Article 1 Subject matter and scope
1. This Regulation establishes uniform requirements in relation to the following: (a) disclosure of trade data to the public; (b) reporting of transactions to the competent authorities; (c) trading of derivatives on organised venues; (d) non-discriminatory access to clearing and non-discriminatory access to trading in benchmarks; (e) product intervention powers of competent authorities, ESMA and EBA and powers of ESMA on position management controls and position limits; (f) provision of investment services or activities by third-country firms following an applicable equivalence decision by the Commission with or without a branch. 2. This Regulation applies to investment firms, authorised under Directive 2014/65/EU and credit institutions authorised under Directive 2013/36/EU of the European Parliament and of the Council ( 19 ) when providing investment services and/or performing investment activities and to market operators including any trading venues they operate. 3. Title V of this Regulation also applies to all financial counterparties as defined in Article 2(8) of Regulation (EU) No 648/2012 and to all non-financial counterparties falling under Article 10(1)(b) of that Regulation. 4. Title VI of this Regulation also applies to CCPs and persons with proprietary rights to benchmarks. 5. Title VIII of this Regulation applies to third-country firms providing investment services or activities within the Union following an applicable equivalence decision by the Commission with or without a branch. 6. Articles 8, 10, 18 and 21 shall not apply to 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. 7. Paragraph 6 shall not apply in respect of transactions entered into by any member of the ESCB in performance of their investment operations. 8. ESMA shall, in close cooperation with the ESCB, develop draft regulatory technical standards to specify the monetary, foreign exchange and financial stability policy operations and the types of transactions to which paragraphs 6 and 7 apply. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU) No 1095/2010. 9. The Commission shall be empowered 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.
Amendment rationale: 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 the NCAs will be in a position to apply MiFID II as of 3 January 2017. This is as 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 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. 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 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:  It avoids the risk of causing confusion and unnecessary costs that stakeholders would incur through a staggered implementation. Building various 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;  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. Changing the date of applicability of MiFID II does however have consequences for the applicability of other legislation, in particular Regulation (EU) 596/2014 ('MAR') and Regulation (EU) 909/2014 ('CSDR'). The market abuse framework will apply to certain definitions and concepts of MiFID II. As MAR is set to enter into application on 3 July 2016, there is already a provision in it, which ensures that before the originally foreseen date of entry into application of MiFID II, concepts and rules of MiFID I will apply. In order to ensure legal certainty for the period between the originally foreseen date of entry into application and the new date of entry into application, it is necessary to clarify in MAR that the concepts and rules as set out in MiFID I should be used until the new date of entry into application of MiFID II. MAR also refers to concepts that will be introduced by MiFID II, such as organised trading facilities ('OTFs'), small and medium-sized enterprises ('SME') growth markets, emission allowances or auctioned products based thereon. MAR sets out that its provisions shall not apply to these concepts until the originally foreseen entry into application of MiFID II. It is therefore also necessary to clarify in MAR that provisions referring to OTFs, SME growth markets, emission allowances or auctioned products based thereon shall not apply until the new date of entry into application of MiFID II. The consequences for the CSDR are twofold. First, there are consequences for the application of the rules on settlement discipline to multilateral trading facilities ('MTFs') applying for registration as SME growth markets in accordance with Directive 2014/65/EU. Specifically, these rules allow MTFs meeting the criteria for an SME growth market under MiFID II to apply a longer extension period for the settlement of transactions whilst their registration as an SME growth market under MiFID II is still ongoing. Second, in order to have a clear and coherent legislative framework for trading and settlement, CSDR relies on many of the definitions and concepts of MiFID II. In order to ensure legal certainty for the period between the previous date of entry into application and the new date of entry into application, it is necessary to clarify that until the new date of entry into application, the rules set out in MiFID I should be used. 1.4. Length of the extension 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 requirements (which in this case are the necessary regulatory technical 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. The extension of entry into application of Regulation (EU) No 600/2014 should not impact adoption of delegated acts and technical standards under Regulation (EU) No 600/2014. 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 Regulation (EU) No 600/2014 .
Revised version (Article 1 Subject matter and scope):
1. This Regulation establishes uniform requirements in relation to the following: (a) disclosure of trade data to the public; (b) reporting of transactions to the competent authorities; (c) trading of derivatives on organised venues; (d) non-discriminatory access to clearing and non-discriminatory access to trading in benchmarks; (e) product intervention powers of competent authorities, ESMA and EBA and powers of ESMA on position management controls and position limits; (f) provision of investment services or activities by third-country firms following an applicable equivalence decision by the Commission with or without a branch. 2. This Regulation applies to investment firms, authorised under Directive 2014/65/EU and credit institutions authorised under Directive 2013/36/EU of the European Parliament and of the Council ( 1 ) when providing investment services and/or performing investment activities and to market operators including any trading venues they operate. 3. Title V of this Regulation also applies to all financial counterparties as defined in Article 2(8) of Regulation (EU) No 648/2012 and to all non-financial counterparties falling under Article 10(1)(b) of that Regulation. 4. Title VI of this Regulation also applies to CCPs and persons with proprietary rights to benchmarks. 5. Title VIII of this Regulation applies to third-country firms providing investment services or activities within the Union following an applicable equivalence decision by the Commission with or without a branch. 5a. Title II and Title III of this Regulation shall not apply to securities financing transactions as defined in point (11) of Article 3 of Regulation (EU) 2015/2365 of the European Parliament and of the Council ( 2 ). 6. Articles 8, 10, 18 and 21 shall not apply to 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. 7. Paragraph 6 shall not apply in respect of transactions entered into by any member of the ESCB in performance of their investment operations. 8. ESMA shall, in close cooperation with the ESCB, develop draft regulatory technical standards to specify the monetary, foreign exchange and financial stability policy operations and the types of transactions to which paragraphs 6 and 7 apply. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU) No 1095/2010. 9. The Commission shall be empowered 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.
Article 2 Definitions
1. For the purposes of this Regulation, the following definitions apply: (1) ‘investment firm’ means an investment firm as defined in Article 4(1)(1) of Directive 2014/65/EU; (2) ‘investment services and activities’ means investment services and activities defined in Article 4(1)(2) of Directive 2014/65/EU; (3) ‘ancillary services’ means ancillary services as defined in Article 4(1)(3) of Directive 2014/65/EU; (4) ‘execution of orders on behalf of clients’ means execution on behalf of clients as defined in Article 4(1)(5) of Directive 2014/65/EU; (5) ‘dealing on own account’ means dealing on own account as defined in Article 4(1)(6) of Directive 2014/65/EU; (6) ‘market maker’ means a market maker as defined in Article 4(1)(7) of Directive 2014/65/EU; (7) ‘client’ means a client as defined in Article 4(1)(9) of Directive 2014/65/EU; (8) ‘professional client’ means a professional client as defined in Article 4(1)(10) of Directive 2014/65/EU; (9) ‘financial instrument’ means a financial instrument as defined in Article 4(1)(15) of Directive 2014/65/EU; (10) ‘market operator’ means a market operator as defined in Article 4(1)(18) of Directive 2014/65/EU; (11) ‘multilateral system’ means a multilateral system as defined in Article 4(1)(19) of Directive 2014/65/EU; (12) ‘systematic internaliser’ means a systematic internaliser as defined in Article 4(1)(20) of Directive 2014/65/EU; (13) ‘regulated market’ means a regulated market as defined in Article 4(1)(21) of Directive 2014/65/EU; (14) ‘multilateral trading facility’ or ‘MTF’ means a multilateral trading facility as defined in Article 4(1)(22) of Directive 2014/65/EU; (15) ‘organised trading facility’ or ‘OTF’ means an organised trading facility as defined in Article 4(1)(23) of Directive 2014/65/EU; (16) ‘trading venue’ means a trading venue as defined in Article 4(1)(24) of Directive 2014/65/EU; (17) ‘liquid market’ means: (a) for the purposes of Articles 9, 11, and 18, a market for a financial instrument or a class of financial instruments, where there are ready and willing buyers and sellers on a continuous basis, and where the market is assessed in accordance with the following criteria, taking into consideration the specific market structures of the particular financial instrument or of the particular class of financial instruments: (i) the average frequency and size of transactions over a range of market conditions, having regard to the nature and life cycle of products within the class of financial instrument; (ii) the number and type of market participants, including the ratio of market participants to traded financial instruments in a particular product; (iii) the average size of spreads, where available; (b) for the purposes of Articles 4, 5 and 14, a market for a financial instrument that is traded daily where the market is assessed according to the following criteria: (i) the free float; (ii) the average daily number of transactions in those financial instruments; (iii) the average daily turnover for those financial instruments; (17) ‘liquid market’ means: (a) for the purposes of Articles 9, 11, and 18, a market for a financial instrument or a class of financial instruments, where there are ready and willing buyers and sellers on a continuous basis, and where the market is assessed in accordance with the following criteria, taking into consideration the specific market structures of the particular financial instrument or of the particular class of financial instruments: (i) the average frequency and size of transactions over a range of market conditions, having regard to the nature and life cycle of products within the class of financial instrument; (ii) the number and type of market participants, including the ratio of market participants to traded financial instruments in a particular product; (iii) the average size of spreads, where available; (a) for the purposes of Articles 9, 11, and 18, a market for a financial instrument or a class of financial instruments, where there are ready and willing buyers and sellers on a continuous basis, and where the market is assessed in accordance with the following criteria, taking into consideration the specific market structures of the particular financial instrument or of the particular class of financial instruments: (i) the average frequency and size of transactions over a range of market conditions, having regard to the nature and life cycle of products within the class of financial instrument; (ii) the number and type of market participants, including the ratio of market participants to traded financial instruments in a particular product; (iii) the average size of spreads, where available; (b) for the purposes of Articles 4, 5 and 14, a market for a financial instrument that is traded daily where the market is assessed according to the following criteria: (i) the free float; (ii) the average daily number of transactions in those financial instruments; (iii) the average daily turnover for those financial instruments; (b) for the purposes of Articles 4, 5 and 14, a market for a financial instrument that is traded daily where the market is assessed according to the following criteria: (i) the free float; (ii) the average daily number of transactions in those financial instruments; (iii) the average daily turnover for those financial instruments; (18) ‘competent authority’ means a competent authority as defined in Article 2(1)(26) of Directive 2014/65/EU; (19) ‘credit institution’ means a credit institution as defined in Article 4(1)(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council ( 20 ); (20) ‘branch’ means a branch as defined in Article 4(1)(30) of Directive 2014/65/EU; (21) ‘close links’ means close links as defined in Article 4(1)(35) of Directive 2014/65/EU; (22) ‘management body’ means a management body as defined in Article 4(1)(36) of Directive 2014/65/EU; (23) ‘structured deposit’ means a structured deposit as defined in Article 4(1)(43) of Directive 2014/65/EU; (24) ‘transferable securities’ means transferable securities as defined in Article 4(1)(44) of Directive 2014/65/EU; (25) ‘depositary receipts’ means depositary receipts as defined in Article 4(1)(45) of Directive 2014/65/EU; (26) ‘exchange-traded fund’ or ‘ETF’ means an exchange-traded fund as defined in Article 4(1)(46) of Directive 2014/65/EU; (27) ‘certificates’ means those securities which are negotiable on the capital market and which in case of a repayment of investment by the issuer are ranked above shares but below unsecured bond instruments and other similar instruments; (28) ‘structured finance products’ means those securities created to securitise and transfer credit risk associated with a pool of financial assets entitling the security holder to receive regular payments that depend on the cash flow from the underlying assets; (29) ‘derivatives’ means those financial instruments defined in point (44)(c) of Article 4(1) of Directive 2014/65/EU; and referred to in Annex I, Section C (4) to (10) thereto; (30) ‘commodity derivatives’ means those financial instruments defined in point (44)(c) of Article 4(1) of Directive 2014/65/EU; which relate to a commodity or an underlying referred to in Section C(10) of Annex I to Directive 2014/65/EU; or in points (5), (6), (7) and (10) of Section C of Annex I thereto; (31) ‘CCP’ means a CCP within the meaning of Article 2(1) of Regulation (EU) No 648/2012; (32) ‘exchange-traded derivative’ means a derivative that is traded on a regulated market or on a third-country market considered to be equivalent to a regulated market in accordance with Article 28 of this Regulation, and as such does not fall within the definition of an OTC derivative as defined in Article 2(7) of Regulation (EU) No 648/2012; (33) ‘actionable indication of interest’ means a message from one member or participant to another within a trading system in relation to available trading interest that contains all necessary information to agree on a trade; (34) ‘approved publication arrangement’ or ‘APA’ means an approved publication arrangement as defined in Article 4(1)(52) of Directive 2014/65/EU; (35) ‘consolidated tape provider’ or ‘CTP’ means a consolidated tape provider as defined in Article 4(1)(53) of Directive 2014/65/EU; (36) ‘approved reporting mechanism’ or ‘ARM’ means an approved reporting mechanism as defined in Article 4(1)(54) of Directive 2014/65/EU; (37) ‘home Member State’ means a home Member State as defined in Article 4(1)(55) of Directive 2014/65/EU; (38) ‘host Member State’ means a host Member State as defined in Article 4(1)(56) of Directive 2014/65/EU; (39) ‘benchmark’ means any rate, index or figure, made available to the public or published that is periodically or regularly determined by the application of a formula to, or on the basis of the value of one or more underlying assets or prices, including estimated prices, actual or estimated interest rates or other values, or surveys and by reference to which the amount payable under a financial instrument or the value of a financial instrument is determined. (40) ‘interoperability arrangement’ means an interoperability arrangement as defined in Article 2(12) of Regulation (EU) No 648/2012; (41) ‘third-country financial institution’ means an entity, the head office of which is established in a third country, that is authorised or licensed under the law of that third country to carry out any of the services or activities listed in Directive 2013/36/EU, Directive 2014/65/EU; Directive 2009/138/EC of the European Parliament and of the Council ( 21 ), Directive 2009/65/EC of the European Parliament and of the Council ( 22 ), Directive 2003/41/EC of the European Parliament and of the Council ( 23 ) or Directive 2011/61/EU of the European Parliament and of the Council ( 24 ); (42) ‘third-country firm’ means a third-country firm as defined in Article 4(1)(57) of Directive 2014/65/EU; (43) ‘wholesale energy product’ means wholesale energy products as defined in Article 2(4) of Regulation (EU) No 1227/2011 of the European Parliament and of the Council ( 25 ); (44) ‘agricultural commodity derivatives’ means derivative contracts relating to products listed in Article 1 of, and Annex I, Parts I to XX and XXIV/1 to, Regulation (EU) No 1308/2013 of the European Parliament and of the Council ( 26 ); (45) ‘liquidity fragmentation’ means a situation in which: (a) participants in a trading venue are unable to conclude a transaction with one or more other participants in that venue because of the absence of clearing arrangements to which all participants have access; or (b) a clearing member or its clients would be forced to hold their positions in a financial instrument in more than one CCP which would limit the potential for the netting of financial exposures; (45) ‘liquidity fragmentation’ means a situation in which: (a) participants in a trading venue are unable to conclude a transaction with one or more other participants in that venue because of the absence of clearing arrangements to which all participants have access; or (b) a clearing member or its clients would be forced to hold their positions in a financial instrument in more than one CCP which would limit the potential for the netting of financial exposures; (46) ‘sovereign debt’ means sovereign debt as defined in Article 4(1)(61) of Directive 2014/65/EU; (47) ‘portfolio compression’ means a risk reduction service in which two or more counterparties wholly or partially terminate some or all of the derivatives submitted by those counterparties for inclusion in the portfolio compression and replace the terminated derivatives with another derivative whose combined notional value is less than the combined notional value of the terminated derivatives. 2. The Commission shall be empowered to adopt delegated acts in accordance with Article 50 to specify certain technical elements of the definitions laid down in paragraph 1 to adjust them to market developments.
Amendment rationale: 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 the NCAs will be in a position to apply MiFID II as of 3 January 2017. This is as 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 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. 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 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:  It avoids the risk of causing confusion and unnecessary costs that stakeholders would incur through a staggered implementation. Building various 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;  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. Changing the date of applicability of MiFID II does however have consequences for the applicability of other legislation, in particular Regulation (EU) 596/2014 ('MAR') and Regulation (EU) 909/2014 ('CSDR'). The market abuse framework will apply to certain definitions and concepts of MiFID II. As MAR is set to enter into application on 3 July 2016, there is already a provision in it, which ensures that before the originally foreseen date of entry into application of MiFID II, concepts and rules of MiFID I will apply. In order to ensure legal certainty for the period between the originally foreseen date of entry into application and the new date of entry into application, it is necessary to clarify in MAR that the concepts and rules as set out in MiFID I should be used until the new date of entry into application of MiFID II. MAR also refers to concepts that will be introduced by MiFID II, such as organised trading facilities ('OTFs'), small and medium-sized enterprises ('SME') growth markets, emission allowances or auctioned products based thereon. MAR sets out that its provisions shall not apply to these concepts until the originally foreseen entry into application of MiFID II. It is therefore also necessary to clarify in MAR that provisions referring to OTFs, SME growth markets, emission allowances or auctioned products based thereon shall not apply until the new date of entry into application of MiFID II. The consequences for the CSDR are twofold. First, there are consequences for the application of the rules on settlement discipline to multilateral trading facilities ('MTFs') applying for registration as SME growth markets in accordance with Directive 2014/65/EU. Specifically, these rules allow MTFs meeting the criteria for an SME growth market under MiFID II to apply a longer extension period for the settlement of transactions whilst their registration as an SME growth market under MiFID II is still ongoing. Second, in order to have a clear and coherent legislative framework for trading and settlement, CSDR relies on many of the definitions and concepts of MiFID II. In order to ensure legal certainty for the period between the previous date of entry into application and the new date of entry into application, it is necessary to clarify that until the new date of entry into application, the rules set out in MiFID I should be used. 1.4. Length of the extension 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 requirements (which in this case are the necessary regulatory technical 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. The extension of entry into application of Regulation (EU) No 600/2014 should not impact adoption of delegated acts and technical standards under Regulation (EU) No 600/2014. 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 Regulation (EU) No 600/2014 .
Revised version (Article 2 Definitions):
1. For the purposes of this Regulation, the following definitions apply: (1) ‘investment firm’ means an investment firm as defined in Article 4(1)(1) of Directive 2014/65/EU; (2) ‘investment services and activities’ means investment services and activities defined in Article 4(1)(2) of Directive 2014/65/EU; (3) ‘ancillary services’ means ancillary services as defined in Article 4(1)(3) of Directive 2014/65/EU; (4) ‘execution of orders on behalf of clients’ means execution on behalf of clients as defined in Article 4(1)(5) of Directive 2014/65/EU; (5) ‘dealing on own account’ means dealing on own account as defined in Article 4(1)(6) of Directive 2014/65/EU; (6) ‘market maker’ means a market maker as defined in Article 4(1)(7) of Directive 2014/65/EU; (7) ‘client’ means a client as defined in Article 4(1)(9) of Directive 2014/65/EU; (8) ‘professional client’ means a professional client as defined in Article 4(1)(10) of Directive 2014/65/EU; (9) ‘financial instrument’ means a financial instrument as defined in Article 4(1)(15) of Directive 2014/65/EU; (10) ‘market operator’ means a market operator as defined in Article 4(1)(18) of Directive 2014/65/EU; (11) ‘multilateral system’ means a multilateral system as defined in Article 4(1)(19) of Directive 2014/65/EU; (12) ‘systematic internaliser’ means a systematic internaliser as defined in Article 4(1)(20) of Directive 2014/65/EU; (13) ‘regulated market’ means a regulated market as defined in Article 4(1)(21) of Directive 2014/65/EU; (14) ‘multilateral trading facility’ or ‘MTF’ means a multilateral trading facility as defined in Article 4(1)(22) of Directive 2014/65/EU; (15) ‘organised trading facility’ or ‘OTF’ means an organised trading facility as defined in Article 4(1)(23) of Directive 2014/65/EU; (16) ‘trading venue’ means a trading venue as defined in Article 4(1)(24) of Directive 2014/65/EU; (17) ‘liquid market’ means: (a) for the purposes of Articles 9, 11, and 18, a market for a financial instrument or a class of financial instruments, where there are ready and willing buyers and sellers on a continuous basis, and where the market is assessed in accordance with the following criteria, taking into consideration the specific market structures of the particular financial instrument or of the particular class of financial instruments: (i) the average frequency and size of transactions over a range of market conditions, having regard to the nature and life cycle of products within the class of financial instrument; (ii) the number and type of market participants, including the ratio of market participants to traded financial instruments in a particular product; (iii) the average size of spreads, where available; (b) for the purposes of Articles 4, 5 and 14, a market for a financial instrument that is traded daily where the market is assessed according to the following criteria: (i) the free float; (ii) the average daily number of transactions in those financial instruments; (iii) the average daily turnover for those financial instruments; (18) ‘competent authority’ means a competent authority as defined in Article 4(1)(26) of Directive 2014/65/EU; (19) ‘credit institution’ means a credit institution as defined in Article 4(1)(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council ( 3 ); (20) ‘branch’ means a branch as defined in Article 4(1)(30) of Directive 2014/65/EU; (21) ‘close links’ means close links as defined in Article 4(1)(35) of Directive 2014/65/EU; (22) ‘management body’ means a management body as defined in Article 4(1)(36) of Directive 2014/65/EU; (23) ‘structured deposit’ means a structured deposit as defined in Article 4(1)(43) of Directive 2014/65/EU; (24) ‘transferable securities’ means transferable securities as defined in Article 4(1)(44) of Directive 2014/65/EU; (25) ‘depositary receipts’ means depositary receipts as defined in Article 4(1)(45) of Directive 2014/65/EU; (26) ‘exchange-traded fund’ or ‘ETF’ means an exchange-traded fund as defined in Article 4(1)(46) of Directive 2014/65/EU; (27) ‘certificates’ means those securities which are negotiable on the capital market and which in case of a repayment of investment by the issuer are ranked above shares but below unsecured bond instruments and other similar instruments; (28) ‘structured finance products’ means those securities created to securitise and transfer credit risk associated with a pool of financial assets entitling the security holder to receive regular payments that depend on the cash flow from the underlying assets; (29) ‘derivatives’ means those financial instruments defined in point (44)(c) of Article 4(1) of Directive 2014/65/EU; and referred to in Annex I, Section C (4) to (10) thereto; (30) ‘commodity derivatives’ means those financial instruments defined in point (44)(c) of Article 4(1) of Directive 2014/65/EU; which relate to a commodity or an underlying referred to in Section C(10) of Annex I to Directive 2014/65/EU; or in points (5), (6), (7) and (10) of Section C of Annex I thereto; (31) ‘CCP’ means a CCP within the meaning of Article 2(1) of Regulation (EU) No 648/2012; (32) ‘exchange-traded derivative’ means a derivative that is traded on a regulated market or on a third-country market considered to be equivalent to a regulated market in accordance with Article 28 of this Regulation, and as such does not fall within the definition of an OTC derivative as defined in Article 2(7) of Regulation (EU) No 648/2012; (33) ‘actionable indication of interest’ means a message from one member or participant to another within a trading system in relation to available trading interest that contains all necessary information to agree on a trade; (34) ‘approved publication arrangement’ or ‘APA’ means an approved publication arrangement as defined in Article 4(1)(52) of Directive 2014/65/EU; (35) ‘consolidated tape provider’ or ‘CTP’ means a consolidated tape provider as defined in Article 4(1)(53) of Directive 2014/65/EU; (36) ‘approved reporting mechanism’ or ‘ARM’ means an approved reporting mechanism as defined in Article 4(1)(54) of Directive 2014/65/EU; (37) ‘home Member State’ means a home Member State as defined in Article 4(1)(55) of Directive 2014/65/EU; (38) ‘host Member State’ means a host Member State as defined in Article 4(1)(56) of Directive 2014/65/EU; (39) ‘benchmark’ means any rate, index or figure, made available to the public or published that is periodically or regularly determined by the application of a formula to, or on the basis of the value of one or more underlying assets or prices, including estimated prices, actual or estimated interest rates or other values, or surveys and by reference to which the amount payable under a financial instrument or the value of a financial instrument is determined. (40) ‘interoperability arrangement’ means an interoperability arrangement as defined in Article 2(12) of Regulation (EU) No 648/2012; (41) ‘third-country financial institution’ means an entity, the head office of which is established in a third country, that is authorised or licensed under the law of that third country to carry out any of the services or activities listed in Directive 2013/36/EU, Directive 2014/65/EU; Directive 2009/138/EC of the European Parliament and of the Council ( 4 ), Directive 2009/65/EC of the European Parliament and of the Council ( 5 ), Directive 2003/41/EC of the European Parliament and of the Council ( 6 ) or Directive 2011/61/EU of the European Parliament and of the Council ( 7 ); (42) ‘third-country firm’ means a third-country firm as defined in Article 4(1)(57) of Directive 2014/65/EU; (43) ‘wholesale energy product’ means wholesale energy products as defined in Article 2(4) of Regulation (EU) No 1227/2011 of the European Parliament and of the Council ( 8 ); (44) ‘agricultural commodity derivatives’ means derivative contracts relating to products listed in Article 1 of, and Annex I, Parts I to XX and XXIV/1 to, Regulation (EU) No 1308/2013 of the European Parliament and of the Council ( 9 ); (45) ‘liquidity fragmentation’ means a situation in which: (a) participants in a trading venue are unable to conclude a transaction with one or more other participants in that venue because of the absence of clearing arrangements to which all participants have access; or (b) a clearing member or its clients would be forced to hold their positions in a financial instrument in more than one CCP which would limit the potential for the netting of financial exposures; (46) ‘sovereign debt’ means sovereign debt as defined in Article 4(1)(61) of Directive 2014/65/EU; (47) ‘portfolio compression’ means a risk reduction service in which two or more counterparties wholly or partially terminate some or all of the derivatives submitted by those counterparties for inclusion in the portfolio compression and replace the terminated derivatives with another derivative whose combined notional value is less than the combined notional value of the terminated derivatives; (48) ‘exchange for physical’ means a transaction in a derivative contract or other financial instrument contingent on the simultaneous execution of an equivalent quantity of an underlying physical asset; (49) ‘package order’ means an order priced as a single unit: (a) for the purpose of executing an exchange for physical; or (b) in two or more financial instruments for the purpose of executing a package transaction; (50) ‘package transaction’ means: (a) an exchange for physical; or (b) a transaction involving the execution of two or more component transactions in financial instruments and which fulfils all of the following criteria: (i) the transaction is executed between two or more counterparties; (ii) each component of the transaction bears meaningful economic or financial risk related to all the other components; (iii) the execution of each component is simultaneous and contingent upon the execution of all the other components. 2. The Commission shall be empowered to adopt delegated acts in accordance with Article 50 to specify certain technical elements of the definitions laid down in paragraph 1 to adjust them to market developments.
Article 3 Pre-trade transparency requirements for trading venues in respect of shares, depositary receipts, ETFs, certificates and other similar financial instruments
1. Market operators and investment firms operating a trading venue shall make public current bid and offer prices and the depth of trading interests at those prices which are advertised through their systems for shares, depositary receipts, ETFs, certificates and other similar financial instruments traded on a trading venue. That requirement shall also apply to actionable indication of interests. Market operators and investment firms operating a trading venue shall make that information available to the public on a continuous basis during normal trading hours. 2. The transparency requirements referred to in paragraph 1 shall be calibrated for different types of trading systems including order-book, quote-driven, hybrid and periodic auction trading systems. 3. Market operators and investment firms operating a trading venue shall give access, on reasonable commercial terms and on a non-discriminatory basis, to the arrangements they employ for making public the information referred to in paragraph 1 to investment firms which are obliged to publish their quotes in shares, depositary receipts, ETFs, certificates and other similar financial instruments pursuant to Article 14.
Article 4 Waivers for equity instruments
1. Competent authorities shall be able to waive the obligation for market operators and investment firms operating a trading venue to make public the information referred to in Article 3(1) for: (a) systems matching orders based on a trading methodology by which the price of the financial instrument referred to in Article 3(1) is derived from the trading venue where that financial instrument was first admitted to trading or the most relevant market in terms of liquidity, where that reference price is widely published and is regarded by market participants as a reliable reference price. The continued use of that waiver shall be subject to the conditions set out in Article 5. (b) systems that formalise negotiated transactions which are: (i) made within the current volume weighted spread reflected on the order book or the quotes of the market makers of the trading venue operating that system, subject to the conditions set out in Article 5; (ii) in an illiquid share, depositary receipt, ETF, certificate or other similar financial instrument that does not fall within the meaning of a liquid market, and are dealt within a percentage of a suitable reference price, being a percentage and a reference price set in advance by the system operator; or (iii) subject to conditions other than the current market price of that financial instrument; (b) systems that formalise negotiated transactions which are: (i) made within the current volume weighted spread reflected on the order book or the quotes of the market makers of the trading venue operating that system, subject to the conditions set out in Article 5; (ii) in an illiquid share, depositary receipt, ETF, certificate or other similar financial instrument that does not fall within the meaning of a liquid market, and are dealt within a percentage of a suitable reference price, being a percentage and a reference price set in advance by the system operator; or (iii) subject to conditions other than the current market price of that financial instrument; (c) orders that are large in scale compared with normal market size; (d) orders held in an order management facility of the trading venue pending disclosure. 2. The reference price referred to in paragraph 1(a) shall be established by obtaining: (a) the midpoint within the current bid and offer prices of the trading venue where that financial instrument was first admitted to trading or the most relevant market in terms of liquidity; or (b) when the price referred to in point (a) is not available, the opening or closing price of the relevant trading session. Orders shall only reference the price referred to in point (b) outside the continuous trading phase of the relevant trading session. 3. Where trading venues operate systems which formalise negotiated transactions in accordance with paragraph 1(b)(i): (a) those transactions shall be carried out in accordance with the rules of the trading venue; (b) the trading venue shall ensure that arrangements, systems and procedures are in place to prevent and detect market abuse or attempted market abuse in relation to such negotiated transactions in accordance with Article 16 of Regulation (EU) No 596/2014; (c) the trading venue shall establish, maintain and implement systems to detect any attempt to use the waiver to circumvent other requirements of this Regulation or Directive 2014/65/EU and to report attempts to the competent authority. Where a competent authority grants a waiver in accordance with paragraph 1(b)(i) or (iii), that competent authority shall monitor the use of the waiver by the trading venue to ensure that the conditions for use of the waiver are respected. 4. Before granting a waiver in accordance with paragraph 1, competent authorities shall notify ESMA and other competent authorities of the intended use of each individual waiver and provide an explanation regarding its functioning, including the details of the trading venue where the reference price is established as referred to in paragraph 1(a). Notification of the intention to grant a waiver shall be made not less than four months before the waiver is intended to take effect. Within two months following receipt of the notification, ESMA shall issue a non-binding opinion to the competent authority in question assessing the compatibility of each waiver with the requirements established in paragraph 1 and specified in the regulatory technical standard adopted pursuant to paragraph 6. Where that competent authority grants a waiver and a competent authority of another Member State disagrees, that competent authority may refer the matter back to ESMA, which may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010. ESMA shall monitor the application of the waivers and shall submit an annual report to the Commission on how they are applied in practice. 5. A competent authority may, either on its own initiative or upon request by another competent authority, withdraw a waiver granted under paragraph 1 as specified under paragraph 6,if it observes that the waiver is being used in a way that deviates from its original purpose or if it believes that the waiver is being used to circumvent the requirements established in this Article. Competent authorities shall notify ESMA and other competent authorities of such withdrawal providing full reasons for their decision. 6. ESMA shall develop draft regulatory technical standards to specify the following: (a) the range of bid and offer prices or designated market-maker quotes, and the depth of trading interest at those prices, to be made public for each class of financial instrument concerned in accordance with Article 3(1), taking into account the necessary calibration for different types of trading systems as referred to in Article 3(2); (b) the most relevant market in terms of liquidity of a financial instrument in accordance with paragraph 1(a); (c) the specific characteristics of a negotiated transaction in relation to the different ways the member or participant of a trading venue can execute such a transaction; (d) the negotiated transactions that do not contribute to price formation which avail of the waiver provided for under paragraph 1(b)(iii); (e) the size of orders that are large in scale and the type and the minimum size of orders held in an order management facility of a trading venue pending disclosure for which pre-trade disclosure may be waived under paragraph 1 for each class of financial instrument concerned; ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 7. Waivers granted by competent authorities in accordance with Article 29(2) and Article 44(2) of Directive 2004/39/EC and Articles 18, 19 and 20 of Regulation (EC) No 1287/2006 before 3 January 2017 shall be reviewed by ESMA by 3 January 2019. ESMA shall issue an opinion to the competent authority in question assessing the continued compatibility of each of those waivers with the requirements established in this Regulation and any delegated act and regulatory technical standard based on this Regulation.
Amendment rationale: 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 the NCAs will be in a position to apply MiFID II as of 3 January 2017. This is as 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 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. 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 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:  It avoids the risk of causing confusion and unnecessary costs that stakeholders would incur through a staggered implementation. Building various 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;  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. Changing the date of applicability of MiFID II does however have consequences for the applicability of other legislation, in particular Regulation (EU) 596/2014 ('MAR') and Regulation (EU) 909/2014 ('CSDR'). The market abuse framework will apply to certain definitions and concepts of MiFID II. As MAR is set to enter into application on 3 July 2016, there is already a provision in it, which ensures that before the originally foreseen date of entry into application of MiFID II, concepts and rules of MiFID I will apply. In order to ensure legal certainty for the period between the originally foreseen date of entry into application and the new date of entry into application, it is necessary to clarify in MAR that the concepts and rules as set out in MiFID I should be used until the new date of entry into application of MiFID II. MAR also refers to concepts that will be introduced by MiFID II, such as organised trading facilities ('OTFs'), small and medium-sized enterprises ('SME') growth markets, emission allowances or auctioned products based thereon. MAR sets out that its provisions shall not apply to these concepts until the originally foreseen entry into application of MiFID II. It is therefore also necessary to clarify in MAR that provisions referring to OTFs, SME growth markets, emission allowances or auctioned products based thereon shall not apply until the new date of entry into application of MiFID II. The consequences for the CSDR are twofold. First, there are consequences for the application of the rules on settlement discipline to multilateral trading facilities ('MTFs') applying for registration as SME growth markets in accordance with Directive 2014/65/EU. Specifically, these rules allow MTFs meeting the criteria for an SME growth market under MiFID II to apply a longer extension period for the settlement of transactions whilst their registration as an SME growth market under MiFID II is still ongoing. Second, in order to have a clear and coherent legislative framework for trading and settlement, CSDR relies on many of the definitions and concepts of MiFID II. In order to ensure legal certainty for the period between the previous date of entry into application and the new date of entry into application, it is necessary to clarify that until the new date of entry into application, the rules set out in MiFID I should be used. 1.4. Length of the extension 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 requirements (which in this case are the necessary regulatory technical 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. The extension of entry into application of Regulation (EU) No 600/2014 should not impact adoption of delegated acts and technical standards under Regulation (EU) No 600/2014. 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 Regulation (EU) No 600/2014 .
Revised version (Article 4 Waivers for equity instruments):
1. Competent authorities shall be able to waive the obligation for market operators and investment firms operating a trading venue to make public the information referred to in Article 3(1) for: (a) systems matching orders based on a trading methodology by which the price of the financial instrument referred to in Article 3(1) is derived from the trading venue where that financial instrument was first admitted to trading or the most relevant market in terms of liquidity, where that reference price is widely published and is regarded by market participants as a reliable reference price. The continued use of that waiver shall be subject to the conditions set out in Article 5. (b) systems that formalise negotiated transactions which are: (i) made within the current volume weighted spread reflected on the order book or the quotes of the market makers of the trading venue operating that system, subject to the conditions set out in Article 5; (ii) in an illiquid share, depositary receipt, ETF, certificate or other similar financial instrument that does not fall within the meaning of a liquid market, and are dealt within a percentage of a suitable reference price, being a percentage and a reference price set in advance by the system operator; or (iii) subject to conditions other than the current market price of that financial instrument; (c) orders that are large in scale compared with normal market size; (d) orders held in an order management facility of the trading venue pending disclosure. 2. The reference price referred to in paragraph 1(a) shall be established by obtaining: (a) the midpoint within the current bid and offer prices of the trading venue where that financial instrument was first admitted to trading or the most relevant market in terms of liquidity; or (b) when the price referred to in point (a) is not available, the opening or closing price of the relevant trading session. Orders shall only reference the price referred to in point (b) outside the continuous trading phase of the relevant trading session. 3. Where trading venues operate systems which formalise negotiated transactions in accordance with paragraph 1(b)(i): (a) those transactions shall be carried out in accordance with the rules of the trading venue; (b) the trading venue shall ensure that arrangements, systems and procedures are in place to prevent and detect market abuse or attempted market abuse in relation to such negotiated transactions in accordance with Article 16 of Regulation (EU) No 596/2014; (c) the trading venue shall establish, maintain and implement systems to detect any attempt to use the waiver to circumvent other requirements of this Regulation or Directive 2014/65/EU and to report attempts to the competent authority. Where a competent authority grants a waiver in accordance with paragraph 1(b)(i) or (iii), that competent authority shall monitor the use of the waiver by the trading venue to ensure that the conditions for use of the waiver are respected. 4. Before granting a waiver in accordance with paragraph 1, competent authorities shall notify ESMA and other competent authorities of the intended use of each individual waiver and provide an explanation regarding its functioning, including the details of the trading venue where the reference price is established as referred to in paragraph 1(a). Notification of the intention to grant a waiver shall be made not less than four months before the waiver is intended to take effect. Within two months following receipt of the notification, ESMA shall issue a non-binding opinion to the competent authority in question assessing the compatibility of each waiver with the requirements established in paragraph 1 and specified in the regulatory technical standard adopted pursuant to paragraph 6. Where that competent authority grants a waiver and a competent authority of another Member State disagrees, that competent authority may refer the matter back to ESMA, which may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010. ESMA shall monitor the application of the waivers and shall submit an annual report to the Commission on how they are applied in practice. 5. A competent authority may, either on its own initiative or upon request by another competent authority, withdraw a waiver granted under paragraph 1 as specified under paragraph 6,if it observes that the waiver is being used in a way that deviates from its original purpose or if it believes that the waiver is being used to circumvent the requirements established in this Article. Competent authorities shall notify ESMA and other competent authorities of such withdrawal providing full reasons for their decision. 6. ESMA shall develop draft regulatory technical standards to specify the following: (a) the range of bid and offer prices or designated market-maker quotes, and the depth of trading interest at those prices, to be made public for each class of financial instrument concerned in accordance with Article 3(1), taking into account the necessary calibration for different types of trading systems as referred to in Article 3(2); (b) the most relevant market in terms of liquidity of a financial instrument in accordance with paragraph 1(a); (c) the specific characteristics of a negotiated transaction in relation to the different ways the member or participant of a trading venue can execute such a transaction; (d) the negotiated transactions that do not contribute to price formation which avail of the waiver provided for under paragraph 1(b)(iii); (e) the size of orders that are large in scale and the type and the minimum size of orders held in an order management facility of a trading venue pending disclosure for which pre-trade disclosure may be waived under paragraph 1 for each class of financial instrument concerned; ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 7. Waivers granted by competent authorities in accordance with Article 29(2) and Article 44(2) of Directive 2004/39/EC and Articles 18, 19 and 20 of Regulation (EC) No 1287/2006 before 3 January 2018 shall be reviewed by ESMA by 3 January 2020 . ESMA shall issue an opinion to the competent authority in question assessing the continued compatibility of each of those waivers with the requirements established in this Regulation and any delegated act and regulatory technical standard based on this Regulation.
Article 5 Volume Cap Mechanism
1. In order to ensure that the use of the waivers provided for in Article 4(1)(a) and 4(1)(b)(i) does not unduly harm price formation, trading under those waivers is restricted as follows: (a) the percentage of trading in a financial instrument carried out on a trading venue under those waivers shall be limited to 4 % of the total volume of trading in that financial instrument on all trading venues across the Union over the previous 12 months. (b) overall Union trading in a financial instrument carried out under those waivers shall be limited to 8 % of the total volume of trading in that financial instrument on all trading venues across the Union over the previous 12 months. That volume cap mechanism shall not apply to negotiated transactions which are in a share, depositary receipt, ETF, certificate or other similar financial instrument for which there is not a liquid market as determined in accordance with Article 2(1)(17)(b) and are dealt within a percentage of a suitable reference price as referred to in Article 4(1)(b)(ii), or to negotiated transactions that are subject to conditions other than the current market price of that financial instrument as referred to in Article 4(1)(b)(iii). 2. When the percentage of trading in a financial instrument carried out on a trading venue under the waivers has exceeded the limit referred to in paragraph 1(a), the competent authority that authorised the use of those waivers by that venue shall within two working days suspend their use on that venue in that financial instrument based on the data published by ESMA referred to in paragraph 4, for a period of six months. 3. When the percentage of trading in a financial instrument carried out on all trading venues across the Union under those waivers has exceeded the limit referred to in paragraph 1(b), all competent authorities shall within two working days suspend the use of those waivers across the Union for a period of six months. 4. ESMA shall publish within five working days of the end of each calendar month, the total volume of Union trading per financial instrument in the previous 12 months, the percentage of trading in a financial instrument carried out across the Union under those waivers and on each trading venue in the previous 12 months, and the methodology that is used to derive those percentages. 5. In the event that the report referred to in paragraph 4 identifies any trading venue where trading in any financial instrument carried out under the waivers has exceeded 3,75 % of the total trading in the Union in that financial instrument, based on the previous 12 months’ trading, ESMA shall publish an additional report within five working days of the 15th day of the calendar month in which the report referred to in paragraph 4 is published. That report shall contain the information specified in paragraph 4 in respect of those financial instruments where 3,75 % has been exceeded. 6. In the event that the report referred to in paragraph 4 identifies that overall Union trading in any financial instrument carried out under the waivers has exceeded 7,75 % of the total Union trading in the financial instrument, based on the previous 12 months’ trading, ESMA shall publish an additional report within five working days of the 15th on the day of the calendar month in which the report referred to in paragraph 4 is published. That report shall contain the information specified in paragraph 4 in respect of those financial instruments where 7,75 % has been exceeded. 7. In order to ensure a reliable basis for monitoring the trading taking place under those waivers and for determining whether the limits referred to in paragraph 1 have been exceeded, operators of trading venues shall be obligated to have in place systems and procedures to: (a) enable the identification of all trades which have taken place on its venue under those waivers; and (b) ensure it does not exceed the permitted percentage of trading allowed under those waivers as referred to in paragraph 1(a) under any circumstances. 8. The period for the publication of trading data by ESMA, and for which trading in a financial instrument under those waivers is to be monitored shall start on 3 January 2016. Without prejudice to Article 4(5), competent authorities shall be empowered to suspend the use of those waivers from the date of application of this Regulation and thereafter on a monthly basis. 9. ESMA shall develop draft regulatory technical standards to specify the method, including the flagging of transactions, by which it collates, calculates and publishes the transaction data, as outlined in paragraph 4, in order to provide an accurate measurement of the total volume of trading per financial instrument and the percentages of trading that use those waivers across the Union and per trading venue. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Integrated financial markets bring significant benefits to the funding of the European economy and for promoting jobs and growth on a sound and sustainable basis. To promote financial integration and market integrity while safeguarding financial stability, the EU internal market for financial services requires common rules and strong supervisory coordination. When the EU overhauled its financial system in response to the financial crisis, and in line with global efforts, it therefore introduced a Single Rulebook for financial regulation in Europe and created the European Supervisory Authorities ("ESAs"). The ESAs constitute an institutional cornerstone of the comprehensive reform package and have played a key role in ensuring that the financial markets across the EU are well regulated, strong and stable. They contribute to the development and consistent application of the Single Rulebook, solve cross-border problems, and thereby promote both regulatory and supervisory convergence. Despite the post-crisis measures, there remains significant potential to enhance regulatory and supervisory convergence in the internal market. Integrated financial markets require more integrated supervisory arrangements to function effectively, while more centralised supervisory arrangements can, in turn, foster market integration. For this reason, the EU has engaged in further integration across the broader financial sector on a sound and stable basis. In particular, the Capital Markets Union ("CMU") has been launched so a s to lay the foundations for a fully functional internal market for capital markets. In this context, the Five Presidents' Report on Completing Europe's Economic and Monetary Union of June 2015 1 highlighted the need to strengthen the EU supervisory framew ork, leading ultimately to a single capital-markets supervisor. More recently, the Commission Reflection Paper on the deepening of the Economic and Monetary Union 2 suggests that a review of the EU supervisory framework – in particular of the European Secu rities and Markets Authority ("ESMA") - should deliver the first steps towards such a single supervisor by 2019. The Reflection Paper also called for completing the Financial Union - comprising both a Banking Union and a Capital Markets Union– by 2019 so a s to guarantee the integrity of the euro and improve the functioning of the euro area and the EU as a whole. Global financial markets are strongly interconnected, and the EU's regulatory framework is largely based on international standards agreed in the w ake of the financial crisis notably among G20 countries. As the EU is striving to accelerate the completion of the CMU, it is therefore essential that EU supervisory arrangements continue to develop in a manner which allows to reap the full potential of i nternationally integrated financial markets while ensuring that cross-border risks between the EU and the rest of the world can be monitored and managed effectively. The ESAs have a key role to play in this regard. Finally, the decision of the United Kingdom to leave the EU reinforces these challenges for supervisory arrangements within the remaining EU27. The future departure of the EU’s currently largest financial centre means that EU27 capital markets need to develop further and supervisory arrangements must be strengthened to ensure that financial markets continue to support the economy on an adequate and sound basis. The objective of the present proposal is to adjust and upgrade the ESAs framework to ensure they can assume an enhanced responsibility for financial market supervision. The ESAs must be adequately equipped in terms of powers, governance and funding. First, where existing powers of the ESAs have proven partially insufficient and unclearly defined, for example as regards the consistent application of EU law, the drafting of technical advice or the provision of ongoing support to equivalence decisions, they must be strengthened and improved. The current scope of the ESAs' mandate must also be reconsidered in light of the policy objectives of the CMU. More common direct supervision in targeted areas is necessary to ensure more consistent supervisory practices and implementation of EU financial services rules. The 2017 review of the ESA Regulations concluded that the supervision of certain activities and entities with particular importance for the Union as a whole or with a significant degree of cross-border business should be carried out by the ESAs instead of by national competent authorities. Similarly, the ESAs should be more involved in the authorisation and supervision of entities from non-EU countries that are active in the Union. Second, this proposal aims at establishing a more effective governance of the ESAs. The incentive structure in the decision-making process of the ESAs as it stands today leads to the absence of decisions in particular in the area of regulatory convergence and supervisory convergence, or promotes decisions that are predominantly oriented towards national instead of broader EU interests. This reflects, to so me extent, an inherent tension between the European mandate of the ESAs and the national mandate of the competent authorities that are members of the ESA Boards. 3 This position is not well aligned with the objective of supervisory convergence. A greater role for the ESAs in deepening financial integration or strengthening the stability of the internal market will also require more effective convergence powers. 4 Third, the ESAs need an appropriate funding base which allows them to allocate resources in relation to their needs to fulfil their objective. Current budget arrangements constrain and will continue to constrain the ESAs' activities, as Member States for different reasons might be unwilling to increase national contributions further. The present proposal sets out specific amendments to the ESA Regulations 5 and various sector acts 6 to reinforce the powers, governance and funding framework of the ESAs, as these are the areas which need to be reinforced to allow the ESAs to meet the challenges outlin ed above. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options of measures intended to enhance the powers of the ESAs at EU level, improve their governance (including decision- making), and to ensure that their funding framework is sustainable and commensurate with current and future tasks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforcing the ESA framework and thereby to the overall stability of the EU financial system, while keeping costs to the EU General Budget and stakeholders at a minimum. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 5 Volume Cap Mechanism):
(a) the percentage of trading in a financial instrument carried out on a trading venue under those waivers shall be limited to 4 % of the total volume of trading in that financial instrument on all trading venues across the Union over the previous 12 months. (b) overall Union trading in a financial instrument carried out under those waivers shall be limited to 8 % of the total volume of trading in that financial instrument on all trading venues across the Union over the previous 12 months. 2. When the percentage of trading in a financial instrument carried out on a trading venue under the waivers has exceeded the limit referred to in paragraph 1(a), the competent authority that authorised the use of those waivers by that venue shall within two working days suspend their use on that venue in that financial instrument based on the data published by ESMA referred to in paragraph 4, for a period of six months. 3. When the percentage of trading in a financial instrument carried out on all trading venues across the Union under those waivers has exceeded the limit referred to in paragraph 1(b), all competent authorities shall within two working days suspend the use of those waivers across the Union for a period of six months. 4. ESMA shall publish within five working days of the end of each calendar month, the total volume of Union trading per financial instrument in the previous 12 months, the percentage of trading in a financial instrument carried out across the Union under those waivers and on each trading venue in the previous 12 months, and the methodology that is used to derive those percentages. 5. In the event that the report referred to in paragraph 4 identifies any trading venue where trading in any financial instrument carried out under the waivers has exceeded 3,75 % of the total trading in the Union in that financial instrument, based on the previous 12 months’ trading, ESMA shall publish an additional report within five working days of the 15th day of the calendar month in which the report referred to in paragraph 4 is published. That report shall contain the information specified in paragraph 4 in respect of those financial instruments where 3,75 % has been exceeded. 6. In the event that the report referred to in paragraph 4 identifies that overall Union trading in any financial instrument carried out under the waivers has exceeded 7,75 % of the total Union trading in the financial instrument, based on the previous 12 months’ trading, ESMA shall publish an additional report within five working days of the 15th on the day of the calendar month in which the report referred to in paragraph 4 is published. That report shall contain the information specified in paragraph 4 in respect of those financial instruments where 7,75 % has been exceeded. 7. In order to ensure a reliable basis for monitoring the trading taking place under those waivers and for determining whether the limits referred to in paragraph 1 have been exceeded, operators of trading venues shall be obligated to have in place systems and procedures to: (a) enable the identification of all trades which have taken place on its venue under those waivers; and (b) ensure it does not exceed the permitted percentage of trading allowed under those waivers as referred to in paragraph 1(a) under any circumstances. 8. The period for the publication of trading data by ESMA, and for which trading in a financial instrument under those waivers is to be monitored shall start on 3 January 2017 . Without prejudice to Article 4(5), competent authorities shall be empowered to suspend the use of those waivers from the date of application of this Regulation and thereafter on a monthly basis. 9. ESMA shall develop draft regulatory technical standards to specify the method, including the flagging of transactions, by which it collates, calculates and publishes the transaction data, as outlined in paragraph 4, in order to provide an accurate measurement of the total volume of trading per financial instrument and the percentages of trading that use those waivers across the Union and per trading venue. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 6 Post-trade transparency requirements for trading venues in respect of shares, depositary receipts, ETFs, certificates and other similar financial instruments
1. Market operators and investment firms operating a trading venue shall make public the price, volume and time of the transactions executed in respect of shares, depositary receipts, ETFs, certificates and other similar financial instruments traded on that trading venue. Market operators and investment firms operating a trading venue shall make details of all such transactions public as close to real-time as is technically possible. 2. Market operators and investment firms operating a trading venue shall give access, on reasonable commercial terms and on a non-discriminatory basis, to the arrangements they employ for making public the information under paragraph 1 of this Article to investment firms which are obliged to publish the details of their transactions in shares, depositary receipts, ETFs, certificates and other similar financial instruments pursuant to Article 20.
Article 7 Authorisation of deferred publication
1. Competent authorities shall be able to authorise market operators and investment firms operating a trading venue to provide for deferred publication of the details of transactions based on their type or size. In particular, the competent authorities may authorise the deferred publication in respect of transactions that are large in scale compared with the normal market size for that share, depositary receipt, ETF, certificate or other similar financial instrument or that class of share, depositary receipt, ETF, certificate or other similar financial instrument. Market operators and investment firms operating a trading venue shall obtain the competent authority’s prior approval of proposed arrangements for deferred trade-publication, and shall clearly disclose those arrangements to market participants and the public. ESMA shall monitor the application of those arrangements for deferred trade-publication and shall submit an annual report to the Commission on how they are applied in practice. Where a competent authority authorises deferred publication and a competent authority of another Member State disagrees with the deferral or disagrees with the effective application of the authorisation granted, that competent authority may refer the matter back to ESMA, which may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010. 2. ESMA shall develop draft regulatory technical standards to specify the following in such a way as to enable the publication of information required under Article 64 of Directive 2014/65/EU: (a) the details of transactions that investment firms, including systematic internalisers and market operators and investment firms operating a trading venue shall make available to the public for each class of financial instrument concerned in accordance with Article 6(1), including identifiers for the different types of transactions published under Article 6(1) and Article 20, distinguishing between those determined by factors linked primarily to the valuation of the financial instruments and those determined by other factors; (b) the time limit that would be deemed in compliance with the obligation to publish as close to real time as possible including when trades are executed outside ordinary trading hours. (c) the conditions for authorising investment firms, including systematic internalisers and market operators and investment firms operating a trading venue to provide for deferred publication of the details of transactions for each class of financial instruments concerned in accordance with paragraph 1 of this Article and with Article 20(1); (d) the criteria to be applied when deciding the transactions for which, due to their size or the type, including liquidity profile of the share, depositary receipt, ETF, certificate or other similar financial instrument involved, deferred publication is allowed for each class of financial instrument concerned. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Political context This proposal is part of the Listing Act package, a set of measures to make public markets more attractive for EU companies and facilitate access to capital for small and medium-sized companies (SMEs). It is in line with the Capital Markets Union (CMU) core aim to improve access to market-based sources of financing for EU companies at each stage of their development, including for smaller companies. L isted companies , including recently listed ones, often outpace privately owned companies in terms of annual revenue growth and job creation 1 . By listing on public markets, companies can diversify their investor base, reduce their dependency on bank financing, gain easier and cheaper access to additional equity capital and debt finance (through secondary offers), raise their public profile and increase brand recognition . Since the publication of the first CMU Action Plan in 2015, progress has been made to make it easier and cheaper for companies, in particular SMEs, to access public markets. In January 2018, the Directive 2014/65/EU of the European Parliament and of the Council ( the Markets in Financial Instruments Directive, or ‘ MiFID II ’ ) 2 introduced a new category of Multilateral Trading Facilities (MTFs), the SME growth markets , 3 to incenti vise SMEs access to capital markets. In 2019, new EU rules were put forward by Regulation (EU) 2019/2115 of the European Parliament and of the Council 4 (SME Listing Act) to cut red tape and reduce regulatory burden for companies listing on SME growth markets while preserving a high level of investor protection and market integrity . Nevertheless, despite this progress, stakeholders argue that further regulatory action is needed to streamline the listing process and make it more flexible for issuers. The new CMU Action Plan adopted in September 2020 announced that ‘ in order to promote and diversify small and innovative companies’ access to funding, the Commission will seek to simplify the listing rules for public markets ’ . Following up on this and building on the 2019 SME Listing Act, the Commission set up a Technical Expert Stakeholder Group (TESG) on SMEs which confirmed stakeholders’ concerns that further legislative action is needed to support listing of companies and especially of SMEs. In its final report of May 2021 5 , the TESG made 12 recommendations to amend the listing framework both on regulated markets, as well as on SME growth markets . On 15 September 2021 , President Von der Leyen announced in her letter of intent 6 addressed to the Parliament and the Presidency of the Council a legislative proposal to facilitate SMEs’ access to capital, which has been included in the 2022 Commission work programme 7 . A company’s decision to list is a complex one and is influenced by a multitude of factors, many of which are outside the reach of regulators and therefore cannot be addressed directly by a legislative intervention. For instance, the features of the ecosystem that determine the cost of listing services, and more broadly geopolitical instability, Brexit, Covid-19, and inflation, have all had (and will continue to have) an impact on the decision to list, on the timing of listing, and on whether to remain listed in the EU. Regulatory requirements and the associated costs and burden, however, are also an important factor in a company’s decision to list and remain listed. The Listing Act package represents a targeted set of measures aiming to reduce the regulatory burden where it is considered to be excessive (i.e., where regulation could ensure investor protection/market integrity in a more cost efficient manner for stakeholders) and to increase the flexibility accorded under company law to a company’s founder(s) or controlling shareholder(s) to choose how to distribute voting rights after the admission to trading of shares. The regulatory framework applying to the listing process is multifaceted. Companies must comply with regulatory requirements before, during and after the i nitial p ublic o ffering (IPO). This proposal focuses specifically on the regulatory burden that emerges at two moments: the IPO stage and the post-IPO stage. It addresses regulatory burden at the IPO stage by introducing targeted amendments to Regulation (EU) 2017/1129 of the European Parliament and of the Council 8 (the Prospectus Regulation ) and it addresses regulatory burden at the post-IPO stage by introducing targeted amendments to Regulation No 596/2014 of the European Parliament and of the Council 9 ( the Market Abuse Regulation or ‘ MAR ’ ). It also contains limited technical amendments to Regulation No 600/2014 of the European Parliament and of the Council ( the Markets in Financial Instruments Regulation or ‘ MiFIR ’ ) 10 . The proposed regulation is accompanied by two other legislative proposals: · a proposal for a d irective amending MiFID II and repealing Directive 2001/34/EC of the European Parliament and of the Council 11 ( the Listing Directive), which aims to both (i) streamline and clarify listing requirements and (ii) to increase the low level of investment research on SMEs; · a proposal for a new d irective on multiple-vote share structures, which aims to address the regulatory barriers that emerge at the pre-IPO phase and, in particular, the unequal opportunities faced by companies across the EU when choos ing the appropriate governance structures when they list . Reasons for the proposal When making a decision on whether or not to list, companies weigh expected benefits against the costs. If costs prevail, or if alternative sources of financing offer a less costly and easier option, companies will not seek access to public markets. Feedback from the market indicates that the initial and ongoing costs of becoming a public company have risen considerably in recent decades, both in absolute terms and relative to private equity funding, in particular for SMEs. The regulatory environment impacts all stages of the listing process and is among the driving forces of the high costs of listing and staying listed. Companies are required to comply with several disclosure and reporting requirements under EU law, especially the Prospectus Regulation and MAR. The aim of the Prospectus Regulation is to enhanc e the internal market for capital by ensur ing investor protection and market efficiency while helping companies, including SMEs, access different forms of finance in the EU 12 . The Prospectus Regulation lays down requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market . A prospectus is a document presenting information about a company and the securities that such company offers to the public or seeks to admit to trading on a regulated market. This information should be the basis on which investors can decide whether to invest in securities issued by that company. The Prospectus Regulation does not apply under certain circumstances, such as for non-equity securities issued by certain sovereign or supranational entities, or for offers of securities to the public with a total consideration in the Union below EUR 1 million over a period of 12 months. It also includes several exemptions from the obligation to publish a prospectus for offers of securities to the public or admission to trading on a regulated market. In particular, Member States may exempt from the obligation to publish a prospectus offers of securities to the public of up to EUR 8 million over a period of 12 months, provided that they do not require notification (a ‘passport’). For offers below EUR 1 million or the relevant threshold set at national level, Member States may require national disclosure documents, provided that they do not constitute a disproportionate or unnecessary burden. Hence, issuers willing to offer securities cross-border need to comply with the threshold and disclosure requirements set out by the concerned Member States, unless those issuers draw up a prospectus on a voluntary basis in order to benefit from the EU single passport. Under the CMU Action Plan, progress has already been made to make it easier and cheaper for co mpanies, in particular smaller ones, to draw-up a prospectus. The Prospectus Regulation introduced the EU Growth prospectus – an alleviated form of a standard prospectus - for SMEs listed on SME growth markets. It aimed to reduce the costs of preparing a prospectus by smaller issuers, while providing investors with material information to assess the offer and take an informed investment decision. The Prospectus Regulation also introduced a simplified prospectus for companies whose securities are admitted to trading continuously and for at least the last 18 months on a regulated market or an SME growth market and wishing to issue additional shares or raise debt ( follow-on or secondary issuance s ). Issuers whose securities are admitted to trading on an SME growth market can also use this simplified prospectus to transfer subsequently to regulated markets. Finally, Regulation (EU) 2021/337 of the European Parliament and of the Council 13 introduced, as part of the Capital Markets Recovery Package (CMRP), a new type of short-form prospectus (the “EU Recovery prospectus”) . The EU Recovery prospectus is available to issuers that have shares already admitted to trading o n a regulated market or an SME g rowth market continuously for at least the last 18 months and that issue additional shares to overcome the negative impact of the COVID-19 crisis and contain excessive indebtedness. Th e EU Recovery prospectus regime will however expire on 31 December 2022. Despite the alleviations introduced, feedback from stakeholders indicated that the requirement to produce a prospectus remains overly burdensome. This refers to both instances where companies seek access to public markets for the first time (IPO) and where they access public markets for follow-on of equity or non-equity securities. The current rules in particular contribute to overly lengthy prospectuses. For example, in some cases, the Prospectus Regulation requires information that may not be indispensable for investors to make an informed investment decision (i.e., not justified from the investor protection point of view). Feedback to the public consultation (echoed during the stakeholders’ meetings) confirmed the view that neither the standard prospectus nor the EU Growth prospectus strikes an appropriate balance between effective investor protection and the proportionate administrative burden for issuers, especially SMEs. In other cases, a prospectus is required when a lot of information is already available in the public domain (in particular, in the case of follow-on issuances). The excessive length of the prospectus can also discourage some, in particular smaller, investors from consulting it and translate into a higher cost of investing for larger investors. It also requires a longer period of time for the national competent authority (NCA) to scrutinise and approve the prospectus. The current rules also contribute to very divergent prospectuses across the EU. D ata reported by Oxera 14 and by the European Securities and Markets Authorities ( ES MA ) 15 shows a large discrepancy between Member States regarding the l ength of prospectuses, which is indicative of a lack of uniformity of prospectuses in the EU . This discrepancy stems also from the fact that the current rules do not sufficiently frame supervisory scrutiny by NCAs. Feedback from stakeholders highlighted that the EU regulatory framework places overly burdensome requirements also on already listed issuers, in particular under MAR. Since its entry into application on 1 July 2016, MAR has been extended to MTFs, including SME growth markets. MAR aims to increase market integrity and investor confidence. It prohibits from: (i) engaging or attempting to engage in insider dealing 16 ; (ii) recommending that another person engages in insider dealing or induces another person to engage in insider dealing; (iii) unlawfully disclosing inside information 17 ; or (iv) engaging in or attempting to engage in market manipulation. Issuers are also subject to several disclosure and record-keeping obligations under MAR. In particular, issuers are under a general obligation to disclose all inside information to the public as soon as possible 18 . Feedback from stakeholders indicated that some aspects of the MAR disclosure regime place a disproportionately high burden on issuers. In particular, stakeholders perceive as burdensome the obligation to disclose as soon as possible all inside information. This is due to the broadness of the notion of inside information (which gives rise to difficulties for issuers when delineating between what is and what is not inside information), as well as to the fact that the same notion applies both for the purpose of the prohibition of insider dealing and for the purpose of disclosure. While the broadness of the notion of inside information allows to cater for a wide and very early prohibition of insider dealing, it also implies that issuers are required to disclose information at a very early stage, when information on circumstances or events have not yet reached a high degree of certainty. The notion of inside information covers not only events that have already occurred but also events which are “reasonably expected to occur” (i.e., for which there is a realistic prospect to occur) and, in the context of protracted processes (such as a merger), the intermediate steps which are connected with bringing about a future event. As a consequence, issuers incur high compliance costs to understand which steps of a protracted process may constitute inside information and when a certain piece of information is mature enough to be disclosed. At the same time, the effectiveness of disclosure in reducing information asymmetries between issuers and investors is limited if information is too preliminary, incomplete and still potentially subject to fundamental changes. Too early disclosure of information could mislead investors and trigger action on his/her part that could prove to be suboptimal in hindsight (e.g., divesting the stock too soon or not divesting soon enough), thus increasing the opportunity cost for investors. Furthermore, issuers face a lack of legal clarity around the conditions that need to be met to delay disclosure when immediate disclosure would be likely to prejudice the legitimate interests of the issuers (e.g., by jeopardising the successful conclusion of ongoing negotiations). A few additional reporting and disclosure requirements under MAR place a disproportionately high burden on issuers, such as the provisions on managers’ transactions, insider lists, and market sounding. Current MAR rules also create a disproportionate sanctioning regime for disclosure-related infringements, in particular for SMEs, which may potentially be sanctioned at the same level as large companies. Objectives of the proposal The overall objective of this initiative is to introduce technical adjustments to the EU rulebook in order to reduce regulatory and compliance costs for companies seeking to list or already listed with a view to streamlining the listing process and enhancing legal clarity, while ensuring an appropriate level of investor protection and market integrity. This, in turn, is expected to help diversify funding sources for companies in the EU and increase investments, economic growth, job creation and innovation in the EU. The proposed targeted amendments to the Prospectus Regulation aim in particular to make it easier and cheaper for issuers to draw up a prospectus, while enabling investors to make the right investment decision by providing comprehensible, easy to analyse and concise information. They also seek to introduce sizable simplifications to, or even exemptions from, the prospectus requirements in cases where the issuer is already known to investors and a lot of information is already publicly available (follow-on issuances). These amendments are accompanied by amendments aimed at fostering the convergence of and streamlining the scrutiny and approval process by NCAs (for example, by narrowly frame the ability of NCAs to request issuers to include additional information in the prospectus). In the case of an offer of securities to the public or the admission to trading on a regulated market, the proposal streamlines and further standardises the standard prospectus (referring to a non-alleviated prospectus type, irrespective of whether it relates to equity or non-equity securities, or whether is drawn up as a single document or consists of separate documents). The proposal aligns the level of disclosure of the standard prospectus to the level of disclosure currently required under the EU Growth prospectus regime, introduces a fixed order of disclosure and makes incorporation by reference a legal requirement. The proposal also introduces the possibility for issuers to draw up the prospectus in English only as the language customary in the sphere of international finance (except for the summary which in practice is the only document that most retail investors consult), and to publish it in an electronic format only (i.e., no paper copies on request). At the same time, only for shares or other transferable securities equivalent to shares in companies, a limit number of pages (300 pages) is introduced to avoid overly lengthy prospectuses for companies that do not have a complex financial history. Jointly, these amendments seek to provide a tangible cost and burden reduction for issuers, while ensuring that investors can take advantage of a document that is easier to read and navigate and more easily compare financial instruments and issuers. The proposal also seeks to make it easier for SMEs to raise funds on public markets, in particular on SME growth markets, by generating further cost savings for SMEs and better tailoring disclosure to the needs of investors. For companies offering securities to the public and listing on SME growth markets (as well as for offers of securities to the public by smaller companies), the EU Growth prospectus is replaced by a mandatory new short-form EU Growth issuance document. This document builds on the level of disclosure currently required under the EU Recovery prospectus regime and existing admission documents required by SME growth markets (where the obligation to publish a prospectus does not apply), follows a fixed order of disclosure and is subject, in the case of shares and other equivalent transferable securities, to a page limit. While the proposal exempts, under certain conditions, from the prospectus requirement offers of securities fungible with securities already admitted to trading (for which the publication of a summary document will suffice), it subjects follow-on issuances of non-fungible securities to the approval and publication of a new mandatory short-form EU Follow-on prospectus, largely building on the current EU Recovery prospectus regime. These amendments seek to ensure that companies can fully benefit from the advantages of accessing public capital markets, including easier and quicker access to additional equity capital and debt finance through follow-on offers. At the same time, they safeguard investor protection as these companies are already subject to periodic and ongoing disclosure and reporting requirements and, in addition, issuers will be required to publish the most relevant information for investors. Finally, the amendments to the Prospectus Regulation aim to foster cross-border offers by harmonising and increasing to EUR 12 million the threshold for exempting small offers of securities to the public from the obligation to publish a prospectus. This amendment also seeks to benefit smaller issuers, including SMEs, as in certain cases they will no longer have to produce a prospectus, lowering substantially their regulatory costs and incentivising them to access public capital markets. The proposal also introduces amendments to the rules on equivalence for third countries prospectuses to make them workable. The proposed targeted amendments to MAR aim to reduce legal uncertainty on what constitutes inside information for the purpose of disclosure as well as on the timing of disclosure. While the proposal maintains the current broad notion of inside information for the purposes of the insider dealing regulation, it narrows down the scope of the disclosure obligation. The proposal clarifies in particular that the obligation to disclose all inside information to the public does not cover the information relating to the intermediate steps of a protracted process, as this information is too preliminary and hence not mature enough for disclosure. At the same time, the proposal introduces an empowerment for the Commission to establish, by way of a delegated act a non-exhaustive list of the relevant information as well as, for each information, an indication of the timing when issuers are expected to disclose it. Jointly, these amendments seek to make the MAR disclosure regime less costly to comply with by issuers, more predictable from the investors’ point of view and more conducive to effective price formation. The amendments to the disclosure obligation are accompanied by improvements to the regime for the exchange of information among NCAs to enable them to better identify cases of market manipulation by setting up a cross market order book surveillance (CMOBS) mechanism , 19 thus increasing the integrity of EU markets and enhancing their appeal for investors. In the same vein, the proposal introduces a possibility for ESMA to establish collaboration platforms, in particular for the purpose of monitoring wholesale commodity markets, to address concerns about market integrity and the good functioning of financial and, in particular, spot markets . Finally, the proposal seeks to make the sanctioning regime for MAR disclosure-related infringements more proportionate for SMEs to avoid discouraging smaller issuers from listing or remaining listed. The proposal also aims at alleviating the regulatory hurdles resulting from the application of the managers’ transactions, insider list and market sounding regimes while ensuring that these alleviations do not impair investor protection and market integrity. The creation of a CMOBS mechanism requires also targeted amendments to the MiFIR framework to specify that a competent authority can request order book data on an ongoing basis to a trading venue under its supervision, and to confer to ESMA the role to harmonise the format of the template used to store such data. The proposed targeted amendments aim to build the necessary conditions for structural improvements in EU public capital markets to occur over time. A more favourable regulatory regime would encourage the development of a more favourable ecosystem, contributing in a multi-faceted manner to the CMU objective of improving access to financing by companies. Furthermore, this proposal should be analysed in conjunction with other proposed and upcoming initiatives. The proposed amendments are part of a broader package of measures outlined in the CMU Action Plan, which aim to address other issues currently preventing companies from raising capital on public markets.
Revised version (Article 7 Authorisation of deferred publication):
1. Competent authorities shall be able to authorise market operators and investment firms operating a trading venue to provide for deferred publication of the details of transactions based on their type or size. In particular, the competent authorities may authorise the deferred publication in respect of transactions that are large in scale compared with the normal market size for that share, depositary receipt, ETF, certificate or other similar financial instrument or that class of share, depositary receipt, ETF, certificate or other similar financial instrument. Market operators and investment firms operating a trading venue shall obtain the competent authority’s prior approval of proposed arrangements for deferred trade-publication, and shall clearly disclose those arrangements to market participants and the public. ESMA shall monitor the application of those arrangements for deferred trade-publication and shall submit an annual report to the Commission on how they are applied in practice. Where a competent authority authorises deferred publication and a competent authority of another Member State disagrees with the deferral or disagrees with the effective application of the authorisation granted, that competent authority may refer the matter back to ESMA, which may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 8 Pre-trade transparency requirements for trading venues in respect of bonds, structured finance products, emission allowances and derivatives
1. Market operators and investment firms operating a trading venue shall make public current bid and offer prices and the depth of trading interests at those prices which are advertised through their systems for bonds, and structured finance products, emission allowances and derivatives traded on a trading venue. That requirement shall also apply to actionable indication of interests. Market operators and investment firms operating a trading venue shall make that information available to the public on a continuous basis during normal trading hours. That publication obligation does not apply to those derivative transactions of non-financial counterparties which are objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the non-financial counterparty or of that group. 2. The transparency requirements referred to in paragraph 1 shall be calibrated for different types of trading systems, including order-book, quote-driven, hybrid, periodic auction trading and voice trading systems. 3. Market operators and investment firms operating a trading venue shall give access, on reasonable commercial terms and on a non-discriminatory basis, to the arrangements they employ for making public the information referred to in paragraph 1 to investment firms which are obliged to publish their quotes in bonds, structured finance products, emission allowances and derivatives pursuant to Article 18. 4. Market operators and investment firms operating a trading venue shall, where a waiver is granted in accordance with Article 9(1)(b), make public at least indicative pre-trade bid and offer prices which are close to the price of the trading interests advertised through their systems in bonds, structured finance products, emission allowances and derivatives traded on a trading venue. Market operators and investment firms operating a trading venue shall make that information available to the public through appropriate electronic means on a continuous basis during normal trading hours. Those arrangements shall ensure that information is provided on reasonable commercial terms and on a non-discriminatory basis.
Amendment rationale: 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 the NCAs will be in a position to apply MiFID II as of 3 January 2017. This is as 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 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. 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 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:  It avoids the risk of causing confusion and unnecessary costs that stakeholders would incur through a staggered implementation. Building various 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;  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. Changing the date of applicability of MiFID II does however have consequences for the applicability of other legislation, in particular Regulation (EU) 596/2014 ('MAR') and Regulation (EU) 909/2014 ('CSDR'). The market abuse framework will apply to certain definitions and concepts of MiFID II. As MAR is set to enter into application on 3 July 2016, there is already a provision in it, which ensures that before the originally foreseen date of entry into application of MiFID II, concepts and rules of MiFID I will apply. In order to ensure legal certainty for the period between the originally foreseen date of entry into application and the new date of entry into application, it is necessary to clarify in MAR that the concepts and rules as set out in MiFID I should be used until the new date of entry into application of MiFID II. MAR also refers to concepts that will be introduced by MiFID II, such as organised trading facilities ('OTFs'), small and medium-sized enterprises ('SME') growth markets, emission allowances or auctioned products based thereon. MAR sets out that its provisions shall not apply to these concepts until the originally foreseen entry into application of MiFID II. It is therefore also necessary to clarify in MAR that provisions referring to OTFs, SME growth markets, emission allowances or auctioned products based thereon shall not apply until the new date of entry into application of MiFID II. The consequences for the CSDR are twofold. First, there are consequences for the application of the rules on settlement discipline to multilateral trading facilities ('MTFs') applying for registration as SME growth markets in accordance with Directive 2014/65/EU. Specifically, these rules allow MTFs meeting the criteria for an SME growth market under MiFID II to apply a longer extension period for the settlement of transactions whilst their registration as an SME growth market under MiFID II is still ongoing. Second, in order to have a clear and coherent legislative framework for trading and settlement, CSDR relies on many of the definitions and concepts of MiFID II. In order to ensure legal certainty for the period between the previous date of entry into application and the new date of entry into application, it is necessary to clarify that until the new date of entry into application, the rules set out in MiFID I should be used. 1.4. Length of the extension 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 requirements (which in this case are the necessary regulatory technical 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. The extension of entry into application of Regulation (EU) No 600/2014 should not impact adoption of delegated acts and technical standards under Regulation (EU) No 600/2014. 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 Regulation (EU) No 600/2014 .
Revised version (Article 8 Pre-trade transparency requirements for trading venues in respect of bonds, structured finance products, emission allowances and derivatives):
1. Market operators and investment firms operating a trading venue shall make public current bid and offer prices and the depth of trading interests at those prices which are advertised through their systems for bonds, and structured finance products, emission allowances, derivatives traded on a trading venue and package orders. at requirement shall also apply to actionable indication of interests. Market operators and investment firms operating a trading venue shall make that information available to the public on a continuous basis during normal trading hours. That publication obligation does not apply to those derivative transactions of non-financial counterparties which are objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the non-financial counterparty or of that group. 2. The transparency requirements referred to in paragraph 1 shall be calibrated for different types of trading systems, including order-book, quote-driven, hybrid, periodic auction trading and voice trading systems. 3. Market operators and investment firms operating a trading venue shall give access, on reasonable commercial terms and on a non-discriminatory basis, to the arrangements they employ for making public the information referred to in paragraph 1 to investment firms which are obliged to publish their quotes in bonds, structured finance products, emission allowances and derivatives pursuant to Article 18. 4. Market operators and investment firms operating a trading venue shall, where a waiver is granted in accordance with Article 9(1)(b), make public at least indicative pre-trade bid and offer prices which are close to the price of the trading interests advertised through their systems in bonds, structured finance products, emission allowances and derivatives traded on a trading venue. Market operators and investment firms operating a trading venue shall make that information available to the public through appropriate electronic means on a continuous basis during normal trading hours. Those arrangements shall ensure that information is provided on reasonable commercial terms and on a non-discriminatory basis.
Article 9 Waivers for non-equity instruments
1. Competent authorities shall be able to waive the obligation for market operators and investment firms operating a trading venue to make public the information referred to in Article 8(1) for: (a) orders that are large in scale compared with normal market size and orders held in an order management facility of the trading venue pending disclosure; (b) actionable indications of interest in request-for-quote and voice trading systems that are above a size specific to the financial instrument, which would expose liquidity providers to undue risk and takes into account whether the relevant market participants are retail or wholesale investors; (c) derivatives which are not subject to the trading obligation specified in Article 28 and other financial instruments for which there is not a liquid market. 2. Before granting a waiver in accordance with paragraph 1, competent authorities shall notify ESMA and other competent authorities of the intended use of each individual waiver and provide an explanation regarding their functioning. Notification of the intention to grant a waiver shall be made not less than four months before the waiver is intended to take effect. Within two months following receipt of the notification, ESMA shall issue an opinion to the competent authority in question assessing the compatibility of the waiver with the requirements established in paragraph 1 and specified in the regulatory technical standards adopted pursuant to paragraph 5. Where that competent authority grants a waiver and a competent authority of another Member State disagrees, that competent authority may refer the matter back to ESMA, which may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010. ESMA shall monitor the application of the waivers and submit an annual report to the Commission on how they are applied in practice. 3. Competent authorities, may, either on their own initiative or upon request by other competent authorities, withdraw a waiver granted under paragraph 1 if they observe that the waiver is being used in a way that deviates from its original purpose or if they consider that the waiver is being used to circumvent the requirements established in this Article. Competent authorities shall notify ESMA and other competent authorities of such withdrawal without delay and before it takes effect, providing full reasons for their decision. 4. The competent authority responsible for supervising one or more trading venues on which a class of bond, structured finance product, emission allowance or derivative is traded may, where the liquidity of that class of financial instrument falls below a specified threshold, temporarily suspend the obligations referred to in Article 8. The specified threshold shall be defined on the basis of objective criteria specific to the market for the financial instrument concerned. Notification of such temporary suspension shall be published on the website of the relevant competent authority. The temporary suspension shall be valid for an initial period not exceeding three months from the date of its publication on the website of the relevant competent authority. Such a suspension may be renewed for further periods not exceeding three months at a time if the grounds for the temporary suspension continue to be applicable. Where the temporary suspension is not renewed after that three-month period, it shall automatically lapse. Before suspending or renewing the temporary suspension under this paragraph of the obligations referred to in Article 8, the relevant competent authority shall notify ESMA of its intention and provide an explanation. ESMA shall issue an opinion to the competent authority as soon as practicable on whether in its view the suspension or the renewal of the temporary suspension is justified in accordance with the first and second subparagraphs. 5. ESMA shall develop draft regulatory technical standards to specify the following: (a) the parameters and methods for calculating the threshold of liquidity referred to in paragraph 4 in relation to the financial instrument. The parameters and methods for Member States to calculate the threshold shall be set in such a way that when the threshold is reached, it represents a significant decline in liquidity across all venues within the Union for the financial instrument concerned based on the criteria used under Article 2(1)(17); (b) the range of bid and offer prices or quotes and the depth of trading interests at those prices, or indicative pre-trade bid and offer prices which are close to the price of the trading interest, to be made public for each class of financial instrument concerned in accordance with Article 8(1) and (4), taking into account the necessary calibration for different types of trading systems as referred to in Article 8(2); (c) the size of orders that are large in scale and the type and the minimum size of orders held in an order management facility pending disclosure for which pre-trade disclosure may be waived under paragraph 1 for each class of financial instrument concerned; (d) the size specific to the financial instrument referred to in paragraph 1(b) and the definition of request-for-quote and voice trading systems for which pre-trade disclosure may be waived under paragraph 1; When determining the size specific to the financial instrument that would expose liquidity providers to undue risk and takes into account whether the relevant market participants are retail or wholesale investors, in accordance with paragraph 1(b), ESMA shall take the following factors into account: (i) whether, at such sizes, liquidity providers would be able to hedge their risks; (ii) where a market in the financial instrument, or a class of financial instruments, consists in part of retail investors, the average value of transactions undertaken by those investors; (d) the size specific to the financial instrument referred to in paragraph 1(b) and the definition of request-for-quote and voice trading systems for which pre-trade disclosure may be waived under paragraph 1; When determining the size specific to the financial instrument that would expose liquidity providers to undue risk and takes into account whether the relevant market participants are retail or wholesale investors, in accordance with paragraph 1(b), ESMA shall take the following factors into account: (i) whether, at such sizes, liquidity providers would be able to hedge their risks; (ii) where a market in the financial instrument, or a class of financial instruments, consists in part of retail investors, the average value of transactions undertaken by those investors; (e) the financial instruments or the classes of financial instruments for which there is not a liquid market where pre-trade disclosure may be waived under paragraph 1. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Amendment rationale: 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 the NCAs will be in a position to apply MiFID II as of 3 January 2017. This is as 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 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. 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 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:  It avoids the risk of causing confusion and unnecessary costs that stakeholders would incur through a staggered implementation. Building various 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;  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. Changing the date of applicability of MiFID II does however have consequences for the applicability of other legislation, in particular Regulation (EU) 596/2014 ('MAR') and Regulation (EU) 909/2014 ('CSDR'). The market abuse framework will apply to certain definitions and concepts of MiFID II. As MAR is set to enter into application on 3 July 2016, there is already a provision in it, which ensures that before the originally foreseen date of entry into application of MiFID II, concepts and rules of MiFID I will apply. In order to ensure legal certainty for the period between the originally foreseen date of entry into application and the new date of entry into application, it is necessary to clarify in MAR that the concepts and rules as set out in MiFID I should be used until the new date of entry into application of MiFID II. MAR also refers to concepts that will be introduced by MiFID II, such as organised trading facilities ('OTFs'), small and medium-sized enterprises ('SME') growth markets, emission allowances or auctioned products based thereon. MAR sets out that its provisions shall not apply to these concepts until the originally foreseen entry into application of MiFID II. It is therefore also necessary to clarify in MAR that provisions referring to OTFs, SME growth markets, emission allowances or auctioned products based thereon shall not apply until the new date of entry into application of MiFID II. The consequences for the CSDR are twofold. First, there are consequences for the application of the rules on settlement discipline to multilateral trading facilities ('MTFs') applying for registration as SME growth markets in accordance with Directive 2014/65/EU. Specifically, these rules allow MTFs meeting the criteria for an SME growth market under MiFID II to apply a longer extension period for the settlement of transactions whilst their registration as an SME growth market under MiFID II is still ongoing. Second, in order to have a clear and coherent legislative framework for trading and settlement, CSDR relies on many of the definitions and concepts of MiFID II. In order to ensure legal certainty for the period between the previous date of entry into application and the new date of entry into application, it is necessary to clarify that until the new date of entry into application, the rules set out in MiFID I should be used. 1.4. Length of the extension 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 requirements (which in this case are the necessary regulatory technical 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. The extension of entry into application of Regulation (EU) No 600/2014 should not impact adoption of delegated acts and technical standards under Regulation (EU) No 600/2014. 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 Regulation (EU) No 600/2014 .
Revised version (Article 9 Waivers for non-equity instruments):
1. Competent authorities shall be able to waive the obligation for market operators and investment firms operating a trading venue to make public the information referred to in Article 8(1) for: (a) orders that are large in scale compared with normal market size and orders held in an order management facility of the trading venue pending disclosure; (b) actionable indications of interest in request-for-quote and voice trading systems that are above a size specific to the financial instrument, which would expose liquidity providers to undue risk and takes into account whether the relevant market participants are retail or wholesale investors; (c) derivatives which are not subject to the trading obligation specified in Article 28 and other financial instruments for which there is not a liquid market; (d) orders for the purpose of executing an exchange for physical; (e) package orders that meet one of the following conditions: (i) at least one of its components is a financial instrument for which there is not a liquid market, unless there is a liquid market for the package order as a whole; (ii) at least one of its components is large in scale compared with the normal market size, unless there is a liquid market for the package order as a whole; (iii) all of its components are executed on a request-for-quote or voice system and are above the size specific to the instrument. 2. Before granting a waiver in accordance with paragraph 1, competent authorities shall notify ESMA and other competent authorities of the intended use of each individual waiver and provide an explanation regarding their functioning. Notification of the intention to grant a waiver shall be made not less than four months before the waiver is intended to take effect. Within two months following receipt of the notification, ESMA shall issue an opinion to the competent authority in question assessing the compatibility of the waiver with the requirements established in paragraph 1 and specified in the regulatory technical standards adopted pursuant to paragraph 5. Where that competent authority grants a waiver and a competent authority of another Member State disagrees, that competent authority may refer the matter back to ESMA, which may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010. ESMA shall monitor the application of the waivers and submit an annual report to the Commission on how they are applied in practice. 2a. Competent authorities shall be able to waive the obligation referred to in Article 8(1) for each individual component of a package order. 3. Competent authorities, may, either on their own initiative or upon request by other competent authorities, withdraw a waiver granted under paragraph 1 if they observe that the waiver is being used in a way that deviates from its original purpose or if they consider that the waiver is being used to circumvent the requirements established in this Article. Competent authorities shall notify ESMA and other competent authorities of such withdrawal without delay and before it takes effect, providing full reasons for their decision. 4. The competent authority responsible for supervising one or more trading venues on which a class of bond, structured finance product, emission allowance or derivative is traded may, where the liquidity of that class of financial instrument falls below a specified threshold, temporarily suspend the obligations referred to in Article 8. The specified threshold shall be defined on the basis of objective criteria specific to the market for the financial instrument concerned. Notification of such temporary suspension shall be published on the website of the relevant competent authority. The temporary suspension shall be valid for an initial period not exceeding three months from the date of its publication on the website of the relevant competent authority. Such a suspension may be renewed for further periods not exceeding three months at a time if the grounds for the temporary suspension continue to be applicable. Where the temporary suspension is not renewed after that three-month period, it shall automatically lapse. Before suspending or renewing the temporary suspension under this paragraph of the obligations referred to in Article 8, the relevant competent authority shall notify ESMA of its intention and provide an explanation. ESMA shall issue an opinion to the competent authority as soon as practicable on whether in its view the suspension or the renewal of the temporary suspension is justified in accordance with the first and second subparagraphs. 5. ESMA shall develop draft regulatory technical standards to specify the following: (a) the parameters and methods for calculating the threshold of liquidity referred to in paragraph 4 in relation to the financial instrument. The parameters and methods for Member States to calculate the threshold shall be set in such a way that when the threshold is reached, it represents a significant decline in liquidity across all venues within the Union for the financial instrument concerned based on the criteria used under Article 2(1)(17); (b) the range of bid and offer prices or quotes and the depth of trading interests at those prices, or indicative pre-trade bid and offer prices which are close to the price of the trading interest, to be made public for each class of financial instrument concerned in accordance with Article 8(1) and (4), taking into account the necessary calibration for different types of trading systems as referred to in Article 8(2); (c) the size of orders that are large in scale and the type and the minimum size of orders held in an order management facility pending disclosure for which pre-trade disclosure may be waived under paragraph 1 for each class of financial instrument concerned; (d) the size specific to the financial instrument referred to in paragraph 1(b) and the definition of request-for-quote and voice trading systems for which pre-trade disclosure may be waived under paragraph 1; When determining the size specific to the financial instrument that would expose liquidity providers to undue risk and takes into account whether the relevant market participants are retail or wholesale investors, in accordance with paragraph 1(b), ESMA shall take the following factors into account: (i) whether, at such sizes, liquidity providers would be able to hedge their risks; (ii) where a market in the financial instrument, or a class of financial instruments, consists in part of retail investors, the average value of transactions undertaken by those investors; (e) the financial instruments or the classes of financial instruments for which there is not a liquid market where pre-trade disclosure may be waived under paragraph 1. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 6. In order to ensure the consistent application of points (i) and (ii) of paragraph (1)(e), ESMA shall develop draft regulatory technical standards to establish a methodology for determining those package orders for which there is a liquid market. When developing such methodology for determining whether there is a liquid market for a package order as a whole, ESMA shall assess whether packages are standardised and frequently traded. ESMA shall submit those draft regulatory technical standards to the Commission by 28 February 2017.