Legislative review of the European Commission’s MiFIR Review Proposal continues (see our earlier blog on the content of the proposal). On 2 March 2022, the French Presidency hosted a meeting of the Council Working Party on Financial Services, the agenda of which focused on proposed provisions for consolidated tape providers (CTP) and amendments to best execution provisions, including a proposed ban on payments for order flow (PFOF).
In respect of the CTP provisions, the agenda included discussion about objectives and general architecture of a consolidated tape, as well as economic model and selection procedure of the CTP. For each of the agenda items, the French Presidency addressed a number of questions to Member States, looking for further feedback. Regarding the objectives and general architecture of the consolidated tape, the Presidency sought further input regarding scope and use cases of the consolidated tape per each asset class (shares, bonds, ETFs, derivatives). It also asked for Member States’ views on the issue of identification and harmonisation of consolidated market data, including whether Member States agree with the definition of “core market data”. Finally, regarding transmission of market data and sanctions for non-compliance, the Presidency asked, among other questions, whether Member States agree with the principle of mandatory contribution of core market data to the authorised CTP.
In the context of discussions on the economic model of the CTP, the Presidency asked for views regarding the issue of pricing and excess revenue requirement for equities to be redistributed to data providers. Among other issues raised, the Presidency asked whether Member States consider the reasonable commercial basis (RCB) requirement to be sufficient to regulate the price of the consolidated tape, and whether the RCB concept should be further specified. It also queried about the proposed revenue sharing mechanism for equities, including whether the principle of revenue sharing should be extended to other asset classes. Regarding the selection procedure and timetable for setting up and monitoring the CTP, Member States had a chance to consider indicative timetables for the implementation of consolidated tape per asset class. Among a number of targeted questions, the Presidency was looking for further feedback regarding the proposed mechanism of selecting a single independent consolidator for each asset class through an open procedure by the European Securities and Markets Authority (ESMA).
In the part of the meeting concerning best execution, the discussion focused on evolution of best execution reporting, as the Commission’s proposal regarding the regulation of PFOF. By way of background, the MiFIR Review Proposal includes an outright ban on PFOF between retail brokers and wholesale market makers, something which sparked quite a lot of interest from industry and policy-makers and is expected to be subject to further heated debate in the course of the ongoing legislative review. To further this discussion, among a number of questions, the Presidency was looking for Member States’ views whether a PFOF ban could have negative effects on innovation in the retail brokerage space, the cost of access to financial markets for retail investors as well as their participation in these markets.
The next working group will take place on 1 April 2022.