MiFID II – Euronext views on
Euronext supports the new Commission’s mandate to promote digital finance in the EU. The EU’s approach in reviewing existing legislative frameworks with a view to developing and promoting the use of new financial technologies is a welcome step in the right direction.
In order to achieve this, we believe that clarifications to the MiFID II framework should be prioritised to accommodate the emergence of new practices, notably in the crypto-assets sector.
In the below paper, Euronext lays set a set of key principles upon which the EU can build upon in reviewing the existing regime, while maintaining and safeguarding investor protection.
Share Trading Obligation
Euronext fully supports the objectives of the Share Trading Obligation, but it is clear that there are issues with its application, particularly in relation to its extraterritoriality and also its application to dual-listed shares. Therefore we believe its scope needs to be amended immediately to avoid undue complexity and ensure the approach is based on predictable and meaningful criteria. Further details of our proposal are set out in the memo below.
The objective of strengthening transparent multilateral markets was at the core of the MiFID II reforms but it is now critical that the current review addresses the clear shortcomings of the regime and ensures these objectives are finally delivered upon. Euronext is actively contributing to this debate with submissions to consultations and has published the following policy paper on Equities Market Structure. This paper sets out a factual summary of the main market developments in equity market structure under the MiFID framework and proposes some key recommendations for consideration that we believe will ensure effective price discovery and help simplify market structure in Europe to the benefit of end investors.
MiFID II introduced the position limits regime with a view to improve the functioning and transparency of financial and commodity markets. This has provided value to the commodities markets, notably with respect to our benchmark contracts (i.e. Milling Wheat, Rapeseed and Corn).
However, there is merit in amending the existing position limits regime to incentivise the creation, and proper functioning, of new nascent commodity contracts.
This position sets out our views on the Commission’s proposals to alleviate the existing position limits regime in the framework of the MiFID II review.
The entry into force of MiFID II has led to a decrease in overall equity research coverage on all of our listed companies. In particular, the introduction of new rules on the unbundling of research and execution services have resulted in fewer analysts covering issuers’ stocks, with some companies being left with no analyst at all.
Euronext is engaging with financial market participants and regulators with a view to increasing listed companies’ coverage, thereby providing them with investment opportunities and additional visibility across our markets.
Find below our detailed position and legislative proposals to increase the production of SME research in the EU.
The Consolidated Tape: Friend or Foe?
In today's increasingly fragmented market structure, Euronext shares the view that there is a need for consolidation of market data across European markets. The key challenge facing the industry and legislator is the elaboration of a solution where the costs and benefits – as well as potential policy risks – are appropriately balanced and calibrated.
Euronext’s policy paper “A Consolidated Tape: Friend or Foe” tackles these issues in a comprehensive fashion, exploring the pros and cons of the respective options. In our view, a consolidated view of market data can be best achieved by the development of an end-of-day consolidated tape, covering 100% of data sources and combining post-trade data with information such as the side (bid or ask) of trades executed on a venue and information on liquidity available at execution.
Find our detailed position in our policy paper “CMU and the Consolidated Tape: Friend or Foe” which explores the pros and cons of the different tape options.
English VersjonEnglish 29/04/2020 CMU and the Consolidated Tape: Friend or Foe /sites/default/files/2020-05/Euronext%20Paper%20CMU%20%20The%20Consolidated%20Tape%20-%20Friend%20or%20Foe%20-%20FINAL.pdf
EU Framework for Crypto-Assets
Euronext supports the Commission’s approach to develop and promote the use of blockchain (i.e. Distributed Ledger Technology - DLT) whilst addressing any risks this new technology may pose. In line with the Commission’s objectives, we believe that clarifications to the current EU regulatory framework should be prioritised to accommodate the new emerging activities emanating from the crypto-asset sector. In so doing, it will be essential to find a balance between encouraging the emergence of innovative offerings, whilst maintaining and safeguarding investor protection.
Euronext sets out its proposal for an EU framework for crypto-assets in the document below, following the Commission’s consultation on the topic.
SME Growth Markets
Under the Capital Markets Union project (CMU), and in order to support jobs and growth in the EU, the European Commission has set in motion several legislative and non-legislative initiatives aimed at strengthening public capital markets financing for SMEs and midcaps over the last several years.
In 2018, the European Commission published legislative proposals to build upon the creation of ‘SME Growth Markets’ in MiFID II. This follows from an industry consultation at the end of 2017 on potential proposals for targeted amendments to MiFID II, the Prospectus Regulation and the Market Abuse Regulation (MAR) to strengthen the attractiveness of these markets for SMEs and midcaps. As the operator of Growth Markets across its jurisdictions, Euronext is greatly supportive of such initiatives.
Euronext’s position on the EU SME Growth Markets initiatives
On May 24th 2018 the European Commission published proposals to amend the MiFID II, Prospectus and Market Abuse Regulations’ Frameworks in order to introduce further regulatory alleviations for all companies listed on SME Growth Markets.
Euronext welcomes and supports these initiatives. It is however our experience that, while many themes are shared across countries and markets, there are important differences and nuances which require flexibility in the regulatory and supervisory approach. This is critical to enabling implementation of tailored solutions that meet the specific needs of SMEs and midcap public capital markets.
While Euronext is supportive of legislative amendment in many of the areas identified by the Commission, we believe it is important that policymakers and regulators embed this core principle in any EU legislation seeking to improve the attractiveness of EU Growth Markets for SMEs and midcaps.
As an example, we believe the legislative changes should go further in ensuring that bond-only issuers also benefit from the proposed alleviations, particularly when it comes to the Market Abuse Regulation (MAR) where the majority of requirements are tailored for equity markets.
In the aim of developing a regulatory framework supporting access to public markets for all SMEs, Euronext makes proposals to adapt definitions in the Prospectus Regulation and a number of requirements in the MAR framework to bond-only issuers.
Our detailed proposals can be accessed above.
In December 2017, as part of the preparation of the legislative proposals, the European Commission published a consultation on potential measures to strengthen the attractiveness of MIFID II’s SME Growth Markets, with a view to introducing targeted amendments to the relevant EU regulatory frameworks.
A detailed summary of the Euronext response to the consultation can be accessed above. The paper notably includes a comprehensive overview of the challenges faced by public markets for SMEs across the Euronext jurisdictions.
English VersjonEnglish 18/04/2019 Public consultation on building a proportionate regulatory environment to support SME listing /sites/default/files/2019-04/european_commission_consultation_document_1.pdf
English VersjonEnglish 18/04/2019 EU SME Growth Markets Consultation - Euronext Position Paper /sites/default/files/2019-04/eu_sme_growth_markets_consultation_-_euronext_position_paper_0.pdf
English VersjonEnglish 18/04/2019 Commission Amendments to the Delegated Acts under MiFID II – Euronext Position Paper /sites/default/files/2019-04/enx_position_on_level_ii_sme_gm_amendments__0.pdf
English VersjonEnglish 18/04/2019 Euronext Position Paper on the EU SME Growth Markets Initiatives /sites/default/files/2019-04/enx_position_on_sme_growth_markets__0.pdf
EU Benchmarks Regulation (BMR)
The EU Benchmarks Regulation, applicable as of January 2018, provides the basis for the regulation and supervision of benchmark administration in the EU. BMR provides a set of different regulatory frameworks to accommodate the full range of benchmarks present in the market. This is achieved via a categorisation of benchmarks into non-significant, significant and critical categories.
Moreover, the EU legislator also introduced a category covering Regulated-Data Benchmarks to reflect the fact that benchmarks based on regulated data (i.e. data from regulated trading venues) are less prone to manipulation as the input data is already subject to stringent pre and post trade rules in EU legislation (notably MiFID II and MAR).
Euronext supports the broad policy objectives underpinning the new EU framework. At the same time, Euronext has been obliged to avail itself of the transitional provision that BMR provides to existing benchmark providers until Jan 2020. The reason for this is that there are ongoing issues with key definitions in the legislation impacting on the applicability of the regime for Regulated-Data Benchmarks.
BMR defines Regulated-Data Benchmarks as benchmarks based on input data which comes ‘entirely and directly’ from (amongst other sources) trading venues, as defined by MiFID.
Today, benchmark administrators often obtain data from trading venues via market data providers that provide the technical link between the venue and administrator without making any alterations to the unprocessed data. In our view, such practices should be deemed to fall within the scope of a Regulated-Data Benchmark, specifically meeting the requirement for the data to be taken ‘entirely and directly from the trading venue’ so long as the data is provided in a raw and unprocessed state.
The Euronext position paper provides more details on the issue as well as outlining proposals for clarification at Level 2.
English VersjonEnglish 18/04/2019 Euronext Position Paper on Benchmarks Regulation – Regulated data benchmark /sites/default/files/2019-04/enx_benchmark_position_may_2018_final_0.pdf
Systematic Internalisers and Tick Sizes (MiFID II)
Following the entry into force of MiFID II and associated increase in systematic internalisers (SIs) reported volumes, EU policymakers’ attention has focused on the non-application of the tick size regime to SIs and the implications of this exemption for the effectiveness of EU public equities markets.
In the context of the Investment Firm Review (IFR), amendments have been tabled in the European Parliament to extend the application of tick sizes to SIs.
In light of these developments, Euronext calls on EU policymakers to ensure a level playing field between trading venues and SIs and supports applying the tick size regime to SI and trading venue activity up to large-in-scale (LIS).
Policymakers’ attention is currently focused on the non-application of the tick size regime to SIs and the implications of this exemption for the effectiveness of EU public equities markets. This concern has been translated into a proposed amendment from the European Parliament to extend the tick size regime to SIs in the context of the Investment Firm Reform (IFR). With the Council having recently adopted its position on the IFR proposals, Euronext believes it is timely to consider some issues of relevance to the ongoing trialogue discussions.
Euronext believes that it is acceptable for large-in-scale (LIS) trades executed on SIs and Trading Venues, and trades that are non-price forming, to be exempt from the tick size regime. In particular:
A level playing field should exist between trading venues and SIs. Euronext supports extending the tick size regime to SIs up to LIS, recognising the fact that over applying the tick size regime may raise issues in respect of above LIS transactions. Above LIS, if SIs are exempted from applying tick sizes, then so should Trading Venues.
MiFID II recognises that non-price forming trades (regardless of the size) may be exempted from tick sizes because they are not subject to the shares trading obligation. As such, these trades are still allowed for OTC execution and not subject to any tick size requirement when executed OTC.
English VersjonEnglish 18/04/2019 Euronext Position Paper on EXTENSION OF THE TICK SIZE REGIME TO SYSTEMATIC INTERNALISERS (SIs) /sites/default/files/2019-04/Extension%20of%20the%20tick%20size%20regime%20to%20SIs%20-%20FINAL_0.PDF
Common Agricultural Policy (CAP)
The Common Agricultural Policy (CAP) is deeply rooted in the construction and development of the European Union. Established in the early 1960s around goals enshrined in the Treaty, it has since undergone several waves of reforms to improve the competitiveness of the agricultural sector, to foster rural development, to address new challenges and to better reply to societal demands.
Following the publication of the Communication on the Future of Food and Farming in 2017, the European Commission launched a set of proposals laying down the legislative framework for the CAP in the period 2021-2027 where the Commission aims to further improve the sustainable development of farming, food and rural areas. Consequently, a key element of the proposals is to identify and roll-out new market oriented solutions to make the farming sector more resilient and improve farmers’ position in the value chain.
As the leading futures market operator for a number of agricultural commodities in Europe, Euronext supports the Commission’s goal to increase the involvement of all stakeholders in the agricultural value chain by putting in place European platforms and networks to facilitate exchanges of experience and peer to peer learning on new risk management tools.
These platforms will provide farmers with adequate knowledge of financial instruments for investments and will help them strengthen their on-farm strategies. A robust CAP framework to facilitate farmers’ access to risk management tools can help stabilise markets, assure the availability of supplies and ensure that they reach consumers at a reasonable price.
Euronext supports the Commission’s efforts to make the CAP more responsive to current and future challenges via the creation of CAP Strategic Plans, which would grant flexibility to Member States in the allocation of EU funds, with a view to making the farming sector more resilient.
Euronext believes that the CAP legislative framework could benefit from additional incentives and/or measures to promote the use of risk management tools aimed at reducing the negative consequences of price volatility for agricultural market participants.
Euronext therefore welcomes the formation of the European CAP Network to provide peer-to-peer learning and awareness-raising actions for EU farmers in the management of their agricultural risks. The creation of such informative platforms should incentivise individual responsibility and enforce the position of individual farmers in the food value chain.
In addition, Euronext supports the proposal to establish a permanent EU-level platform for risk management. This should provide a forum for farmers, public authorities and stakeholders to exchange experience and best practices.
The Euronext position paper provides more details on the functioning of the futures market and the benefits it brings to the farming community.