REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Exemption for the Central Bank of The People's Republic of China under the Markets in Financial Instruments Regulation (MiFIR)
Date: 2019-03-14
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: China, European System of Central Banks, central bank, financial instrument, financial legislation, financial supervision, financial transaction, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 14.3.2019  COM(2019) 143 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Exemption for the Central Bank of The People's Republic of China under the Markets in Financial Instruments Regulation (MiFIR)       
 
 
1.  INTRODUCTION  

The  Regulation  on  Markets  in  Financial  Instruments  (hereinafter  MiFIR)1  and  the  Directive 
on  markets  in  financial  instruments  (MiFID  II)2  were  published  in  the  Official  Journal  on 
12 June  2014,  entered  into  force  on  2  July  2014  and  have  been  applicable  since  3  January 
2018.  

MiFID  II/MiFIR  introduce  a  market  structure  which  aims  to  ensure  that  trading,  wherever 
appropriate, takes place on regulated platforms and that trading is made transparent to ensure 
efficient and fair price formation. 

In  this  framework,  MiFIR  grants  an  exemption  from  pre-  and  post-trade  transparency 
requirements with regard to non-equity financial instruments that benefits regulated markets, 
market operators and investment firms in respect of a transaction where the counterparty is a 
member  of  the  European  System  of  Central  Banks  (ESCB)  and  where  that  transaction  is 
entered  into  in  performance  of  monetary,  foreign  exchange  and  financial  stability  policy 
which that member of the ESCB is legally empowered to pursue and where that member has 
given  prior  notification  to  its  counterparty  that  the  transaction  is  exempt.  Moreover,  MIFIR 
empowers  the  Commission  to  extend  the  scope  of  this  exemption  to  third-country  central 
banks where the prerequisite conditions are fulfilled.  

For this purpose the European Commission commissioned an external study to the Centre for 
European  Policy  Studies  (CEPS)  and  the  University  of  Bologna  on  "Exemptions  for  third-
country central banks and other entities under the Market Abuse Regulation (MAR)  and the 
market in Financial Instrument Regulation (MiFIR)" (the "study")3. The study is based on a 
survey  and  desk  research.  It  analyses  the  pre-  and  post-trade  transparency  rules  that  apply 
when  third-country  central  banks  trade  in  non-equity  financial  instruments,  as  well  as  the 
extent to which these central banks trade these instruments in the Union.  

In  a  Commission  report4  adopted  on  9  June  2017,  the  Commission  concluded  that  it  is 
appropriate to grant an exemption from MiFIR pre- and post-trade transparency requirements 
in  accordance  with  Article  1(9)  MIFIR  to  the  third-country  central  banks  of  the  following 
jurisdictions:  Australia,  Brazil,  Canada,  Hong  Kong  SAR,  India,  Japan,  Mexico,  Singapore, 
the  Republic  of  Korea,  Switzerland,  Turkey  and  the  United  States  –  and  the  Bank  for 
International  Settlements.  The  Delegated  Regulation  (EU)  2017/1799,  adopted  on  14  June 
2017,  granted  an  exemption  from  MiFIR  pre-  and  post-trade  transparency  requirements  in 
accordance with Article 1(9) MIFIR to the third-country central banks of the aforementioned 
countries. 

1 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). 
2 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). 
3 https://www.ceps.eu/publications/study-exemptions-third-country-central-banks-and-debt-management-offices-
under-mifir 
4 COM(2017) 298 final 

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2.  THE REPORT'S LEGAL BASIS: MiFIR ARTICLE 1(9)  

The Central Bank of the People’s Republic of China (the People's Bank of China, PBoC) did 
not  provide  sufficient  information,  notably  relating  to  its  trading  activity  in  the  EU,  for  the 
Commission  to  make  an  assessment  at  the  time  of  the  Commission  Regulation  (EU) 
2017/1799.  In  August  2018,  the  People's  Bank  of  China  provided  the  data  necessary  to 
complete the assessment under Article 1(9) MiFIR. In light of the additional material received 
from  the  People’s  Bank  of  China  this  report  assesses  the  appropriateness  of  granting  an 
exemption  from  MiFIR  pre-  and  post-trade  transparency  requirements  in  accordance  with 
Article 1(9) MIFIR to the People’s Bank of China. 

Article 1(6) of MiFIR contains an exemption from pre- and post-trade transparency rules for 
transactions  where  the  counterparty  is  a  member  of  the  European  System  of  Central  Banks 
(ESCB)  and  where  that  transaction  is  entered  into  in  performance  of  monetary,  foreign 
exchange and financial stability policy which that member of the ESCB is legally empowered 
to  pursue  and  where  that  member  has  given  prior  notification  to  its  counterparty  that  the 
transaction is exempt.  

In addition, Article 1(9) MiFIR empowers the Commission to: "[…] adopt delegated acts in 
accordance with Article 50 to extend the scope of paragraph 6 to other central banks. 

To  that  end,  the  Commission  shall,  by  1  June  2015,  submit  a  report  to  the  European 
Parliament  and  to  the  Council  assessing  the  treatment  of  transactions  by  third-country 
central  banks  which  for  the  purposes  of  this  paragraph  includes  the  Bank  for  International 
Settlements.  The  report  shall  include  an  analysis  of  their  statutory  tasks  and  their  trading 
volumes in the Union. The report shall:  

(a)  identify  provisions  applicable  in  the  relevant  third  countries  regarding  the  regulatory 
disclosure of central bank transactions, including transactions undertaken by members of the 
ESCB in those third countries, and  

(b) assess the potential impact that regulatory disclosure requirements in the Union may have 
on third-country central bank transactions.  

If the report concludes that the exemption provided for in paragraph 6 is necessary in respect 
of transactions where the counterparty is a third-country central bank carrying out monetary 
policy, foreign exchange and financial stability operations, the Commission shall provide that 
that exemption applies to that third-country central bank.”  

3.  ANALYSIS OF THE SITUATION FOR THE PEOPLE’S BANK OF CHINA  

Criteria used for the assessment 

The mandate provided by article 1(9) MiFIR (analysis of the identified jurisdictions) is based 
on two key criteria both of which were crucial for the Commission's assessment:  

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a.  Rules  on  regulatory  disclosure  of  central  banks  transactions:  the  market  transparency 
regime  applicable  to  central  bank  transactions  ("market  transparency")  and/or  the 
transparency  of 
the  central  bank  ("operational 
transparency"); and 

the  operational  framework  of 

b.  Necessity of an exemption: the volume of transactions that the central bank executed with 

EU counterparties or in EU-listed financial instruments.  

For  the  purposes  of  the  assessment,  the  fulfilment  of  these  two  criteria  was  considered 
essential since they capture the factors set out in Article 1(9) MiFIR. In this regard, "market 
transparency"  relates  to  transaction-specific  transparency  relating  to  individual  securities, 
while  the  "operational  transparency"  refers  to  broader  transparency  rules  that  governs  the 
operations  of  a  central  bank.  Therefore,  considering  the  MiFIR  objectives  and  scope,  an 
analysis  of  the  regulatory  requirements  relating  to  market  transparency  for  transactions  and 
transparency  of  the  operational  framework  was  considered  necessary  in  order  to  assess  the 
appropriateness  of  granting  an  exemption  to  third  country  central  banks  in  accordance  with 
Article 1(9)(a) MIFIR. Furthermore, the transaction volume between the central bank of the 
relevant third country and the EU is of importance as it is an indicator of the potential impact 
that regulatory disclosure requirements in the Union may have on third-country central bank 
transactions in accordance with Article 1(9)(b) MIFIR.  

Additionally, taking into account the requirements and objectives under MiFIR, the following 
criteria have also been considered:  

(i) 

the existence of a notification procedure whereby a third-country central  bank notifies 
its EU counterparty that a transaction is exempt;  

(ii)  

the ability of the third-country central bank to distinguish between transactions for the 
key  policy  purposes  identified  by  MiFIR  and  transactions  executed  only  for  ‘pure’ 
investment purposes; and  

(iii)   the  existence  of  a  similar  exemption  available  to  third-country  central  banks  in  the 

jurisdiction under review. 

The  above  additional  criteria  were  assessed  taking  into  account  the  requirements  and 
objectives  of  MiFIR.  In  particular,  the  assessment  considered  whether  the  third-country 
central  bank  had  a  procedure  in  place  to  notify  its  EU  counterparty  that  a  transaction  is 
exempt.  Under  MiFIR,  exemptions  under  Article  1(6)  MIFIR  cannot  be  granted  to  central 
banks when they execute operations for pure investment purposes. Therefore, the assessment 
considered whether third-country central banks can distinguish between transactions executed 
for  regulatory  and  investment  purposes.  Finally,  in  light  of  the  market  impact  of  disclosure 
requirements  and  its  potential  repercussion  on  the  effectiveness  of  monetary  policies,  the 
availability of a statutory exemption for central banks trading on third-country trading venues 
is assessed. 

For a detailed description of the criteria, please refer back to the study by CEPS.  

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Summary of the analysis for the Peoples' Bank of China (PBoC) 

The Commission has concluded that, the People’s Republic of China has a legal framework in 
place  that  allows  for  a  sufficient  level  of  transparency5.  Furthermore,  the  trading  activity  in 
the  EU  originating  from  the  People’s  Republic  of  China  is  substantial  enough  to  justify 
granting an exemption from pre- and post-trade transparency requirements to the PBoC.  

Below  is  a  short  summary  of  the  analysis  for  the  PBoC  in  relation  to  the  above-mentioned 
criteria. 

Key criteria 
The PBoC has real-time transparency requirements for exchanges listing corporate bonds and 
other  securities.  For  over  the  counter  (OTC)  transactions,  market  participants  have  no 
disclosure  obligations.  However,  the  China  Foreign  Exchange  Trade  System  (CFETS),  also 
known  as  National  Interbank  Funding  Center,  has  access  to  all  transaction  information  and 
may  disclose  this  information  to  the  public.  Operational  transparency  is  attained  through 
public  announcements  of  open-market  operations  (OMO)  and  results  of  short-term  liquidity 
operations (SLO).  

The European Commission has received data on trading activity of the PBoC on EU financial 
markets  and  with  EU  counterparties.  The  trading  volumes  of  the  PBoC  with  EU 
counterparties are high.  

Additional criteria 
An  exemption  from  transparency  requirements  is  not  available  for  foreign  central  banks 
trading in China. 

The PBoC can distinguish between transactions for policy purposes and transactions for other 
purposes (especially “investment” purposes), which have a marginal role. 

Finally, there is a notification procedure in place to inform EU counterparties that transactions 
are not subject to transparency requirements. 

Overview of the criteria 

Market transparency 

Key criteria 

Operational transparency 

Necessity 

Medium 

Medium 

Yes 

5 The purpose of this report is not to assess whether the above jurisdiction has trade transparency rules which can 
be deemed equivalent to those applicable under MIFIR. The conclusions in this report are without prejudice to 
any  such  assessment.  It  is  sufficient  for  the  purposes  of  this  assessment  that  the  jurisdiction  in  question  has  a 
disclosure framework in place. 

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Distinction transaction purpose 

Notification procedure 

Other criteria 

Foreign CBs exemption 

Yes 

Yes 

No 

Execution type 

Bilateral (50-100%) Venues (10-50%) 

Exemption 

Yes 

4.  CONCLUSIONS 

On the basis of the information obtained, the Commission concludes that it is appropriate to 
grant an exemption from MiFIR pre- and post-trade transparency requirements in accordance 
with Article 1(9) MIFIR to the PBoC. 

This conclusion is without prejudice to possible changes in the future, having regard to new 
evidence submitted by central banks in third countries, changes of third countries' legislation 
or changed factual circumstances. These events may trigger the need for a review of the list of 
exempted third-country central banks. 

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