On 24 July 2020, the European Commission published its long-awaited legislative proposal for targeted amendments to Directive 2014/65/EU on markets in financial instruments (MiFID II) as regards information requirements, product governance and position limits to help the recovery from the COVID-19 pandemic (MiFID “quick fix”). In parallel, the Commission launched a public consultation on amendments to Delegated Directive (EU) 2017/593 on the research regime to help the recovery from the COVID-19 pandemic.
Key elements of the MiFID “quick fix” proposal include:
- Amendments to information requirements: this package of proposals includes phase out of paper-based default methods of communication, amendments to cost and charges disclosures by introducing an exemption for eligible counterparties and for professional clients for other services than investment advice and portfolio management, alleviation of ex-post reporting requirements and cost benefit analysis requirements, suspension of best execution reports and exemption of corporate bonds with make-whole clauses from product governance requirements.
- Amendments to the position limits regime for commodity derivatives: the Commission noted that “in its current form, the position limit regime has negatively affected the liquidity in new commodity markets” and in order to help these markets develop, it proposes to significantly narrow down the application of the position limits regime by restricting it only to agricultural commodity derivatives or commodity derivatives designated as significant or critical. The European Securities and Markets Authority (ESMA) will be mandated to develop draft regulatory technical standards to define those agricultural derivatives subject to position limits and to define critical or significant derivatives subject to position limits. In addition, the Commission proposes to delete the notion of “same contract” for commodity derivatives and to replace it with cooperative approach between national competent authorities. Finally, noting that significant differences exist between trading venues in respect of position management controls, the Commission proposes to mandate ESMA to further clarify the content of position management controls taking into account the characteristics of the relevant trading venues.
- Introduction of a narrowly defined hedging exemption for financial entities: the Commission proposes to extend an exemption from the position limits regime to financial counterparties acting as the market facing entity of a commercial group for the positions held to reduce the risks of the commercial entities of the group and to financial and non-financial counterparties for positions resulting from transactions undertaken to fulfil mandatory liquidity provisions.
- Amendments to ancillary activity test: the Commission proposes to simplify the Article 2(1)(j) MiFID II test by deleting all quantitative elements and reverting to a solely qualitative approach.
The proposed amendments will be subject to legislative review by the European Parliament and by the Council, which – given the summer recess – is unlikely to begin before early September.
In respect of the proposed amendments to Commission Delegated Directive (EU) 2017/593, the Commission seeks stakeholder views on targeted changes to Article 13 requirements on research. This includes creation of an optional exemption when research is exclusively on small and mid-cap issuers or on fixed income instruments. For such research, investment firms will be able not to apply the current Article 13 requirements to set up a research payment account or pay research on its own resources, or to issue separate invoices for research. Small and mid-cap issuers will be defined as issuers that did not exceed a market capitalization of EUR 1 billion over a 12 months period. In addition, the Commission proposes an optional exemption, under certain conditions, from the current research unbundling requirement if execution services and the provision of research pertain to small and midcap issuers. The consultation is open until 4 September 2020.
