1. What has been the general feedback from the industry on MiFID?
The feedback has been varied, as would be expected given the breadth of the review. The key theme that emerges above all others, though, is the need for greater and better quality transparency in the markets. This means that, for shares admitted to trading on a regulated market, for which a transparency regime already exists, the Committee of European Securities Regulators (CESR) is calling for a harmonisation of standards for the trade reports produced, better independent checking of those reports, and the introduction of strengthened arrangements to consolidate post-trade data. CESR also wants a shortening of the timelines for the production of trade reports, including those that benefit from deferred publication, and a clarification of the use of the pre-trade transparency waivers.
For many other instrument types, there is clear demand for a mandatory post-trade transparency regime. CESR will be proposing to the European Commission a framework transparency regime for corporate and public bonds, structured finance products and credit default swaps, and asking the Commission to consider whether similar requirements should be introduced for other non-equity instruments (e.g. equity derivatives). CESR will also be proposing that the equity transparency regime be extended to “equity-like” instruments such as ETFs.
2. What would the FSA like to change in the regulation and what would you like to get out of MiFID II?
The key concern of UK market participants has been post-trade transparency, as indicated above. The FSA endorses the changes proposed to the scope and detail of MiFID’s transparency requirements, and we will be engaging in the European discussions to help flesh out the requirements to ensure they are right. We will also be heavily involved in the discussions to help deliver consistency of regulation by national competent authorities and to ensure that entities undertaking similar businesses and posing similar risks are required to meet similar regulatory requirements.
On a different note, the FSA would also like to ensure that transaction reports submitted by firms really do help Competent Authorities (CAs) monitor the markets and detect abusive transactions. We are therefore very supportive of the proposals to extend the scope of transaction reporting to OTC equity and debt derivatives where the underlying instrument is admitted to trading on a regulated market. We also strongly support the proposal that meaningful client and counterparty codes within transaction reports become mandatory across all CAs.
3. What will FSA’s main focus be in the next 12 months with regards to equities markets?
A key focus will be to follow up on the work done within CESR on the MiFID review, helping to form a sensible and comprehensive package of regulatory change. Ensuring the regulatory framework going forward is appropriate for the markets and their various participants is a significant challenge; a strong start has been made and we will be engaging fully as debate continues and proposals are firmed up. As a key part of that – and as a major input to our broader policy thinking – we will also continue to monitor how the markets develop over time, and how their products and participants change, so that our policy positions can be adjusted accordingly. The FSA’s Markets Regulatory Agenda (http://www.fsa.gov.uk/pubs/other/markets.pdf), published in May, sets out where we see the issues of greatest significance for the UK markets. These included the impact of fragmentation and technological changes, and the implications of the financial crisis. We will be continuing to drive forward regulatory change to address the issues that document sets out and new challenges as they emerge.
4. In your opinion, how can events like TradeTech Liquidity assist the regulators and the industry in shaping and influencing the regulation and practices?
The FSA has worked hard to engage with the industry to help inform the MiFID review. Clearly the industry needs to be fully involved, and conferences and other industry fora are crucial to sharing ideas and informing thinking. The FSA, like all regulatory authorities, participates in such events not only to provide information but also to learn itself. We will be listening intensively during forthcoming conferences - we want to ensure we continue to understand industry views across the full range of MiFID-related issues.