The steady rise in the cost of market data for investment firms is a major concern for AMAFI members. AMAFI’s Board has responded by setting up a working group to examine the reasons behind the increase and make proposals to the competent authorities. Using this framework, AMAFI prepared a response (AMAFI /19-84) to ESMA’s consultation on prices for pre- and post-trade data since MiFID 2 entered into application.
In its feedback, AMAFI pointed out that MiFID 2 measures taken to lower pre- and post-trade transparency data costs (each type of data provided separately, data made available on a reasonable commercial basis, data made freely available after 15 minutes) have not delivered the hoped-for results. Several factors account for this:
Despite this, the revenues generated by most market operators either remain stable or have increased only slightly. The explanation for this puzzling outcome appears to be large-scale rationalisation programmes by market participants to curb overall costs. In addition, the MiFID 2 framework applies only to entities falling within its scope, whereas the value chain in which market data are produced relies not only on trading platforms but also on data vendors outside the MiFID 2 regulatory framework.
The RCB concept has proven hard for the industry and authorities to monitor. AMAFI therefore believes that the priority should be to make transparency requirements more effective. To that end, pricing lists, contracts, audit procedures and definitions need to be simplified, harmonised and made comparable. Trading platforms therefore need to work with their users to develop good practices. ESMA should not be forced to impose harmonising measures unless this approach fails to deliver results within a reasonable timeframe.
The soaring increase in market data costs has attracted attention not only in Europe but also around the world. The International Council of Securities Associations has set up a working group on the topic, in which AMAFI is taking part. And on 7 November ICSA is organising a forum on market data costs, to be hosted by the European Commission (see programme on AMAFI’s website).
A la suite de l’entrée en vigueur du Règlement Prospectus en juillet 2019 et des textes français (ordonnance et décret) réformant le régime des offres au public en octobre 2019, les modifications subséquentes du Règlement Général de l’AMF ont été homologuées par arrêté du 7 novembre 2019 publié au Journal Officiel du 21 novembre 2019.
L’AMAFI s’est largement impliquée dans le cadre de la consultation publique ouverte par l’AMF. Parmi ses points d’attention, trois ont notamment été retenus par l’AMF :
As part of discussions on the introduction of provisions to support the development of security tokens at domestic and European level, AMAFI’s Digital Assets Group examined a number of possible ways forward, which were summarised in a document (AMAFI / 19-105) sent to the AMF in late October. The goal, in AMAFI’s view, is to successfully implement an appropriate regulatory framework that protects investors without stifling technological innovation and its potential contributions.
With this in mind, AMAFI is recommending two parallel and complementary approaches.
At domestic level, conduct short-term (one-year) initiatives to build initial expertise in unlisted securities making sure, in view of their experimental nature, that these activities are not captured by standard financial regulations, which are too unwieldy and complex for the purpose. The aim would be to conduct trials that go beyond just security token issuance, which has already been done by Forge Capital and Santander, notably with a view to trading securities on a secondary market.
At European level, efforts should encompass the medium term (between two and five years) and the long term (between five and ten years). To enable experimentation, observation and analysis of practices related to the specificities of security tokens, consideration should be given to the construction of a specific regime, limited in time, by which national authorities could grant exemptions from certain regulatory obligations, linked to the traditional financial instruments scope, non-compatible or unnecessary when applied to blockchain technology, to projects that do not present systemic risks.
AMAFI is updating its guide to implementing product governance obligations. The proposed changes seek, among other things, to clarify the relationship between the obligations to regularly review target markets and to identify events affecting the risk/reward tradeoff. Another goal is to introduce, on an optional basis at this stage, recognition of customer environmental, social and governance preferences, where applicable.
AMAFI is also using the opportunity presented by the update to provide clarification about the framework’s application at the moment of the purchase – not the sale – of financial instruments and about the terminology used in Annex 5 on derivatives. As with previous versions of the guide, AMAFI sent its proposals to the French regulator to provide a basis for bilateral discussions before publishing the document.
Article 5 of MiFIR introduces a volume capping mechanism for trading in equities and equity-like instruments that applies at the level of the individual venue and at EU level. If thresholds are exceeded, trading in the affected instruments is suspended at both levels. AMAFI carried out a study (AMAFI 19-103) to assess how the volume cap mechanism is affecting market microstructure, a year on from its introduction. The study looked at lit order books, considering the change in spreads and interest at the best limit. It also examined the market impact of orders.
The findings revealed a small positive impact on lit order books but this was surely because, among other things, the study period featured low volatility. The volume cap mechanism does not appear to have had a significant effect on the market impact of orders. The results thus appear marginal as regards the effect on market microstructure, even though the industry has had to make significant adjustment efforts in order to implement this provision.
Over recent months, AMAFI has been working to formally set out its thoughts and proposed amendments for the revision – or refit – of the three levels of regulation that form the MiFID 2 framework. The aim, based on experience gained in implementation over the last two years, was to specify the points where adjustments looked necessary, without calling everything into question, given the huge efforts to adapt already made by the industry.
AMAFI has now finalised its position in a document (AMAFI / 20-03) that is available in French and English and that addresses the framework’s two key areas, namely market structure and investor protection. Regarding market structure, the main issues of concern involve territoriality, the cost of market data, the OTC derivatives regime and the funding of research on SMEs. With provisions on product governance and cost and charge disclosures, the challenge is to streamline the arrangements as far as possible and introduce more proportionality according to financial instrument and client category, notably to recognise the needs of the wholesale segment. Awareness-raising initiatives will be organised in the first half of 2020 on this basis.
AMAFI also plans to draw on the position paper on this issue prepared by EFSA, a pan-European discussion forum for AMAFI and its sister associations.
After holding a number of meetings on the topic, AMAFI has finalised its response (AMAFI / 20-02) to the public consultation published in October 2019 by the European Supervisory Authorities (ESAs) on amendments to the PRIIPs framework.
In its response, AMAFI stresses the importance of maintaining probabilistic performance scenarios and thus of not using illustrative scenarios, which have major drawbacks for structured products. AMAFI also reiterates the need to present costs in a way that is as comprehensible as possible to retail investors and consistent with MiFID 2. With this in mind, it repeats its call to scrap the reduction in yield (RiY) indicator.
AMAFI is also calling for a more comprehensive revision that encompasses Level 1 in order to promote greater regulatory stability. For the same reason, it considers that all new obligations should come into application simultaneously instead of being phased in. And given the large number of existing key information documents (KIDs), which cannot all be updated at the same time, AMAFI wants to see a grandfather clause for structured products that are on the market before the future amendments come into application.
CSDR discipline measures are scheduled to come into force in September 2020. Their purpose is to ensure that securities settlement transactions conducted by CSDs are settled on the date originally agreed by the parties. A penalty is applied for each day that a transaction fails to be settled. If the delay persists despite the penalties, a buy-in process is initiated to ensure that the non-defaulting party can recover its securities, with the defaulting party bearing the associated costs.
AMAFI has always lobbied for a regime of this kind to be introduced at European level, since proper transaction settlement is critical to market integrity and public confidence. But the conditions are not in place right now to support a smooth introduction of this regime. Collectively, financial system participants will not be ready by September 2020. Meanwhile, uncertainty remains over the buy-in mechanism. For this reason, AMAFI and a number of other European associations wrote a joint letter on 22 January to the European Commission and ESMA calling for a review of the process for introducing the new regime (AMAFI / 20-07).
