and avoid potential market disruption, it is necessary 
and  justified  to  take  urgent  action  to  extend  the  entry  into  application  of  the  whole 
framework, including all delegated and implementing acts. 

(10)  The  implementation  process  for  data  infrastructure  involves  five  steps:  business 
requirements,  specifications,  development,  testing  and  deployment.  ESMA  estimates 
that  those  steps  should  be  completed  by  January  2018  provided  that  there  is  legal 

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certainty on the final requirements under the relevant regulatory technical standards no 
later than by June 2016.  

(11) 

In  light  of  the  exceptional  circumstances  and  in  order  to  enable  ESMA,  NCAs  and 
stakeholders to complete the operational implementation, it is appropriate to defer the 
date  by  which  the  Member  States  need  to  apply  the  measures  transposing  Directive 
2014/65/EU and the date by which the repeal of Directive 2004/39/EC is to take effect 
by  12  months  until  3  January  2018.  Reports  and  reviews  should  be  deferred 
accordingly.  

(12)  Directive 2014/65/EU should therefore be amended accordingly,  

HAVE ADOPTED THIS DIRECTIVE: 

Directive 2014/65/EU is amended as follows:  

(1) 

Article 90 is amended as follows: 

Article 1 

(a) 

(b) 

in the first paragraph, ‘3 March 2019’ is replaced by ‘3 March 2020’; 

the second paragraph is amended is follows: 

(i) 

‘3 September 2018’ is replaced by ‘3 September 2019’; 

(ii) 

‘3 September 2020’ by ‘3 September 2021’; 

(2) 

(3) 

(4) 

(c) 

in the fourth paragraph, ‘1 January 2018’ is replaced by ‘1 January 2019’; 

In  the  second  subparagraph  of  Article 93(1),  ‘3 January  2017’  is  replaced  by 
‘3 January 2018’ and ‘3 September 2018’ by ‘3 September 2019’; 

In Article 94, ‘3 January 2017’ is replaced by ‘3 January 2018’; 

In Article 95(1), ‘3 July 2020’ is replaced by ‘3 January 2021’ and ‘3 January 2017’ 
is replaced by ‘3 January 2018’. 

Article 2 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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