Article 15 Initial capital endowment
Member States shall ensure that the competent authorities do not grant authorisation unless the investment firm has sufficient initial capital in accordance with the requirements of Regulation (EU) No 575/2013 having regard to the nature of the investment service or activity in question.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal EU Member States have been severely affected by the economic crisis resulting from the COVID-19 pandemic. This calls for a quick reaction to support capital markets participants. In the Communication of the Commission of 13 March 2020, entitled ‘Coordinated economic response to the COVID-19 outbreak’, the Commission highlighted the importance of ensuring the liquidity of the EU financial sector and countering a threatening recession through actions at all levels. Furthermore, on 27 May 2020, in its Communication entitled ‘Europe’s moment: Repair and Prepare for the Next Generation’ , the Commission presented key instruments supporting the recovery plan for Europe, including measures that aim at kick-starting the economy and helping private investment. This Communication also stressed that liquidity and access to finance will be a continued challenge for companies. The objective of this targeted amendment is to provide for the best possible conditions for European economies to emerge from the current COVID-19 pandemic. The rules on investments services can play a key role in promoting the recapitalisation of European companies as they emerge from the crisis. The modified commodities regime will allow companies in the real economy to react to market volatility while also enabling nascent commodity contracts, which is also important to promote the international role of the Euro. The present review is driven by two key objectives: · Facilitating investments in the real economy and · Allowing for a rapid recapit alisation of European companies. To ensure that financial institutions and intermediaries can fulfil their essential function in financing the real economy, targeted adjustments of certain requirements of Directive 2014/65/EU (‘MiFID II’) are appropriate. Already in 2019, stakeholders had warned the Commission that several aspects of the MiFID II distribution rules were either unnecessary or perceived as overly burdensome. The current COVID-19 pandemic makes it even more important to remove formal burdens where they are not strictly necessary. A more finely calibrated view of investor requirements would also leave more resources for dealing with the consequences of the COVID-19 pandemic. The Commission therefore strives to recalibrate those areas to strike the right balance between a sufficient level of transparency towards the client, the highest standards of protection and acceptable compliance costs for firms. In that context, this amendment to MiFID II applying to investments in financial instrument has the aim of removing administrative burdens that result from documentation and disclosure rules that are not counterbalanced by corresponding increases in investor protection. It also recalibrates the position limit and corresponding hedging exemption regime to foster nascent euro denominated markets. 
Revised version (Article 15 Initial capital endowment):
Member States shall ensure that the competent authorities do not grant authorisation unless the investment firm has sufficient initial capital in accordance with the requirements of Article 9 of Directive (EU) 2019/2034 of the European Parliament and of the Council ( 9 ), having regard to the nature of the investment service or activity in question.
Article 16 Organisational requirements
1. The home Member State shall require that investment firms comply with the organisational requirements laid down in paragraphs 2 to 10 of this Article and in Article 17. 2. An investment firm shall establish adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and tied agents with its obligations under this Directive as well as appropriate rules governing personal transactions by such persons. 3. An investment firm shall maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest as defined in Article 23 from adversely affecting the interests of its clients. An investment firm which manufactures financial instruments for sale to clients shall maintain, operate and review a process for the approval of each financial instrument and significant adaptations of existing financial instruments before it is marketed or distributed to clients. The product approval process shall specify an identified target market of end clients within the relevant category of clients for each financial instrument and shall ensure that all relevant risks to such identified target market are assessed and that the intended distribution strategy is consistent with the identified target market. An investment firm shall also regularly review financial instruments it offers or markets, taking into account any event that could materially affect the potential risk to the identified target market, to assess at least whether the financial instrument remains consistent with the needs of the identified target market and whether the intended distribution strategy remains appropriate. An investment firm which manufactures financial instruments shall make available to any distributor all appropriate information on the financial instrument and the product approval process, including the identified target market of the financial instrument. Where an investment firm offers or recommends financial instruments which it does not manufacture, it shall have in place adequate arrangements to obtain the information referred to in the fifth subparagraph and to understand the characteristics and identified target market of each financial instrument. The policies, processes and arrangements referred to in this paragraph shall be without prejudice to all other requirements under this Directive and Regulation (EU) No 600/2014, including those relating to disclosure, suitability or appropriateness, identification and management of conflicts of interests, and inducements. 4. An investment firm shall take reasonable steps to ensure continuity and regularity in the performance of investment services and activities. To that end the investment firm shall employ appropriate and proportionate systems, resources and procedures. 5. An investment firm shall ensure, when relying on a third party for the performance of operational functions which are critical for the provision of continuous and satisfactory service to clients and the performance of investment activities on a continuous and satisfactory basis, that it takes reasonable steps to avoid undue additional operational risk. Outsourcing of important operational functions may not be undertaken in such a way as to impair materially the quality of its internal control and the ability of the supervisor to monitor the firm’s compliance with all obligations. An investment firm shall have sound administrative and accounting procedures, internal control mechanisms, effective procedures for risk assessment, and effective control and safeguard arrangements for information processing systems. Without prejudice to the ability of competent authorities to require access to communications in accordance with this Directive and Regulation (EU) No 600/2014, an investment firm shall have sound security mechanisms in place to guarantee the security and authentication of the means of transfer of information, minimise the risk of data corruption and unauthorised access and to prevent information leakage maintaining the confidentiality of the data at all times. 6. An investment firm shall arrange for records to be kept of all services, activities and transactions undertaken by it which shall be sufficient to enable the competent authority to fulfil its supervisory tasks and to perform the enforcement actions under this Directive, Regulation (EU) No 600/2014, Directive 2014/57/EU and Regulation (EU) No 596/2014, and in particular to ascertain that the investment firm has complied with all obligations including those with respect to clients or potential clients and to the integrity of the market. 7. Records shall include the recording of telephone conversations or electronic communications relating to, at least, transactions concluded when dealing on own account and the provision of client order services that relate to the reception, transmission and execution of client orders. Such telephone conversations and electronic communications shall also include those that are intended to result in transactions concluded when dealing on own account or in the provision of client order services that relate to the reception, transmission and execution of client orders, even if those conversations or communications do not result in the conclusion of such transactions or in the provision of client order services. For those purposes, an investment firm shall take all reasonable steps to record relevant telephone conversations and electronic communications, made with, sent from or received by equipment provided by the investment firm to an employee or contractor or the use of which by an employee or contractor has been accepted or permitted by the investment firm. An investment firm shall notify new and existing clients that telephone communications or conversations between the investment firm and its clients that result or may result in transactions will be recorded. Such a notification may be made once, before the provision of investment services to new and existing clients. An investment firm shall not provide, by telephone, investment services and activities to clients who have not been notified in advance about the recording of their telephone communications or conversations, where such investment services and activities relate to the reception, transmission and execution of client orders. Orders may be placed by clients through other channels, however such communications must be made in a durable medium such as mails, faxes, emails or documentation of client orders made at meetings. In particular, the content of relevant face-to-face conversations with a client may be recorded by using written minutes or notes. Such orders shall be considered equivalent to orders received by telephone. An investment firm shall take all reasonable steps to prevent an employee or contractor from making, sending or receiving relevant telephone conversations and electronic communications on privately-owned equipment which the investment firm is unable to record or copy. The records kept in accordance with this paragraph shall be provided to the client involved upon request and shall be kept for a period of five years and, where requested by the competent authority, for a period of up to seven years. 8. An investment firm shall, when holding financial instruments belonging to clients, make adequate arrangements so as to safeguard the ownership rights of clients, especially in the event of the investment firm’s insolvency, and to prevent the use of a client’s financial instruments on own account except with the client’s express consent. 9. An investment firm shall, when holding funds belonging to clients, make adequate arrangements to safeguard the rights of clients and, except in the case of credit institutions, prevent the use of client funds for its own account. 10. An investment firm shall not conclude title transfer financial collateral arrangements with retail clients for the purpose of securing or covering present or future, actual or contingent or prospective obligations of clients. 11. In the case of branches of investment firms, the competent authority of the Member State in which the branch is located shall, without prejudice to the possibility of the competent authority of the home Member State of the investment firm to have direct access to those records, enforce the obligation laid down in paragraphs 6 and 7 with regard to transactions undertaken by the branch. Member States may, in exceptional circumstances, impose requirements on investment firms concerning the safeguarding of client assets additional to the provisions set out in paragraphs 8, 9 and 10 and the respective delegated acts as referred to in paragraph 12. Such requirements must be objectively justified and proportionate so as to address, where investment firms safeguard client assets and client funds, specific risks to investor protection or to market integrity which are of particular importance in the circumstances of the market structure of that Member State. Member States shall notify, without undue delay, the Commission of any requirement which they intend to impose in accordance with this paragraph and at least two months before the date appointed for that requirement to come into force. The notification shall include a justification for that requirement. Any such additional requirements shall not restrict or otherwise affect the rights of investment firms under Articles 34 and 35. The Commission shall within two months of the notification referred to in the third subparagraph provide its opinion on the proportionality of and justification for the additional requirements. Member States may retain additional requirements provided that they were notified to the Commission in accordance with Article 4 of Directive 2006/73/EC before 2 July 2014 and that the conditions laid down in that Article are met. The Commission shall communicate to Member States and make public on its website the additional requirements imposed in accordance with this paragraph. 12. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to specify the concrete organisational requirements laid down in paragraphs 2 to 10 of this Article to be imposed on investment firms and on branches of third-country firms authorised in accordance with Article 41 performing different investment services and/or activities and ancillary services or combinations thereof.
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 to EU companies and facilitate access to capital for small and medium-sized companies (SMEs). It is in line with the main aim of the Capital Markets Union (CMU) to improve access to market-based sources of financing for EU companies at each stage of their development, including for smaller companies. Listed companies, including those recently listed, 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 (MiFID II) 2 introduced a new category of multilateral trading facilities (MTFs), the SME growth markets 3 , to incentivise SMEs access to capital markets. In 2019, new EU rules were put forward under Regulation (EU) 2019/2115 of the European Parliament and of the Council 4 (SME Listing Act) reduce the 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 that confirmed stakeholders’ views that further legislative action is needed to support listing of companies, especially of SMEs. In its final report 5 of May 2021, the TESG made 12 recommendations to a mend the listing framework both on regulated markets, and 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 complex and is influenced by a multitude of factors, many of which are outside the reach of regulators and therefore cannot be addressed directly by legislation. For instance, the factors that affect the cost of listing services, and more broadly geopolitical instability, Brexit, COVID-19, and inflation, have all had (and may continue to have) an impact on the decision to list, when to list, and whether to remain listed in the EU. Regulatory requirements and the associated costs and burden, however, are also a major factor in a company’s decision to list and remain listed. The Listing Act package presents a targeted set of measures aiming to: (i) reduce the regulatory burden where it is considered to be excessive (i.e. where regulation could contribute to investor protection/market integrity in a more cost efficient manner for stakeholders); (ii) and increase the flexibility given under company law to companies founders or controlling shareholders 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 initial public offering (IPO). The proposed Directive is accompanied by two other legislative proposals, all forming part of the Listing Act package: (i) a proposal for a Regulation amending the Prospectus Regulation and Market Abuse Regulation, which aims to streamline and clarify listing requirements applying on primary and secondary markets, while maintaining an appropriate level of investor protection and market integrity; and (ii) a proposal for a Directive 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 of companies across the EU to choose the appropriate governance structures when listing. Reason for the proposal Listed companies, especially SMEs, need to make themselves known to possible investors: the current low level of investment research on such issuers, driven by many underpinning factors, leads to their low visibility and scarce investors’ interest, further limiting the liquidity for the already listed companies. Under MiFID II and Commission Delegated Directive (EU) 2017/593 8 w here the investment research is provided by third parties to investment firms in connexion with execution/brokerage services , it is not regarded as an inducement if it is received in return for: (i) a direct payment by the investment firm out of its own resources; or (ii) a payment from a separate research payment account controlled by the firm and subject to several conditions (known as “unbundling rules”). After a few years of application, the success of the unbundling rules is contestable. The unbundling rules seem to have met some of the objectives, including to better manage the conflicts of interest, to limit the over production of research on very liquid shares and to improve transparency of the costs associated to the provision of research. However, these rules have not contributed to growth of independent investment research providers. On the contrary, further to the introduction of the unbundling rules, independent research became unsustainable due to low prices charged by some larger research providers. Evidence further suggests that the unbundling rules might have impaired the overall availability of research, especially for small and medium capitalisation companies, and led to a shrinking market research infrastructure, which is detrimental to a competitive and diversified analysts’ market. EU brokers, that had in the past provided SME research as part of their “bundled” investment services, scaled back SME capacities following their decision not to pass the costs of research to their clients. The listed small and medium capitalisation companies segment was particularly affected because bundled payments allowed payments for research on large companies to be used for research on small and midcap companies. Overall, several surveys show that the SME coverage has significantly shrunk or even disappeared altogether in the years after the unbundling rules took effect. The consequence was further concentration in the “unbundled” research market and a reduction in the diversity and breadth of the research on offer. While the unbundling rules were designed to break the nexus between brokerage commissions and investment research as well as to create a “price” for investment research, unbundling has not actually allowed to independently price research and has also not opened up this market to independent (non-brokerage) providers. Most importantly, the unbundling rules have not prevented the negative trend in small and medium capitalisation companies research coverage and have not led to the emergence of independent, SME focused research providers. In 2021, the unbundling rules were first amended, as part of a more general effort under the CMRP 9 to help the recovery from the COVID-19 crisis which forced companies to rely more heavily on debt, weakening their funding structures. In circumstances, where companies needed urgent re-capitalisation, the need for more visibility of EU companies, in particular small and medium capitalisation companies , was considered fundamental and the implicit cost of not having the research coverage even higher. In that context, the CMRP, applicable since 28 February 2022, sought to improve the small and medium capitalisation companies ’ research coverage 10 by providing an exemption from the unbundling rules for investment research covering issuers whose market capitalisation does not exceed EUR 1 billion for the period of 36 months preceding the provision of the research, hence allowing in such cases for a joint payment for trade execution and research. Nevertheless, while this measure was widely welcomed, it did not sufficiently address the problem. As many investment firms and brokers offer services to companies of a varying size (and capitalisation), including those exceeding the capitalisation of EUR 1 billion set out in the CMRP, these investment firms and brokers decided against introducing two parallel systems for research invoicing, maintaining the unbundled approach for all clients. Therefore, the amendment in the CMRP did not fully reach its objective to support the production of the small and medium capitalisation companies research and a further legislative review in this context would be necessary. In addition to amendments to the research unbundling regime, the proposal introduces a limited number of amendments to the legislative framework governing the SME growth market, a category of MTFs, created under MiFID II to raise SMEs visibility and profile as well as to aid the development of common regulatory standards in the EU for markets specialised in SMEs. 11 Finally, the proposal also seeks to repeal the Listing Directive. The Listing Directive, a minimum harmonisation directive adopted in 2001, provided the basis for listing on EU markets before the adoption of the Prospectus Directive 12 and the Transparency Directive 13 , that have subsequently replaced most of the provisions harmonising the conditions for the provision of information regarding requests for the admission of securities to listing and the information on securities admitted to trading. MiFID introduced the notion ‘admission of financial instruments to trading on a regulated market’. ESMA’s Securities Markets Standing Committee analysis on the implementation of the Listing Directive found that many Member States are not applying any longer the concepts used in the Listing Directive in national law. 14 Moreover, those Member States that still apply such concepts under national law have a rather broad discretion to deviate from the rules set out in the Listing Directive to take into account specific local market conditions. Currently the two concepts ‘admission to official listing’ and ‘admission to trading on a regulated market’ are often used interchangeably in some Member States. The dual regime of admission to trading, on the one hand, and admission to official listing, on the other hand, could lead to legal uncertainty at EU level, in particular, due to the fact that the requirements on transparency and market abuse, that seek to protect investors and ensure market integrity, are not currently applied to instruments admitted to official listing, while those requirements apply to instruments admitted to trading on a regulated market. Objectives of the proposal The overall objective of this proposal is to introduce targeted adjustments to the EU rulebook in order to enhance visibility of listed companies, especially SMEs, and streamline the listing process with a view to enhancing legal clarity. The proposed targeted amendments to MiFID II seek to facilitate the development and provision of investment research on companies, especially for the small and medium capitalisation ones, and to further incentivise the attractiveness of the SME growth market regime, to ultimately ease small and medium capitalisation companies’ access to capital markets. This proposal increases the market capitalisation threshold for small and medium capitalisation companies, below which the re-bundling of trading execution fees and research fees would be possible. By increasing the current threshold of EUR 1 billion up to EUR 10 billion, the aim is to capture a broader scope of small and medium capitalisation companies, and in particular more medium size companies, that would benefit from a re-bundling regime, allowing in particular that payments for research on large companies may be used also for research on small companies”. The exemption to the unbundling regime will remove barriers to the entry to more research on small and medium capitalisation companies and globally is expected to revitalise the market for investment research. The more small and medium capitalisation companies research is made available to potential investors, the more chance those companies may have to find fundings. More investment research on those companies will bring them greater visibility and more prospect of attracting potential investors. Considering the high number of small and medium capitalisation companies in EU, it is crucial for the EU economy that those companies get access to diversified sources of fundings, including via the capital markets. Furthermore, this proposal aims to provide a framework for developing a particular type of research that is paid by the issuer (‘issuer-sponsored research’). A public consultation, exchanges with stakeholders, and different analyses, 15 showed that this type of research has developed, in particular, following the introduction of MiFID II, to compensate for the lack of the research coverage on small and medium capitalisation companies . Considering the conflicts of interest inherent in such research, it seems necessary to regulate its production to guarantee fair and accurate information for its consumers. T o promote more transparent and independent research, this proposal mandates that such research is produced following a code of conduct developed or endorsed by a market operator or a competent authority in the EU. 16 In order to make investment research labelled as issuer-sponsored research more easily accessible to the public and to promote the visibility of small and medium capitalisation companies with potential investors, the proposal mentions that Member States shall ensure that issuer s may submit the ir issuer-sponsored research to the collecti on body as defined under [Article 2 ( 2 ) of the proposal for a regulation on a European S ingle A ccess P oint ] . Once established, the European Single Access Point (ESAP), proposed by the Commission on 25 November 2021 17 and currently under interinstitutional negotiations with the EU co-legislators will provide a single point of access to public financial information on EU companies, including SMEs, and EU investment products. ESAP is designed to give EU companies, especially SMEs, greater visibility to investors and could be used to collect and disseminate issuer-sponsored research. Going forward, ESAP may be used to publish the issuers’ notifications related to issuer-sponsored research and the contents of such research. Moreover, the targeted amendments to MiFID II seek to clarify that an operator of a multilateral trading facility (MTF) can apply for a segment of the MTF to be registered as an SME growth market provided that certain requirements are complied with in respect of that segment. Furthermore, this proposal seeks to increase the harmonisation and coherence of the listing rules in the EU, in order to make the regulatory framework fit for purpose. This proposal in particular harmonises and consolidates the listing rules by repealing the Listing Directive and transferring its relevant provisions into MiFID II, in order to reduce legal uncertainty and risk of regulatory arbitrage in the EU. Those provisions concern: (i) the minimum free float requirement, which determines the portion of a company’s issued share capital that is in the hands of public investors, as opposed to company officers, directors, or shareholders that hold controlling interest; and (ii) the foreseeable market capitalisation of the shares for which admission to listing is sought or, if this cannot be assessed, the company's capital and reserves, including profit or loss, from the last financial year. The proposal also decreases the minimum free float requirement from 25% to 10% to allow for more flexibility for issuers who want to keep a large share in the company. In addition, the new minimum free float threshold of 10% will not be limited to the public in the EU/EEA. That geographical restriction of the free float requirement to the EU/EEA will not be maintained as MiFID II does not provide for such restriction for financial instruments admitted to trading. 
Revised version (Article 16 Organisational requirements):
1. The home Member State shall require that investment firms comply with the organisational requirements laid down in paragraphs 2 to 10 of this Article and in Article 17. 2. An investment firm shall establish adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and tied agents with its obligations under this Directive as well as appropriate rules governing personal transactions by such persons. 3. An investment firm shall maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest as defined in Article 23 from adversely affecting the interests of its clients. An investment firm which manufactures financial instruments for sale to clients shall maintain, operate and review a process for the approval of each financial instrument and significant adaptations of existing financial instruments before it is marketed or distributed to clients. The product approval process shall specify an identified target market of end clients within the relevant category of clients for each financial instrument and shall ensure that all relevant risks to such identified target market are assessed and that the intended distribution strategy is consistent with the identified target market. An investment firm shall also regularly review financial instruments it offers or markets, taking into account any event that could materially affect the potential risk to the identified target market, to assess at least whether the financial instrument remains consistent with the needs of the identified target market and whether the intended distribution strategy remains appropriate. An investment firm which manufactures financial instruments shall make available to any distributor all appropriate information on the financial instrument and the product approval process, including the identified target market of the financial instrument. Where an investment firm offers or recommends financial instruments which it does not manufacture, it shall have in place adequate arrangements to obtain the information referred to in the fifth subparagraph and to understand the characteristics and identified target market of each financial instrument. The policies, processes and arrangements referred to in this paragraph shall be without prejudice to all other requirements under this Directive and Regulation (EU) No 600/2014, including those relating to disclosure, suitability or appropriateness, identification and management of conflicts of interests, and inducements. 4. An investment firm shall take reasonable steps to ensure continuity and regularity in the performance of investment services and activities. To that end, the investment firm shall employ appropriate and proportionate systems, including information and communication technology (‘ICT’) systems that are set up and managed in accordance with Article 7 of Regulation (EU) 2022/2554 of the European Parliament and of the Council ( 12 ), as well as appropriate and proportionate resources and procedures. 5. An investment firm shall ensure, when relying on a third party for the performance of operational functions which are critical for the provision of continuous and satisfactory service to clients and the performance of investment activities on a continuous and satisfactory basis, that it takes reasonable steps to avoid undue additional operational risk. Outsourcing of important operational functions may not be undertaken in such a way as to impair materially the quality of its internal control and the ability of the supervisor to monitor the firm’s compliance with all obligations. An investment firm shall have sound administrative and accounting procedures, internal control mechanisms and effective procedures for risk assessment. Without prejudice to the ability of competent authorities to require access to communications in accordance with this Directive and Regulation (EU) No 600/2014, an investment firm shall have sound security mechanisms in place to ensure, in accordance with the requirements laid down in Regulation (EU) 2022/2554, the security and authentication of the means of transfer of information, to minimise the risk of data corruption and unauthorised access and to prevent information leakage, thereby maintaining the confidentiality of the data at all times. 6. An investment firm shall arrange for records to be kept of all services, activities and transactions undertaken by it which shall be sufficient to enable the competent authority to fulfil its supervisory tasks and to perform the enforcement actions under this Directive, Regulation (EU) No 600/2014, Directive 2014/57/EU and Regulation (EU) No 596/2014, and in particular to ascertain that the investment firm has complied with all obligations including those with respect to clients or potential clients and to the integrity of the market. 7. Records shall include the recording of telephone conversations or electronic communications relating to, at least, transactions concluded when dealing on own account and the provision of client order services that relate to the reception, transmission and execution of client orders. Such telephone conversations and electronic communications shall also include those that are intended to result in transactions concluded when dealing on own account or in the provision of client order services that relate to the reception, transmission and execution of client orders, even if those conversations or communications do not result in the conclusion of such transactions or in the provision of client order services. For those purposes, an investment firm shall take all reasonable steps to record relevant telephone conversations and electronic communications, made with, sent from or received by equipment provided by the investment firm to an employee or contractor or the use of which by an employee or contractor has been accepted or permitted by the investment firm. An investment firm shall notify new and existing clients that telephone communications or conversations between the investment firm and its clients that result or may result in transactions will be recorded. Such a notification may be made once, before the provision of investment services to new and existing clients. An investment firm shall not provide, by telephone, investment services and activities to clients who have not been notified in advance about the recording of their telephone communications or conversations, where such investment services and activities relate to the reception, transmission and execution of client orders. Orders may be placed by clients through other channels, however such communications must be made in a durable medium such as mails, faxes, emails or documentation of client orders made at meetings. In particular, the content of relevant face-to-face conversations with a client may be recorded by using written minutes or notes. Such orders shall be considered equivalent to orders received by telephone. An investment firm shall take all reasonable steps to prevent an employee or contractor from making, sending or receiving relevant telephone conversations and electronic communications on privately-owned equipment which the investment firm is unable to record or copy. The records kept in accordance with this paragraph shall be provided to the client involved upon request and shall be kept for a period of five years and, where requested by the competent authority, for a period of up to seven years. 8. An investment firm shall, when holding financial instruments belonging to clients, make adequate arrangements so as to safeguard the ownership rights of clients, especially in the event of the investment firm’s insolvency, and to prevent the use of a client’s financial instruments on own account except with the client’s express consent. 9. An investment firm shall, when holding funds belonging to clients, make adequate arrangements to safeguard the rights of clients and, except in the case of credit institutions, prevent the use of client funds for its own account. 10. An investment firm shall not conclude title transfer financial collateral arrangements with retail clients for the purpose of securing or covering present or future, actual or contingent or prospective obligations of clients. 11. In the case of branches of investment firms, the competent authority of the Member State in which the branch is located shall, without prejudice to the possibility of the competent authority of the home Member State of the investment firm to have direct access to those records, enforce the obligation laid down in paragraphs 6 and 7 with regard to transactions undertaken by the branch. Member States may, in exceptional circumstances, impose requirements on investment firms concerning the safeguarding of client assets additional to the provisions set out in paragraphs 8, 9 and 10 and the respective delegated acts as referred to in paragraph 12. Such requirements must be objectively justified and proportionate so as to address, where investment firms safeguard client assets and client funds, specific risks to investor protection or to market integrity which are of particular importance in the circumstances of the market structure of that Member State. Member States shall notify, without undue delay, the Commission of any requirement which they intend to impose in accordance with this paragraph and at least two months before the date appointed for that requirement to come into force. The notification shall include a justification for that requirement. Any such additional requirements shall not restrict or otherwise affect the rights of investment firms under Articles 34 and 35. The Commission shall within two months of the notification referred to in the third subparagraph provide its opinion on the proportionality of and justification for the additional requirements. Member States may retain additional requirements provided that they were notified to the Commission in accordance with Article 4 of Directive 2006/73/EC before 2 July 2014 and that the conditions laid down in that Article are met. The Commission shall communicate to Member States and make public on its website the additional requirements imposed in accordance with this paragraph. 12. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to specify the concrete organisational requirements laid down in paragraphs 2 to 10 of this Article to be imposed on investment firms and on branches of third-country firms authorised in accordance with Article 41 performing different investment services and/or activities and ancillary services or combinations thereof.
Article 17 Algorithmic trading
1. An investment firm that engages in algorithmic trading shall have in place effective systems and risk controls suitable to the business it operates to ensure that its trading systems are resilient and have sufficient capacity, are subject to appropriate trading thresholds and limits and prevent the sending of erroneous orders or the systems otherwise functioning in a way that may create or contribute to a disorderly market. Such a firm shall also have in place effective systems and risk controls to ensure the trading systems cannot be used for any purpose that is contrary to Regulation (EU) No 596/2014 or to the rules of a trading venue to which it is connected. The investment firm shall have in place effective business continuity arrangements to deal with any failure of its trading systems and shall ensure its systems are fully tested and properly monitored to ensure that they meet the requirements laid down in this paragraph. 2. An investment firm that engages in algorithmic trading in a Member State shall notify this to the competent authorities of its home Member State and of the trading venue at which the investment firm engages in algorithmic trading as a member or participant of the trading venue. The competent authority of the home Member State of the investment firm may require the investment firm to provide, on a regular or ad-hoc basis, a description of the nature of its algorithmic trading strategies, details of the trading parameters or limits to which the system is subject, the key compliance and risk controls that it has in place to ensure the conditions laid down in paragraph 1 are satisfied and details of the testing of its systems. The competent authority of the home Member State of the investment firm may, at any time, request further information from an investment firm about its algorithmic trading and the systems used for that trading. The competent authority of the home Member State of the investment firm shall, on the request of a competent authority of a trading venue at which the investment firm as a member or participant of the trading venue is engaged in algorithmic trading and without undue delay, communicate the information referred to in the second subparagraph that it receives from the investment firm that engages in algorithmic trading. The investment firm shall arrange for records to be kept in relation to the matters referred to in this paragraph and shall ensure that those records be sufficient to enable its competent authority to monitor compliance with the requirements of this Directive. An investment firm that engages in a high-frequency algorithmic trading technique shall store in an approved form accurate and time sequenced records of all its placed orders, including cancellations of orders, executed orders and quotations on trading venues and shall make them available to the competent authority upon request. 3. An investment firm that engages in algorithmic trading to pursue a market making strategy shall, taking into account the liquidity, scale and nature of the specific market and the characteristics of the instrument traded: (a) carry out this market making continuously during a specified proportion of the trading venue’s trading hours, except under exceptional circumstances, with the result of providing liquidity on a regular and predictable basis to the trading venue; (b) enter into a binding written agreement with the trading venue which shall at least specify the obligations of the investment firm in accordance with point (a); and (c) have in place effective systems and controls to ensure that it fulfils its obligations under the agreement referred to in point (b) at all times. 4. For the purposes of this Article and of Article 48 of this Directive, an investment firm that engages in algorithmic trading shall be considered to be pursuing a market making strategy when, as a member or participant of one or more trading venues, its strategy, when dealing on own account, involves posting firm, simultaneous two-way quotes of comparable size and at competitive prices relating to one or more financial instruments on a single trading venue or across different trading venues, with the result of providing liquidity on a regular and frequent basis to the overall market. 5. An investment firm that provides direct electronic access to a trading venue shall have in place effective systems and controls which ensure a proper assessment and review of the suitability of clients using the service, that clients using the service are prevented from exceeding appropriate pre-set trading and credit thresholds, that trading by clients using the service is properly monitored and that appropriate risk controls prevent trading that may create risks to the investment firm itself or that could create or contribute to a disorderly market or could be contrary to Regulation (EU) No 596/2014 or the rules of the trading venue. Direct electronic access without such controls is prohibited. An investment firm that provides direct electronic access shall be responsible for ensuring that clients using that service comply with the requirements of this Directive and the rules of the trading venue. The investment firm shall monitor the transactions in order to identify infringements of those rules, disorderly trading conditions or conduct that may involve market abuse and that is to be reported to the competent authority. The investment firm shall ensure that there is a binding written agreement between the investment firm and the client regarding the essential rights and obligations arising from the provision of the service and that under the agreement the investment firm retains responsibility under this Directive. An investment firm that provides direct electronic access to a trading venue shall notify the competent authorities of its home Member State and of the trading venue at which the investment firm provides direct electronic access accordingly. The competent authority of the home Member State of the investment firm may require the investment firm to provide, on a regular or ad-hoc basis, a description of the systems and controls referred to in first subparagraph and evidence that those have been applied. The competent authority of the home Member State of the investment firm shall, on the request of a competent authority of a trading venue in relation to which the investment firm provides direct electronic access, communicate without undue delay the information referred to in the fourth subparagraph that it receives from the investment firm. 6. An investment firm that acts as a general clearing member for other persons shall have in place effective systems and controls to ensure clearing services are only applied to persons who are suitable and meet clear criteria and that appropriate requirements are imposed on those persons to reduce risks to the investment firm and to the market. The investment firm shall ensure that there is a binding written agreement between the investment firm and the person regarding the essential rights and obligations arising from the provision of that service. 7. ESMA shall develop draft regulatory technical standards to specify the following: (a) the details of organisational requirements laid down in paragraphs 1 to 6 to be imposed on investment firms providing different investment services and/or activities and ancillary services or combinations thereof, whereby the specifications in relation to the organisational requirements laid down in paragraph 5 shall set out specific requirements for direct market access and for sponsored access in such a way as to ensure that the controls applied to sponsored access are at least equivalent to those applied to direct market access; (b) the circumstances in which an investment firm would be obliged to enter into the market making agreement referred to in point (b) of paragraph 3 and the content of such agreements, including the proportion of the trading venue’s trading hours laid down in paragraph 3; (c) the situations constituting exceptional circumstances referred to in paragraph 3, including circumstances of extreme volatility, political and macroeconomic issues, system and operational matters, and circumstances which contradict the investment firm’s ability to maintain prudent risk management practices as laid down in paragraph 1; (d) the content and format of the approved form referred to in the fifth subparagraph of paragraph 2 and the length of time for which such records must be kept by the investment firm. 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 This proposal is part of a package of measures to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks. It is in line with the Commission priorities to make Europe fit for the digital age and to build a future-ready economy that works for the people. The digital finance package includes a new Strategy on digital finance for the EU financial sector 1 with the aim to ensure that the EU embraces the digital revolution and drives it with innovative European firms in the lead, making the benefits of digital finance available to European consumers and businesses. In addition to this proposal, the package also includes a proposal for a regulation on markets in crypto assets 2 , a proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) 3 and a proposal for a regulation on digital operational resilience for the financial sector 4 . The reasons for, and objectives of, the two sets of legislative measures have been set out in the explanatory memoranda of the proposal for a regulation on a pilot regime for distributed ledger technology market infrastructures, proposal for a regulation on markets in crypto assets and proposal for a regulation on digital operational resilience, respectively, and apply here as well. The particular reasons for this proposal for a directive is that, in order to provide legal certainty as regards crypto assets and achieve the objectives of strengthening digital operational resilience, it is necessary to establish a temporary exemption for multilateral trading facilities and amend or clarify certain provisions in existing EU financial services directives. · Consistency with existing provisions in the policy area This proposal, similar to the proposals for regulation it accompanies, is part of a broader ongoing work at European and international level aimed at (i) strengthening the cybersecurity in financial services and address broader operational risks, and (ii) providing a clear, proportionate and enabling EU legal framework for crypto-asset service providers. · Consistency with other Union policies As stated by President von der Leyen in her Political Guidelines, 5 and set-out in the Communication ‘Shaping Europe’s digital future’, 6 it is crucial for Europe to reap all the benefits of the digital age and to strengthen its industry and innovation capacity, within safe and ethical boundaries. As regards crypto assets, this proposal is closely linked with wider Commission policies on blockchain technology, as crypto-assets, as the main application of blockchain technologies, are inextricably linked to the promotion of blockchain technology throughout Europe. As regards operational resilience, the European strategy for data 7 sets out four pillars - data protection, fundamental rights, safety and cyber-security - as essential pre-requisites for a society empowered by the use of data. A legislative framework strengthening the digital operational resilience of the Union’s financial entities is consistent with these policy objectives. The proposal would also support policies aimed at recovering from the coronavirus, as it would ensure that increased reliance on digital finance goes hand in hand with operational resilience. Both proposals also respond to calls from the CMU High-Level Forum to establish clear rules for the use of crypto asset (recommendation 7) and to put in place new rules on cyber resilience.
Revised version (Article 17 Algorithmic trading):
1. An investment firm that engages in algorithmic trading shall have in place effective systems and risk controls suitable to the business it operates to ensure that its trading systems are resilient and have sufficient capacity, are subject to appropriate trading thresholds and limits and prevent the sending of erroneous orders or the systems otherwise functioning in a way that may create or contribute to a disorderly market. Such a firm shall also have in place effective systems and risk controls to ensure the trading systems cannot be used for any purpose that is contrary to Regulation (EU) No 596/2014 or to the rules of a trading venue to which it is connected. The investment firm shall have in place effective business continuity arrangements to deal with any failure of its trading systems and shall ensure its systems are fully tested and properly monitored to ensure that they meet the requirements laid down in this paragraph. 2. An investment firm that engages in algorithmic trading in a Member State shall notify this to the competent authorities of its home Member State and of the trading venue at which the investment firm engages in algorithmic trading as a member or participant of the trading venue. The competent authority of the home Member State of the investment firm may require the investment firm to provide, on a regular or ad-hoc basis, a description of the nature of its algorithmic trading strategies, details of the trading parameters or limits to which the system is subject, the key compliance and risk controls that it has in place to ensure the conditions laid down in paragraph 1 are satisfied and details of the testing of its systems. The competent authority of the home Member State of the investment firm may, at any time, request further information from an investment firm about its algorithmic trading and the systems used for that trading. The competent authority of the home Member State of the investment firm shall, on the request of a competent authority of a trading venue at which the investment firm as a member or participant of the trading venue is engaged in algorithmic trading and without undue delay, communicate the information referred to in the second subparagraph that it receives from the investment firm that engages in algorithmic trading. The investment firm shall arrange for records to be kept in relation to the matters referred to in this paragraph and shall ensure that those records be sufficient to enable its competent authority to monitor compliance with the requirements of this Directive. An investment firm that engages in a high-frequency algorithmic trading technique shall store in an approved form accurate and time sequenced records of all its placed orders, including cancellations of orders, executed orders and quotations on trading venues and shall make them available to the competent authority upon request. 4. For the purposes of this Article and of Article 48 of this Directive, an investment firm that engages in algorithmic trading shall be considered to be pursuing a market making strategy when, as a member or participant of one or more trading venues, its strategy, when dealing on own account, involves posting firm, simultaneous two-way quotes of comparable size and at competitive prices relating to one or more financial instruments on a single trading venue or across different trading venues, with the result of providing liquidity on a regular and frequent basis to the overall market. 5. An investment firm that provides direct electronic access to a trading venue shall have in place effective systems and controls which ensure a proper assessment and review of the suitability of clients using the service, that clients using the service are prevented from exceeding appropriate pre-set trading and credit thresholds, that trading by clients using the service is properly monitored and that appropriate risk controls prevent trading that may create risks to the investment firm itself or that could create or contribute to a disorderly market or could be contrary to Regulation (EU) No 596/2014 or the rules of the trading venue. Direct electronic access without such controls is prohibited. An investment firm that provides direct electronic access shall be responsible for ensuring that clients using that service comply with the requirements of this Directive and the rules of the trading venue. The investment firm shall monitor the transactions in order to identify infringements of those rules, disorderly trading conditions or conduct that may involve market abuse and that is to be reported to the competent authority. The investment firm shall ensure that there is a binding written agreement between the investment firm and the client regarding the essential rights and obligations arising from the provision of the service and that under the agreement the investment firm retains responsibility under this Directive. An investment firm that provides direct electronic access to a trading venue shall notify the competent authorities of its home Member State and of the trading venue at which the investment firm provides direct electronic access accordingly. The competent authority of the home Member State of the investment firm may require the investment firm to provide, on a regular or ad-hoc basis, a description of the systems and controls referred to in first subparagraph and evidence that those have been applied. The competent authority of the home Member State of the investment firm shall, on the request of a competent authority of a trading venue in relation to which the investment firm provides direct electronic access, communicate without undue delay the information referred to in the fourth subparagraph that it receives from the investment firm. 6. An investment firm that acts as a general clearing member for other persons shall have in place effective systems and controls to ensure clearing services are only applied to persons who are suitable and meet clear criteria and that appropriate requirements are imposed on those persons to reduce risks to the investment firm and to the market. The investment firm shall ensure that there is a binding written agreement between the investment firm and the person regarding the essential rights and obligations arising from the provision of that service. 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 18 Trading process and finalisation of transactions in an MTF and an OTF
1. Member States shall require that investment firms and market operators operating an MTF or an OTF, in addition to meeting the organisational requirements laid down in Article 16, establish transparent rules and procedures for fair and orderly trading and establish objective criteria for the efficient execution of orders. They shall have arrangements for the sound management of the technical operations of the facility, including the establishment of effective contingency arrangements to cope with risks of systems disruption. 2. Member States shall require that investment firms and market operators operating an MTF or an OTF establish transparent rules regarding the criteria for determining the financial instruments that can be traded under its systems. Member States shall require that, where applicable, investment firms and market operators operating an MTF or an OTF provide, or are satisfied that there is access to, sufficient publicly available information to enable its users to form an investment judgement, taking into account both the nature of the users and the types of instruments traded. 3. Member States shall require that investment firms and market operators operating an MTF or an OTF establish, publish and maintain and implement transparent and non-discriminatory rules, based on objective criteria, governing access to its facility. 4. Member States shall require that investment firms and market operators operating an MTF or an OTF have arrangements to identify clearly and manage the potential adverse consequences for the operation of the MTF or OTF, or for the members or participants and users, of any conflict of interest between the interest of the MTF, the OTF, their owners or the investment firm or market operator operating the MTF or OTF and the sound functioning of the MTF or OTF. 5. Member States shall require that investment firms and market operators operating an MTF or OTF comply with Articles 48 and 49 and have in place all the necessary effective systems, procedures and arrangements to do so. 6. Member States shall require that investment firms and market operators operating an MTF or an OTF clearly inform its members or participants of their respective responsibilities for the settlement of the transactions executed in that facility. Member States shall require that investment firms and market operators operating an MTF or an OTF have put in place the necessary arrangements to facilitate the efficient settlement of the transactions concluded under the systems of that MTF or OTF. 7. Member States shall require that MTFs and OTFs have at least three materially active members or users, each having the opportunity to interact with all the others in respect to price formation. 8. Where a transferable security that has been admitted to trading on a regulated market is also traded on an MTF or an OTF without the consent of the issuer, the issuer shall not be subject to any obligation relating to initial, ongoing or ad hoc financial disclosure with regard to that MTF or an OTF. 9. Member States shall require that any investment firm and market operator operating an MTF or an OTF comply immediately with any instruction from its competent authority pursuant to Article 69(2) to suspend or remove a financial instrument from trading. 10. Member States shall require that investment firms and market operators operating an MTF or an OTF provide the competent authority with a detailed description of the functioning of the MTF or OTF, including, without prejudice to Article 20(1), (4) and (5), any links to or participation by a regulated market, an MTF, an OTF or a systematic internaliser owned by the same investment firm or market operator, and a list of their members, participants and/or users. Competent authorities shall make that information available to ESMA on request. Every authorisation to an investment firm or market operator as an MTF and an OTF shall be notified to ESMA. ESMA shall establish a list of all MTFs and OTFs in the Union. The list shall contain information on the services an MTF or an OTF provides and entail the unique code identifying the MTF and the OTF for use in reports in accordance with Articles 6, 10 and 26 of Regulation (EU) No 600/2014. It shall be updated on a regular basis. ESMA shall publish and keep up-to-date that list on its website. 11. ESMA shall develop draft implementing technical standards to determine the content and format of the description and notification referred to in paragraph 10. ESMA shall submit those draft implementing technical standards to the Commission by 3 January 2016. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.
Article 19 Specific requirements for MTFs
1. Member States shall require that investment firms and market operators operating an MTF, in addition to meeting the requirements laid down in Articles 16 and 18, shall establish and implement non-discretionary rules for the execution of orders in the system. 2. Member States shall require that the rules referred to in Article 18(3) governing access to an MTF comply with the conditions established in Article 53(3). 3. Member States shall require that investment firms and market operators operating an MTF to have arrangements: (a) to be adequately equipped to manage the risks to which it is exposed, to implement appropriate arrangements and systems to identify all significant risks to its operation, and to put in place effective measures to mitigate those risks; (b) to have effective arrangements to facilitate the efficient and timely finalisation of the transactions executed under its systems; and (c) to have available, at the time of authorisation and on an ongoing basis, sufficient financial resources to facilitate its orderly functioning, having regard to the nature and extent of the transactions concluded on the market and the range and degree of the risks to which it is exposed. 4. Member States shall ensure that Articles 24, 25, Article 27(1), (2) and (4) to (10) and Article 28 are not applicable to the transactions concluded under the rules governing an MTF between its members or participants or between the MTF and its members or participants in relation to the use of the MTF. However, the members of or participants in the MTF shall comply with the obligations provided for in Articles 24, 25, 27 and 28 with respect to their clients when, acting on behalf of their clients, they execute their orders through the systems of an MTF. 5. Member States shall not allow investment firms or market operators operating an MTF to execute client orders against proprietary capital, or to engage in matched principal trading.
Amendment rationale: CONTEXT OF THE PROPOSAL · Reasons for and objectives of the proposal This proposal is part of a package of measures to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks. It is in line with the Commission priorities to make Europe fit for the digital age and to build a future-ready economy that works for the people. The digital finance package includes a new Strategy on digital finance for the EU financial sector 1 with the aim to ensure that the EU embraces the digital revolution and drives it with innovative European firms in the lead, making the benefits of digital finance available to European consumers and businesses. In addition to this proposal, the package also includes a proposal for a regulation on markets in crypto assets 2 , a proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) 3 and a proposal for a regulation on digital operational resilience for the financial sector 4 . The reasons for, and objectives of, the two sets of legislative measures have been set out in the explanatory memoranda of the proposal for a regulation on a pilot regime for distributed ledger technology market infrastructures, proposal for a regulation on markets in crypto assets and proposal for a regulation on digital operational resilience, respectively, and apply here as well. The particular reasons for this proposal for a directive is that, in order to provide legal certainty as regards crypto assets and achieve the objectives of strengthening digital operational resilience, it is necessary to establish a temporary exemption for multilateral trading facilities and amend or clarify certain provisions in existing EU financial services directives. · Consistency with existing provisions in the policy area This proposal, similar to the proposals for regulation it accompanies, is part of a broader ongoing work at European and international level aimed at (i) strengthening the cybersecurity in financial services and address broader operational risks, and (ii) providing a clear, proportionate and enabling EU legal framework for crypto-asset service providers. · Consistency with other Union policies As stated by President von der Leyen in her Political Guidelines, 5 and set-out in the Communication ‘Shaping Europe’s digital future’, 6 it is crucial for Europe to reap all the benefits of the digital age and to strengthen its industry and innovation capacity, within safe and ethical boundaries. As regards crypto assets, this proposal is closely linked with wider Commission policies on blockchain technology, as crypto-assets, as the main application of blockchain technologies, are inextricably linked to the promotion of blockchain technology throughout Europe. As regards operational resilience, the European strategy for data 7 sets out four pillars - data protection, fundamental rights, safety and cyber-security - as essential pre-requisites for a society empowered by the use of data. A legislative framework strengthening the digital operational resilience of the Union’s financial entities is consistent with these policy objectives. The proposal would also support policies aimed at recovering from the coronavirus, as it would ensure that increased reliance on digital finance goes hand in hand with operational resilience. Both proposals also respond to calls from the CMU High-Level Forum to establish clear rules for the use of crypto asset (recommendation 7) and to put in place new rules on cyber resilience.
Revised version (Article 19 Specific requirements for MTFs):
1. Member States shall require that investment firms and market operators operating an MTF, in addition to meeting the requirements laid down in Articles 16 and 18, shall establish and implement non-discretionary rules for the execution of orders in the system. 2. Member States shall require that the rules referred to in Article 18(3) governing access to an MTF comply with the conditions established in Article 53(3). 4. Member States shall ensure that Articles 24, 25, Article 27(1), (2) and (4) to (10) and Article 28 are not applicable to the transactions concluded under the rules governing an MTF between its members or participants or between the MTF and its members or participants in relation to the use of the MTF. However, the members of or participants in the MTF shall comply with the obligations provided for in Articles 24, 25, 27 and 28 with respect to their clients when, acting on behalf of their clients, they execute their orders through the systems of an MTF. 5. Member States shall not allow investment firms or market operators operating an MTF to execute client orders against proprietary capital, or to engage in matched principal trading.
Article 20 Specific requirements for OTFs
1. Member States shall require that an investment firm and a market operator operating an OTF establishes arrangements preventing the execution of client orders in an OTF against the proprietary capital of the investment firm or market operator operating the OTF or from any entity that is part of the same group or legal person as the investment firm or market operator. 2. Member States shall permit an investment firm or market operator operating an OTF to engage in matched principal trading in bonds, structured finance products, emission allowances and certain derivatives only where the client has consented to the process. An investment firm or market operator operating an OTF shall not use matched principal trading to execute client orders in an OTF in derivatives pertaining to a class of derivatives that has been declared subject to the clearing obligation in accordance with Article 5 of Regulation (EU) No 648/2012. An investment firm or market operator operating an OTF shall establish arrangements ensuring compliance with the definition of matched principal trading in point (38) of Article 4(1). 3. Member States shall permit an investment firm or market operator operating an OTF to engage in dealing on own account other than matched principal trading only with regard to sovereign debt instruments for which there is not a liquid market. 4. Member States shall not allow the operation of an OTF and of a systematic internaliser to take place within the same legal entity. An OTF shall not connect with a systematic internaliser in a way which enables orders in an OTF and orders or quotes in a systematic internaliser to interact. An OTF shall not connect with another OTF in a way which enables orders in different OTFs to interact. 5. Member States shall not prevent an investment firm or a market operator operating an OTF from engaging another investment firm to carry out market making on that OTF on an independent basis. For the purposes of this Article, an investment firm shall not be deemed to be carrying out market making on an OTF on an independent basis if it has close links with the investment firm or market operator operating the OTF. 6. Member States shall require that the execution of orders on an OTF is carried out on a discretionary basis. An investment firm or market operator operating an OTF shall exercise discretion only in either or both of the following circumstances: (a) when deciding to place or retract an order on the OTF they operate; (b) when deciding not to match a specific client order with other orders available in the systems at a given time, provided it is in compliance with specific instructions received from a client and with its obligations in accordance with Article 27. For the system that crosses client orders the investment firm or market operator operating the OTF may decide if, when and how much of two or more orders it wants to match within the system. In accordance with paragraphs 1, 2, 4 and 5 and without prejudice to paragraph 3, with regard to a system that arranges transactions in non-equities, the investment firm or market operator operating the OTF may facilitate negotiation between clients so as to bring together two or more potentially compatible trading interest in a transaction. That obligation shall be without prejudice to Articles 18 and 27. 7. The competent authority may require, either when an investment firm or market operator requests to be authorised for the operation of an OTF or on ad-hoc basis, a detailed explanation why the system does not correspond to and cannot operate as a regulated market, MTF, or systematic internaliser, a detailed description as to how discretion will be exercised, in particular when an order to the OTF may be retracted and when and how two or more client orders will be matched within the OTF. In addition, the investment firm or market operator of an OTF shall provide the competent authority with information explaining its use of matched principal trading. The competent authority shall monitor an investment firm’s or market operator’s engagement in matched principal trading to ensure that it continues to fall within the definition of such trading and that its engagement in matched principal trading does not give rise to conflicts of interest between the investment firm or market operator and its clients. 8. Member States shall ensure that Articles 24, 25, 27 and 28 are applied to the transactions concluded on an OTF.
Article 21 Regular review of conditions for initial authorisation
1. Member States shall require that an investment firm authorised in their territory comply at all times with the conditions for initial authorisation established in Chapter I. 2. Member States shall require competent authorities to establish the appropriate methods to monitor that investment firms comply with their obligation under paragraph 1. They shall require investment firms to notify the competent authorities of any material changes to the conditions for initial authorisation. ESMA may develop guidelines regarding the monitoring methods referred to in this paragraph.
Article 22 General obligation in respect of on-going supervision
Member States shall ensure that the competent authorities monitor the activities of investment firms so as to assess compliance with the operating conditions provided for in this Directive. Member States shall ensure that the appropriate measures are in place to enable the competent authorities to obtain the information needed to assess the compliance of investment firms with those obligations.
Amendment rationale: CONTEXT OF THE PROPOSAL · Reasons for and objectives of the proposal This proposal is part of a package of measures to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks. It is in line with the Commission priorities to make Europe fit for the digital age and to build a future-ready economy that works for the people. The digital finance package includes a new Strategy on digital finance for the EU financial sector 1 with the aim to ensure that the EU embraces the digital revolution and drives it with innovative European firms in the lead, making the benefits of digital finance available to European consumers and businesses. In addition to this proposal, the package also includes a proposal for a regulation on markets in crypto assets 2 , a proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) 3 and a proposal for a regulation on digital operational resilience for the financial sector 4 . The reasons for, and objectives of, the two sets of legislative measures have been set out in the explanatory memoranda of the proposal for a regulation on a pilot regime for distributed ledger technology market infrastructures, proposal for a regulation on markets in crypto assets and proposal for a regulation on digital operational resilience, respectively, and apply here as well. The particular reasons for this proposal for a directive is that, in order to provide legal certainty as regards crypto assets and achieve the objectives of strengthening digital operational resilience, it is necessary to establish a temporary exemption for multilateral trading facilities and amend or clarify certain provisions in existing EU financial services directives. · Consistency with existing provisions in the policy area This proposal, similar to the proposals for regulation it accompanies, is part of a broader ongoing work at European and international level aimed at (i) strengthening the cybersecurity in financial services and address broader operational risks, and (ii) providing a clear, proportionate and enabling EU legal framework for crypto-asset service providers. · Consistency with other Union policies As stated by President von der Leyen in her Political Guidelines, 5 and set-out in the Communication ‘Shaping Europe’s digital future’, 6 it is crucial for Europe to reap all the benefits of the digital age and to strengthen its industry and innovation capacity, within safe and ethical boundaries. As regards crypto assets, this proposal is closely linked with wider Commission policies on blockchain technology, as crypto-assets, as the main application of blockchain technologies, are inextricably linked to the promotion of blockchain technology throughout Europe. As regards operational resilience, the European strategy for data 7 sets out four pillars - data protection, fundamental rights, safety and cyber-security - as essential pre-requisites for a society empowered by the use of data. A legislative framework strengthening the digital operational resilience of the Union’s financial entities is consistent with these policy objectives. The proposal would also support policies aimed at recovering from the coronavirus, as it would ensure that increased reliance on digital finance goes hand in hand with operational resilience. Both proposals also respond to calls from the CMU High-Level Forum to establish clear rules for the use of crypto asset (recommendation 7) and to put in place new rules on cyber resilience.
Revised version (Article 22 General obligation in respect of on-going supervision):
Member States shall ensure that the competent authorities monitor the activities of investment firms so as to assess compliance with the operating conditions provided for in this Directive. Member States shall ensure that the appropriate measures are in place to enable the competent authorities to obtain the information needed to assess the compliance of investment firms with those obligations. Member States shall ensure that competent authorities, where they are in charge of authorising and supervising the activities of an approved publication arrangement (APA), as defined in point (34) of Article 2(1) of Regulation (EU) No 600/2014 with a derogation in accordance with Article 2(3) of that Regulation, or an approved reporting mechanism (ARM), as defined in point (36) of Article 2(1) of that Regulation with a derogation in accordance with Article 2(3) of that Regulation, monitor the activities of that APA or ARM so as to assess compliance with the operating conditions provided for in that Regulation. Member States shall ensure that the appropriate measures are in place to enable the competent authorities to obtain the information needed to assess the compliance of APAs and ARMs with those obligations.
Article 23 Conflicts of interest
1. Member States shall require investment firms to take all appropriate steps to identify and to prevent or manage conflicts of interest between themselves, including their managers, employees and tied agents, or any person directly or indirectly linked to them by control and their clients or between one client and another that arise in the course of providing any investment and ancillary services, or combinations thereof, including those caused by the receipt of inducements from third parties or by the investment firm’s own remuneration and other incentive structures. 2. Where organisational or administrative arrangements made by the investment firm in accordance with Article 16(3) to prevent conflicts of interest from adversely affecting the interest of its client are not sufficient to ensure, with reasonable confidence, that risks of damage to client interests will be prevented, the investment firm shall clearly disclose to the client the general nature and/or sources of conflicts of interest and the steps taken to mitigate those risks before undertaking business on its behalf. 3. The disclosure referred to in paragraph 2 shall: (a) be made in a durable medium; and (b) include sufficient detail, taking into account the nature of the client, to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises. 4. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to: (a) define the steps that investment firms might reasonably be expected to take to identify, prevent, manage and disclose conflicts of interest when providing various investment and ancillary services and combinations thereof; (b) establish appropriate criteria for determining the types of conflict of interest whose existence may damage the interests of the clients or potential clients of the investment firm.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal EU Member States have been severely affected by the economic crisis resulting from the COVID-19 pandemic. This calls for a quick reaction to support capital markets participants. In the Communication of the Commission of 13 March 2020, entitled ‘Coordinated economic response to the COVID-19 outbreak’, the Commission highlighted the importance of ensuring the liquidity of the EU financial sector and countering a threatening recession through actions at all levels. Furthermore, on 27 May 2020, in its Communication entitled ‘Europe’s moment: Repair and Prepare for the Next Generation’ , the Commission presented key instruments supporting the recovery plan for Europe, including measures that aim at kick-starting the economy and helping private investment. This Communication also stressed that liquidity and access to finance will be a continued challenge for companies. The objective of this targeted amendment is to provide for the best possible conditions for European economies to emerge from the current COVID-19 pandemic. The rules on investments services can play a key role in promoting the recapitalisation of European companies as they emerge from the crisis. The modified commodities regime will allow companies in the real economy to react to market volatility while also enabling nascent commodity contracts, which is also important to promote the international role of the Euro. The present review is driven by two key objectives: · Facilitating investments in the real economy and · Allowing for a rapid recapit alisation of European companies. To ensure that financial institutions and intermediaries can fulfil their essential function in financing the real economy, targeted adjustments of certain requirements of Directive 2014/65/EU (‘MiFID II’) are appropriate. Already in 2019, stakeholders had warned the Commission that several aspects of the MiFID II distribution rules were either unnecessary or perceived as overly burdensome. The current COVID-19 pandemic makes it even more important to remove formal burdens where they are not strictly necessary. A more finely calibrated view of investor requirements would also leave more resources for dealing with the consequences of the COVID-19 pandemic. The Commission therefore strives to recalibrate those areas to strike the right balance between a sufficient level of transparency towards the client, the highest standards of protection and acceptable compliance costs for firms. In that context, this amendment to MiFID II applying to investments in financial instrument has the aim of removing administrative burdens that result from documentation and disclosure rules that are not counterbalanced by corresponding increases in investor protection. It also recalibrates the position limit and corresponding hedging exemption regime to foster nascent euro denominated markets. 
Revised version (Article 23 Conflicts of interest):
1. Member States shall require investment firms to take all appropriate steps to identify and to prevent or manage conflicts of interest between themselves, including their managers, employees and tied agents, or any person directly or indirectly linked to them by control and their clients or between one client and another that arise in the course of providing any investment and ancillary services, or combinations thereof, including those caused by the receipt of inducements from third parties or by the investment firm’s own remuneration and other incentive structures. 2. Where organisational or administrative arrangements made by the investment firm in accordance with Article 16(3) to prevent conflicts of interest from adversely affecting the interest of its client are not sufficient to ensure, with reasonable confidence, that risks of damage to client interests will be prevented, the investment firm shall clearly disclose to the client the general nature and/or sources of conflicts of interest and the steps taken to mitigate those risks before undertaking business on its behalf. 3. The disclosure referred to in paragraph 2 shall: (a) be made in a durable medium; and (b) include sufficient detail, taking into account the nature of the client, to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises. The disclosure referred to in paragraph 2 shall: (a) be made in a durable medium; and (b) include sufficient detail, taking into account the nature of the client, to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises. 4. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to: (a) define the steps that investment firms might reasonably be expected to take to identify, prevent, manage and disclose conflicts of interest when providing various investment and ancillary services and combinations thereof; (b) establish appropriate criteria for determining the types of conflict of interest whose existence may damage the interests of the clients or potential clients of the investment firm. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to: (a) define the steps that investment firms might reasonably be expected to take to identify, prevent, manage and disclose conflicts of interest when providing various investment and ancillary services and combinations thereof; (b) establish appropriate criteria for determining the types of conflict of interest whose existence may damage the interests of the clients or potential clients of the investment firm.
Article 24 General principles and information to clients
1. Member States shall require that, when providing investment services or, where appropriate, ancillary services to clients, an investment firm act honestly, fairly and professionally in accordance with the best interests of its clients and comply, in particular, with the principles set out in this Article and in Article 25. 2. Investment firms which manufacture financial instruments for sale to clients shall ensure that those financial instruments are designed to meet the needs of an identified target market of end clients within the relevant category of clients, the strategy for distribution of the financial instruments is compatible with the identified target market, and the investment firm takes reasonable steps to ensure that the financial instrument is distributed to the identified target market. An investment firm shall understand the financial instruments they offer or recommend, assess the compatibility of the financial instruments with the needs of the clients to whom it provides investment services, also taking account of the identified target market of end clients as referred to in Article 16(3), and ensure that financial instruments are offered or recommended only when this is in the interest of the client. 3. All information, including marketing communications, addressed by the investment firm to clients or potential clients shall be fair, clear and not misleading. Marketing communications shall be clearly identifiable as such. 4. Appropriate information shall be provided in good time to clients or potential clients with regard to the investment firm and its services, the financial instruments and proposed investment strategies, execution venues and all costs and related charges. That information shall include the following: (a) when investment advice is provided, the investment firm must, in good time before it provides investment advice, inform the client: (i) whether or not the advice is provided on an independent basis; (ii) whether the advice is based on a broad or on a more restricted analysis of different types of financial instruments and, in particular, whether the range is limited to financial instruments issued or provided by entities having close links with the investment firm or any other legal or economic relationships, such as contractual relationships, so close as to pose a risk of impairing the independent basis of the advice provided; (iii) whether the investment firm will provide the client with a periodic assessment of the suitability of the financial instruments recommended to that client; (a) when investment advice is provided, the investment firm must, in good time before it provides investment advice, inform the client: (i) whether or not the advice is provided on an independent basis; (ii) whether the advice is based on a broad or on a more restricted analysis of different types of financial instruments and, in particular, whether the range is limited to financial instruments issued or provided by entities having close links with the investment firm or any other legal or economic relationships, such as contractual relationships, so close as to pose a risk of impairing the independent basis of the advice provided; (iii) whether the investment firm will provide the client with a periodic assessment of the suitability of the financial instruments recommended to that client; (b) the information on financial instruments and proposed investment strategies must include appropriate guidance on and warnings of the risks associated with investments in those instruments or in respect of particular investment strategies and whether the financial instrument is intended for retail or professional clients, taking account of the identified target market in accordance with paragraph 2; (c) the information on all costs and associated charges must include information relating to both investment and ancillary services, including the cost of advice, where relevant, the cost of the financial instrument recommended or marketed to the client and how the client may pay for it, also encompassing any third-party payments. The information about all costs and charges, including costs and charges in connection with the investment service and the financial instrument, which are not caused by the occurrence of underlying market risk, shall be aggregated to allow the client to understand the overall cost as well as the cumulative effect on return of the investment, and where the client so requests, an itemised breakdown shall be provided. Where applicable, such information shall be provided to the client on a regular basis, at least annually, during the life of the investment. 5. The information referred to in paragraphs 4 and 9 shall be provided in a comprehensible form in such a manner that clients or potential clients are reasonably able to understand the nature and risks of the investment service and of the specific type of financial instrument that is being offered and, consequently, to take investment decisions on an informed basis. Member States may allow that information to be provided in a standardised format. 6. Where an investment service is offered as part of a financial product which is already subject to other provisions of Union law relating to credit institutions and consumer credits with respect to information requirements, that service shall not be additionally subject to the obligations set out in paragraphs 3, 4 and 5. 7. Where an investment firm informs the client that investment advice is provided on an independent basis, that investment firm shall: (a) assess a sufficient range of financial instruments available on the market which must be sufficiently diverse with regard to their type and issuers or product providers to ensure that the client’s investment objectives can be suitably met and must not be limited to financial instruments issued or provided by: (i) the investment firm itself or by entities having close links with the investment firm; or (ii) other entities with which the investment firm has such close legal or economic relationships, such as contractual relationships, as to pose a risk of impairing the independent basis of the advice provided; (a) assess a sufficient range of financial instruments available on the market which must be sufficiently diverse with regard to their type and issuers or product providers to ensure that the client’s investment objectives can be suitably met and must not be limited to financial instruments issued or provided by: (i) the investment firm itself or by entities having close links with the investment firm; or (ii) other entities with which the investment firm has such close legal or economic relationships, such as contractual relationships, as to pose a risk of impairing the independent basis of the advice provided; (b) not accept and retain fees, commissions or any monetary or non-monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the service to clients. Minor non-monetary benefits that are capable of enhancing the quality of service provided to a client and are of a scale and nature such that they could not be judged to impair compliance with the investment firm’s duty to act in the best interest of the client must be clearly disclosed and are excluded from this point. 8. When providing portfolio management the investment firm shall not accept and retain fees, commissions or any monetary or non-monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the service to clients. Minor non-monetary benefits that are capable of enhancing the quality of service provided to a client and are of a scale and nature such that they could not be judged to impair compliance with the investment firm’s duty to act in the best interest of the client shall be clearly disclosed and are excluded from this paragraph. 9. Member States shall ensure that investment firms are regarded as not fulfilling their obligations under Article 23 or under paragraph 1 of this Article where they pay or are paid any fee or commission, or provide or are provided with any non-monetary benefit in connection with the provision of an investment service or an ancillary service, to or by any party except the client or a person on behalf of the client, other than where the payment or benefit: (a) is designed to enhance the quality of the relevant service to the client; and (b) does not impair compliance with the investment firm’s duty to act honestly, fairly and professionally in accordance with the best interest of its clients. The existence, nature and amount of the payment or benefit referred to in the first subparagraph, or, where the amount cannot be ascertained, the method of calculating that amount, must be clearly disclosed to the client, in a manner that is comprehensive, accurate and understandable, prior to the provision of the relevant investment or ancillary service. Where applicable, the investment firm shall also inform the client on mechanisms for transferring to the client the fee, commission, monetary or non-monetary benefit received in relation to the provision of the investment or ancillary service. The payment or benefit which enables or is necessary for the provision of investment services, such as custody costs, settlement and exchange fees, regulatory levies or legal fees, and which by its nature cannot give rise to conflicts with the investment firm’s duties to act honestly, fairly and professionally in accordance with the best interests of its clients, is not subject to the requirements set out in the first subparagraph. 10. An investment firm which provides investment services to clients shall ensure that it does not remunerate or assess the performance of its staff in a way that conflicts with its duty to act in the best interests of its clients. In particular, it shall not make any arrangement by way of remuneration, sales targets or otherwise that could provide an incentive to its staff to recommend a particular financial instrument to a retail client when the investment firm could offer a different financial instrument which would better meet that client’s needs. 11. When an investment service is offered together with another service or product as part of a package or as a condition for the same agreement or package, the investment firm shall inform the client whether it is possible to buy the different components separately and shall provide for a separate evidence of the costs and charges of each component. Where the risks resulting from such an agreement or package offered to a retail client are likely to be different from the risks associated with the components taken separately, the investment firm shall provide an adequate description of the different components of the agreement or package and the way in which its interaction modifies the risks. ESMA, in cooperation with EBA and EIOPA, shall develop by 3 January 2016, and update periodically, guidelines for the assessment and the supervision of cross-selling practices indicating, in particular, situations in which cross-selling practices are not compliant with obligations laid down in paragraph 1. 12. Member States may, in exceptional cases, impose additional requirements on investment firms in respect of the matters covered by this Article. Such requirements must be objectively justified and proportionate so as to address specific risks to investor protection or to market integrity which are of particular importance in the circumstances of the market structure of that Member State. Member States shall notify the Commission of any requirement which they intend to impose in accordance with this paragraph without undue delay and at least two months before the date appointed for that requirement to come into force. The notification shall include a justification for that requirement. Any such additional requirements shall not restrict or otherwise affect the rights of investment firms under Articles 34 and 35 of this Directive. The Commission shall within two months from the notification referred to in the second subparagraph provide its opinion on the proportionality of and justification for the additional requirements. The Commission shall communicate to Member States and make public on its website the additional requirements imposed in accordance with this paragraph. Member States may retain additional requirements that were notified to the Commission in accordance with Article 4 of Directive 2006/73/EC before 2 July 2014 provided that the conditions laid down in that Article are met. 13. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to ensure that investment firms comply with the principles set out in this Article when providing investment or ancillary services to their clients, including: (a) the conditions with which the information must comply in order to be fair, clear and not misleading; (b) the details about content and format of information to clients in relation to client categorisation, investment firms and their services, financial instruments, costs and charges; (c) the criteria for the assessment of a range of financial instruments available on the market; (d) the criteria to assess compliance of firms receiving inducements with the obligation to act honestly, fairly and professionally in accordance with the best interest of the client. In formulating the requirements for information on financial instruments in relation to point b of paragraph 4 information on the structure of the product shall be included, where applicable, taking into account any relevant standardized information required under Union law. 14. The delegated acts referred to in paragraph 13 shall take into account: (a) the nature of the service(s) offered or provided to the client or potential client, taking into account the type, object, size and frequency of the transactions; (b) the nature and range of products being offered or considered including different types of financial instruments; (c) the retail or professional nature of the client or potential clients or, in the case of paragraphs 4 and 5, their classification as eligible counterparties.
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 NCAs will be in a position to apply MiFID II as of 3 January 2017. This is a result of significant challenges in collecting the data that is necessary for the operation of the MiFID II rules. In order to ensure legal certainty and avoid potential market disruption, urgent action is therefore needed to adjust the date of entry into application for MiFID II. The reasons for the urgency are linked to the need to establish new and extensive electronic data collection networks between trading venues, national regulators and ESMA. 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. 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 the measures of the Member States transposing Directive 2014/65/EU should not impact adoption of delegated acts and technical standards to be developed under Directive 2014/65/EU. The Commission should adopt these measures in accordance with the procedure envisaged in order to allow the industry to set up and adjust internal systems to ensure compliance with new requirements on the date of entry into application of Directive 2014/65/EU.
Revised version (Article 24 General principles and information to clients):
1. Member States shall require that, when providing investment services or, where appropriate, ancillary services to clients, an investment firm act honestly, fairly and professionally in accordance with the best interests of its clients and comply, in particular, with the principles set out in this Article and in Article 25. 2. Investment firms which manufacture financial instruments for sale to clients shall ensure that those financial instruments are designed to meet the needs of an identified target market of end clients within the relevant category of clients, the strategy for distribution of the financial instruments is compatible with the identified target market, and the investment firm takes reasonable steps to ensure that the financial instrument is distributed to the identified target market. An investment firm shall understand the financial instruments they offer or recommend, assess the compatibility of the financial instruments with the needs of the clients to whom it provides investment services, also taking account of the identified target market of end clients as referred to in Article 16(3), and ensure that financial instruments are offered or recommended only when this is in the interest of the client. 3. All information, including marketing communications, addressed by the investment firm to clients or potential clients shall be fair, clear and not misleading. Marketing communications shall be clearly identifiable as such. 4. Appropriate information shall be provided in good time to clients or potential clients with regard to the investment firm and its services, the financial instruments and proposed investment strategies, execution venues and all costs and related charges. That information shall include the following: (a) when investment advice is provided, the investment firm must, in good time before it provides investment advice, inform the client: (i) whether or not the advice is provided on an independent basis; (ii) whether the advice is based on a broad or on a more restricted analysis of different types of financial instruments and, in particular, whether the range is limited to financial instruments issued or provided by entities having close links with the investment firm or any other legal or economic relationships, such as contractual relationships, so close as to pose a risk of impairing the independent basis of the advice provided; (iii) whether the investment firm will provide the client with a periodic assessment of the suitability of the financial instruments recommended to that client; (b) the information on financial instruments and proposed investment strategies must include appropriate guidance on and warnings of the risks associated with investments in those instruments or in respect of particular investment strategies and whether the financial instrument is intended for retail or professional clients, taking account of the identified target market in accordance with paragraph 2; (c) the information on all costs and associated charges must include information relating to both investment and ancillary services, including the cost of advice, where relevant, the cost of the financial instrument recommended or marketed to the client and how the client may pay for it, also encompassing any third-party payments. The information about all costs and charges, including costs and charges in connection with the investment service and the financial instrument, which are not caused by the occurrence of underlying market risk, shall be aggregated to allow the client to understand the overall cost as well as the cumulative effect on return of the investment, and where the client so requests, an itemised breakdown shall be provided. Where applicable, such information shall be provided to the client on a regular basis, at least annually, during the life of the investment. 5. The information referred to in paragraphs 4 and 9 shall be provided in a comprehensible form in such a manner that clients or potential clients are reasonably able to understand the nature and risks of the investment service and of the specific type of financial instrument that is being offered and, consequently, to take investment decisions on an informed basis. Member States may allow that information to be provided in a standardised format. 6. Where an investment service is offered as part of a financial product which is already subject to other provisions of Union law relating to credit institutions and consumer credits with respect to information requirements, that service shall not be additionally subject to the obligations set out in paragraphs 3, 4 and 5. 7. Where an investment firm informs the client that investment advice is provided on an independent basis, that investment firm shall: (a) assess a sufficient range of financial instruments available on the market which must be sufficiently diverse with regard to their type and issuers or product providers to ensure that the client’s investment objectives can be suitably met and must not be limited to financial instruments issued or provided by: (i) the investment firm itself or by entities having close links with the investment firm; or (ii) other entities with which the investment firm has such close legal or economic relationships, such as contractual relationships, as to pose a risk of impairing the independent basis of the advice provided; (b) not accept and retain fees, commissions or any monetary or non-monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the service to clients. Minor non-monetary benefits that are capable of enhancing the quality of service provided to a client and are of a scale and nature such that they could not be judged to impair compliance with the investment firm’s duty to act in the best interest of the client must be clearly disclosed and are excluded from this point. 8. When providing portfolio management the investment firm shall not accept and retain fees, commissions or any monetary or non-monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the service to clients. Minor non-monetary benefits that are capable of enhancing the quality of service provided to a client and are of a scale and nature such that they could not be judged to impair compliance with the investment firm’s duty to act in the best interest of the client shall be clearly disclosed and are excluded from this paragraph. 9. Member States shall ensure that investment firms are regarded as not fulfilling their obligations under Article 23 or under paragraph 1 of this Article where they pay or are paid any fee or commission, or provide or are provided with any non-monetary benefit in connection with the provision of an investment service or an ancillary service, to or by any party except the client or a person on behalf of the client, other than where the payment or benefit: (a) is designed to enhance the quality of the relevant service to the client; and (b) does not impair compliance with the investment firm’s duty to act honestly, fairly and professionally in accordance with the best interest of its clients. The existence, nature and amount of the payment or benefit referred to in the first subparagraph, or, where the amount cannot be ascertained, the method of calculating that amount, must be clearly disclosed to the client, in a manner that is comprehensive, accurate and understandable, prior to the provision of the relevant investment or ancillary service. Where applicable, the investment firm shall also inform the client on mechanisms for transferring to the client the fee, commission, monetary or non-monetary benefit received in relation to the provision of the investment or ancillary service. The payment or benefit which enables or is necessary for the provision of investment services, such as custody costs, settlement and exchange fees, regulatory levies or legal fees, and which by its nature cannot give rise to conflicts with the investment firm’s duties to act honestly, fairly and professionally in accordance with the best interests of its clients, is not subject to the requirements set out in the first subparagraph. 10. An investment firm which provides investment services to clients shall ensure that it does not remunerate or assess the performance of its staff in a way that conflicts with its duty to act in the best interests of its clients. In particular, it shall not make any arrangement by way of remuneration, sales targets or otherwise that could provide an incentive to its staff to recommend a particular financial instrument to a retail client when the investment firm could offer a different financial instrument which would better meet that client’s needs. 11. When an investment service is offered together with another service or product as part of a package or as a condition for the same agreement or package, the investment firm shall inform the client whether it is possible to buy the different components separately and shall provide for a separate evidence of the costs and charges of each component. Where the risks resulting from such an agreement or package offered to a retail client are likely to be different from the risks associated with the components taken separately, the investment firm shall provide an adequate description of the different components of the agreement or package and the way in which its interaction modifies the risks. ESMA, in cooperation with EBA and EIOPA, shall develop by 3 January 2016, and update periodically, guidelines for the assessment and the supervision of cross-selling practices indicating, in particular, situations in which cross-selling practices are not compliant with obligations laid down in paragraph 1. 12. Member States may, in exceptional cases, impose additional requirements on investment firms in respect of the matters covered by this Article. Such requirements must be objectively justified and proportionate so as to address specific risks to investor protection or to market integrity which are of particular importance in the circumstances of the market structure of that Member State. Member States shall notify the Commission of any requirement which they intend to impose in accordance with this paragraph without undue delay and at least two months before the date appointed for that requirement to come into force. The notification shall include a justification for that requirement. Any such additional requirements shall not restrict or otherwise affect the rights of investment firms under Articles 34 and 35 of this Directive. The Commission shall within two months from the notification referred to in the second subparagraph provide its opinion on the proportionality of and justification for the additional requirements. The Commission shall communicate to Member States and make public on its website the additional requirements imposed in accordance with this paragraph. Member States may retain additional requirements that were notified to the Commission in accordance with Article 4 of Directive 2006/73/EC before 2 July 2014 provided that the conditions laid down in that Article are met. 13. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to ensure that investment firms comply with the principles set out in this Article when providing investment or ancillary services to their clients, including: (a) the conditions with which the information must comply in order to be fair, clear and not misleading; (b) the details about content and format of information to clients in relation to client categorisation, investment firms and their services, financial instruments, costs and charges; (c) the criteria for the assessment of a range of financial instruments available on the market; (d) the criteria to assess compliance of firms receiving inducements with the obligation to act honestly, fairly and professionally in accordance with the best interest of the client. In formulating the requirements for information on financial instruments in relation to point b of paragraph 4 information on the structure of the product shall be included, where applicable, taking into account any relevant standardized information required under Union law. 14. The delegated acts referred to in paragraph 13 shall take into account: (a) the nature of the service(s) offered or provided to the client or potential client, taking into account the type, object, size and frequency of the transactions; (b) the nature and range of products being offered or considered including different types of financial instruments; (c) the retail or professional nature of the client or potential clients or, in the case of paragraphs 4 and 5, their classification as eligible counterparties.
Article 25 Assessment of suitability and appropriateness and reporting to clients
1. Member States shall require investment firms to ensure and demonstrate to competent authorities on request that natural persons giving investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of the investment firm possess the necessary knowledge and competence to fulfil their obligations under Article 24 and this Article. Member States shall publish the criteria to be used for assessing such knowledge and competence. 2. When providing investment advice or portfolio management the investment firm shall obtain the necessary information regarding the client’s or potential client’s knowledge and experience in the investment field relevant to the specific type of product or service, that person’s financial situation including his ability to bear losses, and his investment objectives including his risk tolerance so as to enable the investment firm to recommend to the client or potential client the investment services and financial instruments that are suitable for him and, in particular, are in accordance with his risk tolerance and ability to bear losses. Member States shall ensure that where an investment firm provides investment advice recommending a package of services or products bundled pursuant to Article 24(11), the overall bundled package is suitable. 3. Member States shall ensure that investment firms, when providing investment services other than those referred to in paragraph 2, ask the client or potential client to provide information regarding that person’s knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded so as to enable the investment firm to assess whether the investment service or product envisaged is appropriate for the client. Where a bundle of services or products is envisaged pursuant to Article 24(11), the assessment shall consider whether the overall bundled package is appropriate. Where the investment firm considers, on the basis of the information received under the first subparagraph, that the product or service is not appropriate to the client or potential client, the investment firm shall warn the client or potential client. That warning may be provided in a standardised format. Where clients or potential clients do not provide the information referred to under the first subparagraph, or where they provide insufficient information regarding their knowledge and experience, the investment firm shall warn them that the investment firm is not in a position to determine whether the service or product envisaged is appropriate for them. That warning may be provided in a standardised format. 4. Member States shall allow investment firms when providing investment services that only consist of execution or reception and transmission of client orders with or without ancillary services, excluding the granting of credits or loans as specified in Section B.1 of Annex I that do not comprise of existing credit limits of loans, current accounts and overdraft facilities of clients, to provide those investment services to their clients without the need to obtain the information or make the determination provided for in paragraph 3 where all the following conditions are met: (a) the services relate to any of the following financial instruments: (i) shares admitted to trading on a regulated market or on an equivalent third-country market or on a MTF, where those are shares in companies, and excluding shares in non-UCITS collective investment undertakings and shares that embed a derivative; (ii) bonds or other forms of securitised debt admitted to trading on a regulated market or on an equivalent third country market or on a MTF, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved; (iii) money-market instruments, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved; (iv) shares or units in UCITS, excluding structured UCITS as referred to in the second subparagraph of Article 36(1) of Regulation (EU) No 583/2010; (v) structured deposits, excluding those that incorporate a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term; (vi) other non-complex financial instruments for the purpose of this paragraph. For the purpose of this point, if the requirements and the procedure laid down under the third and the fourth subparagraphs of Article 4(1) of Directive 2003/71/EC are fulfilled, a third-country market shall be considered to be equivalent to a regulated market. (a) the services relate to any of the following financial instruments: (i) shares admitted to trading on a regulated market or on an equivalent third-country market or on a MTF, where those are shares in companies, and excluding shares in non-UCITS collective investment undertakings and shares that embed a derivative; (ii) bonds or other forms of securitised debt admitted to trading on a regulated market or on an equivalent third country market or on a MTF, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved; (iii) money-market instruments, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved; (iv) shares or units in UCITS, excluding structured UCITS as referred to in the second subparagraph of Article 36(1) of Regulation (EU) No 583/2010; (v) structured deposits, excluding those that incorporate a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term; (vi) other non-complex financial instruments for the purpose of this paragraph. For the purpose of this point, if the requirements and the procedure laid down under the third and the fourth subparagraphs of Article 4(1) of Directive 2003/71/EC are fulfilled, a third-country market shall be considered to be equivalent to a regulated market. (b) the service is provided at the initiative of the client or potential client; (c) the client or potential client has been clearly informed that in the provision of that service the investment firm is not required to assess the appropriateness of the financial instrument or service provided or offered and that therefore he does not benefit from the corresponding protection of the relevant conduct of business rules. Such a warning may be provided in a standardised format; (d) the investment firm complies with its obligations under Article 23. 5. The investment firm shall establish a record that includes the document or documents agreed between the investment firm and the client that set out the rights and obligations of the parties, and the other terms on which the investment firm will provide services to the client. The rights and duties of the parties to the contract may be incorporated by reference to other documents or legal texts. 6. The investment firm shall provide the client with adequate reports on the service provided in a durable medium. Those reports shall include periodic communications to clients, taking into account the type and the complexity of financial instruments involved and the nature of the service provided to the client and shall include, where applicable, the costs associated with the transactions and services undertaken on behalf of the client. When providing investment advice, the investment firm shall, before the transaction is made, provide the client with a statement on suitability in a durable medium specifying the advice given and how that advice meets the preferences, objectives and other characteristics of the retail client. Where the agreement to buy or sell a financial instrument is concluded using a means of distance communication which prevents the prior delivery of the suitability statement, the investment firm may provide the written statement on suitability in a durable medium immediately after the client is bound by any agreement, provided both the following conditions are met: (a) the client has consented to receiving the suitability statement without undue delay after the conclusion of the transaction; and (b) the investment firm has given the client the option of delaying the transaction in order to receive the statement on suitability in advance. Where an investment firm provides portfolio management or has informed the client that it will carry out a periodic assessment of suitability, the periodic report shall contain an updated statement of how the investment meets the client’s preferences, objectives and other characteristics of the retail client. 7. If a credit agreement relating to residential immovable property, which is subject to the provisions concerning creditworthiness assessment of consumers laid down in Directive 2014/17/EU of the European Parliament and the Council ( 49 ), has as a prerequisite the provision to that same consumer of an investment service in relation to mortgage bonds specifically issued to secure the financing of and having identical terms as the credit agreement relating to residential immovable property, in order for the loan to be payable, refinanced or redeemed, that service shall not be subject to the obligations set out in this Article. 8. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to ensure that investment firms comply with the principles set out in paragraphs 2 to 6 of this Article when providing investment or ancillary services to their clients, including information to obtain when assessing the suitability or appropriateness of the services and financial instruments for their clients, criteria to assess non-complex financial instruments for the purposes of point (a)(vi) of paragraph 4 of this Article, the content and the format of records and agreements for the provision of services to clients and of periodic reports to clients on the services provided. Those delegated acts shall take into account: (a) the nature of the service(s) offered or provided to the client or potential client, having regard to the type, object, size and frequency of the transactions; (b) the nature of the products being offered or considered, including different types of financial instruments; (c) the retail or professional nature of the client or potential clients or, in the case of paragraph 6, their classification as eligible counterparties. 9. ESMA shall adopt by 3 January 2016 guidelines specifying criteria for the assessment of knowledge and competence required under paragraph 1. 10. ESMA shall develop by 3 January 2016, and update periodically, guidelines for the assessment of: (a) financial instruments incorporating a structure which makes it difficult for the client to understand the risk involved in accordance with points (a)(ii) and (a)(iii) of paragraph 4; (b) structured deposits incorporating a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term, in accordance with point (a)(v) of paragraph 4. 11. ESMA may develop guidelines, and update them periodically, for the assessment of financial instruments being classified as non-complex for the purpose of point (a)(vi) of paragraph 4, taking into account the delegated acts adopted under paragraph 8.
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 NCAs will be in a position to apply MiFID II as of 3 January 2017. This is a result of significant challenges in collecting the data that is necessary for the operation of the MiFID II rules. In order to ensure legal certainty and avoid potential market disruption, urgent action is therefore needed to adjust the date of entry into application for MiFID II. The reasons for the urgency are linked to the need to establish new and extensive electronic data collection networks between trading venues, national regulators and ESMA. 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. 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 the measures of the Member States transposing Directive 2014/65/EU should not impact adoption of delegated acts and technical standards to be developed under Directive 2014/65/EU. The Commission should adopt these measures in accordance with the procedure envisaged in order to allow the industry to set up and adjust internal systems to ensure compliance with new requirements on the date of entry into application of Directive 2014/65/EU.
Revised version (Article 25 Assessment of suitability and appropriateness and reporting to clients):
1. Member States shall require investment firms to ensure and demonstrate to competent authorities on request that natural persons giving investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of the investment firm possess the necessary knowledge and competence to fulfil their obligations under Article 24 and this Article. Member States shall publish the criteria to be used for assessing such knowledge and competence. 2. When providing investment advice or portfolio management the investment firm shall obtain the necessary information regarding the client’s or potential client’s knowledge and experience in the investment field relevant to the specific type of product or service, that person’s financial situation including his ability to bear losses, and his investment objectives including his risk tolerance so as to enable the investment firm to recommend to the client or potential client the investment services and financial instruments that are suitable for him and, in particular, are in accordance with his risk tolerance and ability to bear losses. Member States shall ensure that where an investment firm provides investment advice recommending a package of services or products bundled pursuant to Article 24(11), the overall bundled package is suitable. 3. Member States shall ensure that investment firms, when providing investment services other than those referred to in paragraph 2, ask the client or potential client to provide information regarding that person’s knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded so as to enable the investment firm to assess whether the investment service or product envisaged is appropriate for the client. Where a bundle of services or products is envisaged pursuant to Article 24(11), the assessment shall consider whether the overall bundled package is appropriate. Where the investment firm considers, on the basis of the information received under the first subparagraph, that the product or service is not appropriate to the client or potential client, the investment firm shall warn the client or potential client. That warning may be provided in a standardised format. Where clients or potential clients do not provide the information referred to under the first subparagraph, or where they provide insufficient information regarding their knowledge and experience, the investment firm shall warn them that the investment firm is not in a position to determine whether the service or product envisaged is appropriate for them. That warning may be provided in a standardised format. 4. Member States shall allow investment firms when providing investment services that only consist of execution or reception and transmission of client orders with or without ancillary services, excluding the granting of credits or loans as specified in Section B.1 of Annex I that do not comprise of existing credit limits of loans, current accounts and overdraft facilities of clients, to provide those investment services to their clients without the need to obtain the information or make the determination provided for in paragraph 3 where all the following conditions are met: (a) the services relate to any of the following financial instruments: (i) shares admitted to trading on a regulated market or on an equivalent third-country market or on a MTF, where those are shares in companies, and excluding shares in non-UCITS collective investment undertakings and shares that embed a derivative; (ii) bonds or other forms of securitised debt admitted to trading on a regulated market or on an equivalent third country market or on a MTF, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved; (iii) money-market instruments, excluding those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved; (iv) shares or units in UCITS, excluding structured UCITS as referred to in the second subparagraph of Article 36(1) of Regulation (EU) No 583/2010; (v) structured deposits, excluding those that incorporate a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term; (vi) other non-complex financial instruments for the purpose of this paragraph. For the purpose of this point, a third-country market shall be considered to be equivalent to a regulated market if the requirements and the procedure laid down under the third and the fourth subparagraphs are fulfilled. At the request of the competent authority of a Member State, the Commission shall adopt equivalence decisions in accordance with the examination procedure referred to in Article 89a(2), stating whether the legal and supervisory framework of a third country ensures that a regulated market authorised in that third country complies with legally binding requirements which are, for the purpose of the application of this point, equivalent to the requirements resulting from Regulation (EU) No 596/2014, from Title III of this Directive, from Title II of Regulation (EU) No 600/2014 and from Directive 2004/109/EC, and which are subject to effective supervision and enforcement in that third country. The competent authority shall indicate why it considers that the legal and supervisory framework of the third country concerned is to be considered equivalent and shall provide relevant information to that end. Such third-country legal and supervisory framework may be considered equivalent where that framework fulfils at least the following conditions: (i) the markets are subject to authorisation and to effective supervision and enforcement on an ongoing basis; (ii) the markets have clear and transparent rules regarding the admission of securities to trading so that such securities are capable of being traded in a fair, orderly and efficient manner, and are freely negotiable; (iii) security issuers are subject to periodic and ongoing information requirements ensuring a high level of investor protection; and (iv) market transparency and integrity are ensured by the prevention of market abuse in the form of insider dealing and market manipulation. (b) the service is provided at the initiative of the client or potential client; (c) the client or potential client has been clearly informed that in the provision of that service the investment firm is not required to assess the appropriateness of the financial instrument or service provided or offered and that therefore he does not benefit from the corresponding protection of the relevant conduct of business rules. Such a warning may be provided in a standardised format; (d) the investment firm complies with its obligations under Article 23. 5. The investment firm shall establish a record that includes the document or documents agreed between the investment firm and the client that set out the rights and obligations of the parties, and the other terms on which the investment firm will provide services to the client. The rights and duties of the parties to the contract may be incorporated by reference to other documents or legal texts. 6. The investment firm shall provide the client with adequate reports on the service provided in a durable medium. Those reports shall include periodic communications to clients, taking into account the type and the complexity of financial instruments involved and the nature of the service provided to the client and shall include, where applicable, the costs associated with the transactions and services undertaken on behalf of the client. When providing investment advice, the investment firm shall, before the transaction is made, provide the client with a statement on suitability in a durable medium specifying the advice given and how that advice meets the preferences, objectives and other characteristics of the retail client. Where the agreement to buy or sell a financial instrument is concluded using a means of distance communication which prevents the prior delivery of the suitability statement, the investment firm may provide the written statement on suitability in a durable medium immediately after the client is bound by any agreement, provided both the following conditions are met: (a) the client has consented to receiving the suitability statement without undue delay after the conclusion of the transaction; and (b) the investment firm has given the client the option of delaying the transaction in order to receive the statement on suitability in advance. Where an investment firm provides portfolio management or has informed the client that it will carry out a periodic assessment of suitability, the periodic report shall contain an updated statement of how the investment meets the client’s preferences, objectives and other characteristics of the retail client. 7. If a credit agreement relating to residential immovable property, which is subject to the provisions concerning creditworthiness assessment of consumers laid down in Directive 2014/17/EU of the European Parliament and the Council ( 8 ), has as a prerequisite the provision to that same consumer of an investment service in relation to mortgage bonds specifically issued to secure the financing of and having identical terms as the credit agreement relating to residential immovable property, in order for the loan to be payable, refinanced or redeemed, that service shall not be subject to the obligations set out in this Article. 8. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to ensure that investment firms comply with the principles set out in paragraphs 2 to 6 of this Article when providing investment or ancillary services to their clients, including information to obtain when assessing the suitability or appropriateness of the services and financial instruments for their clients, criteria to assess non-complex financial instruments for the purposes of point (a)(vi) of paragraph 4 of this Article, the content and the format of records and agreements for the provision of services to clients and of periodic reports to clients on the services provided. Those delegated acts shall take into account: (a) the nature of the service(s) offered or provided to the client or potential client, having regard to the type, object, size and frequency of the transactions; (b) the nature of the products being offered or considered, including different types of financial instruments; (c) the retail or professional nature of the client or potential clients or, in the case of paragraph 6, their classification as eligible counterparties. 9. ESMA shall adopt by 3 January 2016 guidelines specifying criteria for the assessment of knowledge and competence required under paragraph 1. 10. ESMA shall develop by 3 January 2016, and update periodically, guidelines for the assessment of: (a) financial instruments incorporating a structure which makes it difficult for the client to understand the risk involved in accordance with points (a)(ii) and (a)(iii) of paragraph 4; (b) structured deposits incorporating a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term, in accordance with point (a)(v) of paragraph 4. 11. ESMA may develop guidelines, and update them periodically, for the assessment of financial instruments being classified as non-complex for the purpose of point (a)(vi) of paragraph 4, taking into account the delegated acts adopted under paragraph 8.
Article 26 Provision of services through the medium of another investment firm
Member States shall allow an investment firm receiving an instruction to provide investment or ancillary services on behalf of a client through the medium of another investment firm to rely on client information transmitted by the latter investment firm. The investment firm which mediates the instructions will remain responsible for the completeness and accuracy of the information transmitted. The investment firm which receives an instruction to undertake services on behalf of a client in that way shall also be able to rely on any recommendations in respect of the service or transaction that have been provided to the client by another investment firm. The investment firm which mediates the instructions will remain responsible for the suitability for the client of the recommendations or advice provided. The investment firm which receives client instructions or orders through the medium of another investment firm shall remain responsible for concluding the service or transaction, based on any such information or recommendations, in accordance with the relevant provisions of this Title.
Article 27 Obligation to execute orders on terms most favourable to the client
1. Member States shall require that investment firms take all sufficient steps to obtain, when executing orders, the best possible result for their clients taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order. Nevertheless, where there is a specific instruction from the client the investment firm shall execute the order following the specific instruction. Where an investment firm executes an order on behalf of a retail client, the best possible result shall be determined in terms of the total consideration, representing the price of the financial instrument and the costs relating to execution, which shall include all expenses incurred by the client which are directly relating to the execution of the order, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order. For the purposes of delivering best possible result in accordance with the first subparagraph where there is more than one competing venue to execute an order for a financial instrument, in order to assess and compare the results for the client that would be achieved by executing the order on each of the execution venues listed in the investment firm’s order execution policy that is capable of executing that order, the investment firm’s own commissions and the costs for executing the order on each of the eligible execution venues shall be taken into account in that assessment. 2. An investment firm shall not receive any remuneration, discount or non-monetary benefit for routing client orders to a particular trading venue or execution venue which would infringe the requirements on conflicts of interest or inducements set out in paragraph 1 of this Article and Article 16(3) and Articles 23 and 24. 3. Member States shall require that for financial instruments subject to the trading obligation in Articles 23 and 28 Regulation (EU) No 600/2014 each trading venue and systematic internaliser and for other financial instruments each execution venue makes available to the public, without any charges, data relating to the quality of execution of transactions on that venue on at least an annual basis and that following execution of a transaction on behalf of a client the investment firm shall inform the client where the order was executed. Periodic reports shall include details about price, costs, speed and likelihood of execution for individual financial instruments. 4. Member States shall require investment firms to establish and implement effective arrangements for complying with paragraph 1. In particular, Member States shall require investment firms to establish and implement an order execution policy to allow them to obtain, for their client orders, the best possible result in accordance with paragraph 1. 5. The order execution policy shall include, in respect of each class of financial instruments, information on the different venues where the investment firm executes its client orders and the factors affecting the choice of execution venue. It shall at least include those venues that enable the investment firm to obtain on a consistent basis the best possible result for the execution of client orders. Member States shall require that investment firms provide appropriate information to their clients on their order execution policy. That information shall explain clearly, in sufficient detail and in a way that can be easily understood by clients, how orders will be executed by the investment firm for the client. Member States shall require that investment firms obtain the prior consent of their clients to the order execution policy. Member States shall require that, where the order execution policy provides for the possibility that client orders may be executed outside a trading venue, the investment firm shall, in particular, inform its clients about that possibility. Member States shall require that investment firms obtain the prior express consent of their clients before proceeding to execute their orders outside a trading venue. Investment firms may obtain such consent either in the form of a general agreement or in respect of individual transactions. 6. Member States shall require investment firms who execute client orders to summarise and make public on an annual basis, for each class of financial instruments, the top five execution venues in terms of trading volumes where they executed client orders in the preceding year and information on the quality of execution obtained. 7. Member States shall require investment firms who execute client orders to monitor the effectiveness of their order execution arrangements and execution policy in order to identify and, where appropriate, correct any deficiencies. In particular, they shall assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether they need to make changes to their execution arrangements, taking account of, inter alia, the information published under paragraphs 3 and 6. Member States shall require investment firms to notify clients with whom they have an ongoing client relationship of any material changes to their order execution arrangements or execution policy. 8. Member States shall require investment firms to be able to demonstrate to their clients, at their request, that they have executed their orders in accordance with the investment firm’s execution policy and to demonstrate to the competent authority, at its request, their compliance with this Article. 9. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 concerning: (a) the criteria for determining the relative importance of the different factors that, pursuant to paragraph 1, may be taken into account for determining the best possible result taking into account the size and type of order and the retail or professional nature of the client; (b) factors that may be taken into account by an investment firm when reviewing its execution arrangements and the circumstances under which changes to such arrangements may be appropriate. In particular, the factors for determining which venues enable investment firms to obtain on a consistent basis the best possible result for executing the client orders; (c) the nature and extent of the information to be provided to clients on their execution policies, pursuant to paragraph 5. 10. ESMA shall develop draft regulatory technical standards to determine: (a) the specific content, the format and the periodicity of data relating to the quality of execution to be published in accordance with paragraph 3, taking into account the type of execution venue and the type of financial instrument concerned; (b) the content and the format of information to be published by investment firms in accordance with paragraph 6. 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 and objectives of the proposal EU Member States have been severely affected by the economic crisis resulting from the COVID-19 pandemic. This calls for a quick reaction to support capital markets participants. In the Communication of the Commission of 13 March 2020, entitled ‘Coordinated economic response to the COVID-19 outbreak’, the Commission highlighted the importance of ensuring the liquidity of the EU financial sector and countering a threatening recession through actions at all levels. Furthermore, on 27 May 2020, in its Communication entitled ‘Europe’s moment: Repair and Prepare for the Next Generation’ , the Commission presented key instruments supporting the recovery plan for Europe, including measures that aim at kick-starting the economy and helping private investment. This Communication also stressed that liquidity and access to finance will be a continued challenge for companies. The objective of this targeted amendment is to provide for the best possible conditions for European economies to emerge from the current COVID-19 pandemic. The rules on investments services can play a key role in promoting the recapitalisation of European companies as they emerge from the crisis. The modified commodities regime will allow companies in the real economy to react to market volatility while also enabling nascent commodity contracts, which is also important to promote the international role of the Euro. The present review is driven by two key objectives: · Facilitating investments in the real economy and · Allowing for a rapid recapit alisation of European companies. To ensure that financial institutions and intermediaries can fulfil their essential function in financing the real economy, targeted adjustments of certain requirements of Directive 2014/65/EU (‘MiFID II’) are appropriate. Already in 2019, stakeholders had warned the Commission that several aspects of the MiFID II distribution rules were either unnecessary or perceived as overly burdensome. The current COVID-19 pandemic makes it even more important to remove formal burdens where they are not strictly necessary. A more finely calibrated view of investor requirements would also leave more resources for dealing with the consequences of the COVID-19 pandemic. The Commission therefore strives to recalibrate those areas to strike the right balance between a sufficient level of transparency towards the client, the highest standards of protection and acceptable compliance costs for firms. In that context, this amendment to MiFID II applying to investments in financial instrument has the aim of removing administrative burdens that result from documentation and disclosure rules that are not counterbalanced by corresponding increases in investor protection. It also recalibrates the position limit and corresponding hedging exemption regime to foster nascent euro denominated markets. 
Revised version (Article 27 Obligation to execute orders on terms most favourable to the client):
1. Member States shall require that investment firms take all sufficient steps to obtain, when executing orders, the best possible result for their clients taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order. Nevertheless, where there is a specific instruction from the client the investment firm shall execute the order following the specific instruction. Where an investment firm executes an order on behalf of a retail client, the best possible result shall be determined in terms of the total consideration, representing the price of the financial instrument and the costs relating to execution, which shall include all expenses incurred by the client which are directly relating to the execution of the order, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order. For the purposes of delivering best possible result in accordance with the first subparagraph where there is more than one competing venue to execute an order for a financial instrument, in order to assess and compare the results for the client that would be achieved by executing the order on each of the execution venues listed in the investment firm’s order execution policy that is capable of executing that order, the investment firm’s own commissions and the costs for executing the order on each of the eligible execution venues shall be taken into account in that assessment. 2. An investment firm shall not receive any remuneration, discount or non-monetary benefit for routing client orders to a particular trading venue or execution venue which would infringe the requirements on conflicts of interest or inducements set out in paragraph 1 of this Article and Article 16(3) and Articles 23 and 24. 3. Member States shall require that for financial instruments subject to the trading obligation in Articles 23 and 28 Regulation (EU) No 600/2014 each trading venue and systematic internaliser and for other financial instruments each execution venue makes available to the public, without any charges, data relating to the quality of execution of transactions on that venue on at least an annual basis and that following execution of a transaction on behalf of a client the investment firm shall inform the client where the order was executed. Periodic reports shall include details about price, costs, speed and likelihood of execution for individual financial instruments. 4. Member States shall require investment firms to establish and implement effective arrangements for complying with paragraph 1. In particular, Member States shall require investment firms to establish and implement an order execution policy to allow them to obtain, for their client orders, the best possible result in accordance with paragraph 1. 5. The order execution policy shall include, in respect of each class of financial instruments, information on the different venues where the investment firm executes its client orders and the factors affecting the choice of execution venue. It shall at least include those venues that enable the investment firm to obtain on a consistent basis the best possible result for the execution of client orders. Member States shall require that investment firms provide appropriate information to their clients on their order execution policy. That information shall explain clearly, in sufficient detail and in a way that can be easily understood by clients, how orders will be executed by the investment firm for the client. Member States shall require that investment firms obtain the prior consent of their clients to the order execution policy. Member States shall require that, where the order execution policy provides for the possibility that client orders may be executed outside a trading venue, the investment firm shall, in particular, inform its clients about that possibility. Member States shall require that investment firms obtain the prior express consent of their clients before proceeding to execute their orders outside a trading venue. Investment firms may obtain such consent either in the form of a general agreement or in respect of individual transactions. 6. Member States shall require investment firms who execute client orders to summarise and make public on an annual basis, for each class of financial instruments, the top five execution venues in terms of trading volumes where they executed client orders in the preceding year and information on the quality of execution obtained. 7. Member States shall require investment firms who execute client orders to monitor the effectiveness of their order execution arrangements and execution policy in order to identify and, where appropriate, correct any deficiencies. In particular, they shall assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether they need to make changes to their execution arrangements, taking account of, inter alia, the information published under paragraphs 3 and 6. Member States shall require investment firms to notify clients with whom they have an ongoing client relationship of any material changes to their order execution arrangements or execution policy. 8. Member States shall require investment firms to be able to demonstrate to their clients, at their request, that they have executed their orders in accordance with the investment firm’s execution policy and to demonstrate to the competent authority, at its request, their compliance with this Article. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 concerning: (a) the criteria for determining the relative importance of the different factors that, pursuant to paragraph 1, may be taken into account for determining the best possible result taking into account the size and type of order and the retail or professional nature of the client; (b) factors that may be taken into account by an investment firm when reviewing its execution arrangements and the circumstances under which changes to such arrangements may be appropriate. In particular, the factors for determining which venues enable investment firms to obtain on a consistent basis the best possible result for executing the client orders; (c) the nature and extent of the information to be provided to clients on their execution policies, pursuant to paragraph 5. 10. ESMA shall develop draft regulatory technical standards to determine: (a) the specific content, the format and the periodicity of data relating to the quality of execution to be published in accordance with paragraph 3, taking into account the type of execution venue and the type of financial instrument concerned; (b) the content and the format of information to be published by investment firms in accordance with paragraph 6. ESMA shall develop draft regulatory technical standards to determine: (a) the specific content, the format and the periodicity of data relating to the quality of execution to be published in accordance with paragraph 3, taking into account the type of execution venue and the type of financial instrument concerned; (b) the content and the format of information to be published by investment firms in accordance with paragraph 6. 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 28 Client order handling rules
1. Member States shall require that investment firms authorised to execute orders on behalf of clients implement procedures and arrangements which provide for the prompt, fair and expeditious execution of client orders, relative to other client orders or the trading interests of the investment firm. Those procedures or arrangements shall allow for the execution of otherwise comparable client orders in accordance with the time of their reception by the investment firm. 2. Member States shall require that, in the case of a client limit order in respect of shares admitted to trading on a regulated market or traded on a trading venue which are not immediately executed under prevailing market conditions, investment firms are, unless the client expressly instructs otherwise, to take measures to facilitate the earliest possible execution of that order by making public immediately that client limit order in a manner which is easily accessible to other market participants. Member States may decide that investment firms comply with that obligation by transmitting the client limit order to a trading venue. Member States shall provide that the competent authorities may waive the obligation to make public a limit order that is large in scale compared with normal market size as determined under Article 4 of Regulation (EU) No 600/2014. 3. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to define: (a) the conditions and nature of the procedures and arrangements which result in the prompt, fair and expeditious execution of client orders and the situations in which or types of transaction for which investment firms may reasonably deviate from prompt execution so as to obtain more favourable terms for clients; (b) the different methods through which an investment firm can be deemed to have met its obligation to disclose not immediately executable client limit orders to the market.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal EU Member States have been severely affected by the economic crisis resulting from the COVID-19 pandemic. This calls for a quick reaction to support capital markets participants. In the Communication of the Commission of 13 March 2020, entitled ‘Coordinated economic response to the COVID-19 outbreak’, the Commission highlighted the importance of ensuring the liquidity of the EU financial sector and countering a threatening recession through actions at all levels. Furthermore, on 27 May 2020, in its Communication entitled ‘Europe’s moment: Repair and Prepare for the Next Generation’ , the Commission presented key instruments supporting the recovery plan for Europe, including measures that aim at kick-starting the economy and helping private investment. This Communication also stressed that liquidity and access to finance will be a continued challenge for companies. The objective of this targeted amendment is to provide for the best possible conditions for European economies to emerge from the current COVID-19 pandemic. The rules on investments services can play a key role in promoting the recapitalisation of European companies as they emerge from the crisis. The modified commodities regime will allow companies in the real economy to react to market volatility while also enabling nascent commodity contracts, which is also important to promote the international role of the Euro. The present review is driven by two key objectives: · Facilitating investments in the real economy and · Allowing for a rapid recapit alisation of European companies. To ensure that financial institutions and intermediaries can fulfil their essential function in financing the real economy, targeted adjustments of certain requirements of Directive 2014/65/EU (‘MiFID II’) are appropriate. Already in 2019, stakeholders had warned the Commission that several aspects of the MiFID II distribution rules were either unnecessary or perceived as overly burdensome. The current COVID-19 pandemic makes it even more important to remove formal burdens where they are not strictly necessary. A more finely calibrated view of investor requirements would also leave more resources for dealing with the consequences of the COVID-19 pandemic. The Commission therefore strives to recalibrate those areas to strike the right balance between a sufficient level of transparency towards the client, the highest standards of protection and acceptable compliance costs for firms. In that context, this amendment to MiFID II applying to investments in financial instrument has the aim of removing administrative burdens that result from documentation and disclosure rules that are not counterbalanced by corresponding increases in investor protection. It also recalibrates the position limit and corresponding hedging exemption regime to foster nascent euro denominated markets. 
Revised version (Article 28 Client order handling rules):
1. Member States shall require that investment firms authorised to execute orders on behalf of clients implement procedures and arrangements which provide for the prompt, fair and expeditious execution of client orders, relative to other client orders or the trading interests of the investment firm. Those procedures or arrangements shall allow for the execution of otherwise comparable client orders in accordance with the time of their reception by the investment firm. 2. Member States shall require that, in the case of a client limit order in respect of shares admitted to trading on a regulated market or traded on a trading venue which are not immediately executed under prevailing market conditions, investment firms are, unless the client expressly instructs otherwise, to take measures to facilitate the earliest possible execution of that order by making public immediately that client limit order in a manner which is easily accessible to other market participants. Member States may decide that investment firms comply with that obligation by transmitting the client limit order to a trading venue. Member States shall provide that the competent authorities may waive the obligation to make public a limit order that is large in scale compared with normal market size as determined under Article 4 of Regulation (EU) No 600/2014. 3. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to define: (a) the conditions and nature of the procedures and arrangements which result in the prompt, fair and expeditious execution of client orders and the situations in which or types of transaction for which investment firms may reasonably deviate from prompt execution so as to obtain more favourable terms for clients; (b) the different methods through which an investment firm can be deemed to have met its obligation to disclose not immediately executable client limit orders to the market. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to define: (a) the conditions and nature of the procedures and arrangements which result in the prompt, fair and expeditious execution of client orders and the situations in which or types of transaction for which investment firms may reasonably deviate from prompt execution so as to obtain more favourable terms for clients; (b) the different methods through which an investment firm can be deemed to have met its obligation to disclose not immediately executable client limit orders to the market.
Article 29 Obligations of investment firms when appointing tied agents
1. Member States shall allow an investment firm to appoint tied agents for the purposes of promoting the services of the investment firm, soliciting business or receiving orders from clients or potential clients and transmitting them, placing financial instruments and providing advice in respect of such financial instruments and services offered by that investment firm. 2. Member States shall require that where an investment firm decides to appoint a tied agent it remains fully and unconditionally responsible for any action or omission on the part of the tied agent when acting on behalf of the investment firm. Member States shall require the investment firm to ensure that a tied agent discloses the capacity in which he is acting and the investment firm which he is representing when contacting or before dealing with any client or potential client. Member States may allow, in accordance with Article 16(6), (8) and (9), tied agents registered in their territory to hold money and/or financial instruments of clients on behalf and under the full responsibility of the investment firm for which they are acting within their territory or, in the case of a cross border operation, in the territory of a Member State which allows a tied agent to hold client money. Member States shall require the investment firms to monitor the activities of their tied agents so as to ensure that they continue to comply with this Directive when acting through tied agents. 3. Tied agents shall be registered in the public register in the Member State where they are established. ESMA shall publish on its website references or hyperlinks to the public registers established under this Article by the Member States that decide to allow investment firms to appoint tied agents. Member States shall ensure that tied agents are only admitted to the public register if it has been established that they are of sufficiently good repute and that they possess the appropriate general, commercial and professional knowledge and competence so as to be able to deliver the investment service or ancillary service and to communicate accurately all relevant information regarding the proposed service to the client or potential client. Member States may decide that, subject to appropriate control, investment firms can verify whether the tied agents which they have appointed are of sufficiently good repute and possess the knowledge and competence referred to in the second subparagraph. The register shall be updated on a regular basis. It shall be publicly available for consultation. 4. Member States shall require that investment firms appointing tied agents take adequate measures in order to avoid any negative impact that the activities of the tied agent not covered by the scope of this Directive could have on the activities carried out by the tied agent on behalf of the investment firm. Member States may allow competent authorities to collaborate with investment firms and credit institutions, their associations and other entities in registering tied agents and in monitoring compliance of tied agents with the requirements of paragraph 3. In particular, tied agents may be registered by an investment firm, credit institution or their associations and other entities under the supervision of the competent authority. 5. Member States shall require that investment firms appoint only tied agents entered in the public registers referred to in paragraph 3. 6. Member States may adopt or retain provisions that are more stringent than those set out in this Article or add further requirements for tied agents registered within their jurisdiction.