MFSA updates Market on MiFID II and MiFIR

The Malta Financial Services Authority (MFSA) has issued a Circular to all capital market participants, particularly Market Operators, Trading Venues, Investment Firms, or any other related entities subject to MiFID II and MiFIR.

This Circular provides a comprehensive update on a number of recent issues concerning the industry, including [i] Q&A on transparency, [ii] Q&A on market structure topics, [iii] Q&A on commodity derivatives topics, and [iv] Guidelines and Final Report on the Guidelines on the calibration of circuit breakers and the publication and reporting of trading halts under MiFID II.

Questions and Answers on MiFID II and MiFIR transparency topics

Last April, the the European Securities and Markets Authority (‘ESMA’) updated the latest set of Q&A on MiFID II/ MiFIR transparency topics. The scope of the Q&A is to provide responses to questions raised by the general public, capital market participants and competent authorities in relation to the practical application of MiFID II/ MIFIR in this area. More specifically, the Q&A currently provides explanations on general transparency topics as well as trading obligation for shares.

Questions and Answers on MiFID II and MiFIR market structures topics

Last month ESMA also updated the Q&A on MiFID II/MiFIR market structure topics. The Q&A provides responses to questions raised by the general public, market participants and competent authorities in relation to the practical application of MiFID II/ MIFIR in relation to capital market structure topics. More specifically, the Q&A provides an explanation on Direct Electronic Access (‘DEA’) and algorithmic trading with respect to the reference to ‘market makers’ as per Article 2(1)(d)1 and 2(1)(j)2 of MiFID II.

Questions and Answers on MiFID and MiFIR commodity derivatives topics

A further update concerns new set of Q&A published by ESMA last year on MIFID II/MiFIR commodity derivative topics, which was further updated on the 5th April 2017. The Q&A provides responses to questions raised by the general public, capital market participants and competent authorities in relation to the practical application of MiFID II/MiFIR on commodity derivatives topics. More specifically, the Q&A provides explanations on additional questions relating to position limits. It seeks to clarify (i) how the position limits regime is applied to the various underlyings listed in Annex I, Section C(10) of MiFID II, (ii) whether a hedge exemption can be netted against positions in derivatives which are not objectively measurable as reducing risks directly related to a person’s commercial activity, (iii) the meaning of ‘single fungible pool of an open interest’ in Article 5(1)(b) of Regulatory Technical Standard (‘RTS’) 21, and (iv) how the contracts that have a high variability of open interest during the year should be treated.

Guidelines and Final report on the Guidelines on the calibration of circuit breakers and the publication and reporting of trading halts under MiFID II.

After issuing a Consultation document in 2016 on Guidelines on the calibration of circuit breakers and the publication and reporting of trading halts under MiFID II, ESMA published the above-mentioned Guidelines, with an accompanying Final Report. The Guidelines are not restricted to a specific type of circuit breaker and apply indistinctly to all mechanisms that trading venues could potentially set in place in accordance with Article 48(5) of MiFID II. 

Whilst the Guidelines clarify the provisions under this Article and are applicable from 3rd January 2018, the Final Report provides feedback on the CP on the Guidelines and describes how the responses to the consultation were taken into consideration when drafting the final Guidelines. Material changes to the Guidelines are described in the Report, as well as the reasons for such changes in light of the received feedback. 

It is to be highlighted that the requirements set out in the Guidelines are applicable only to trading venues’ systems that enable or allow algorithmic trading. A copy of the guidelines referred to in this article are available in the Circular on the MFSA Website. 

Source: MFSA Newsletter. Download the full newsletter here.