The MiFIR Refit came into force in May to overhaul the European financial landscape with its focus on transparency and data integrity. Its ban on Payment for Order Flow aims to remove any vestiges of conflict of interest, while the consolidated tape is set to provide a comprehensive view of market data in a standardized format that the market can readily decipher.
Financial institutions now face the challenge of updating their systems, policies, processes and procedures to meet these new regulatory demands, proving once again that in the world of global finance, change is the only constant.
The EU’s Markets in Financial Instruments Regulation, along with the Markets in Financial Instruments Directive (MiFID II), aims to increase transparency across the region’s financial markets and standardize regulatory disclosures for investment firms. MiFIR specifically relates to trade reporting, market transparency, and the obligations of trading venues and systematic internalisers.The MiFIR Refit introduces several key changes and updates to the existing framework, aimed at enhancing transparency, improving data quality, and optimising market operations. The implementation is being phased in over a two-year period.
The regulation became official with its publication in the Official Journal on April 14 and entered into force on May 4.
One of the immediate and most debated impacts of this regulation is the prohibition on brokers accepting Payment for Order Flow. This ban is designed to eliminate conflicts of interest, ensuring brokers act in the best interests of their clients.
Another immediate change is the elimination of annual best execution reports for execution venues. This is being replaced by a new consolidated tape system, which will provide comprehensive market data, including the best bid and offer information.
By May of 2025, several significant milestones must be achieved:
ESMA will complete its 12-month assessment of the inclusion of Alternative Investment Fund Managers (AIFMs) and management companies in the scope of transaction reporting
Trading venues and systematic internalisers (SIs) must comply with real-time data access requirements to ensure all market participants have timely access to crucial trading information.
Financial institutions must be ready to adopt standardized reporting formats by this date.
Banks and trading venues involved in commodity derivatives must comply with enhanced disclosure requirements. These changes aim to increase transparency and oversight in commodity derivatives trading, addressing speculative activities and improving market stability.The development and implementation of Regulatory Technical Standards (RTS) by ESMA is another critical aspect of the MiFIR Refit. These standards, which will manage trading halts, price collars, and other market structure enhancements, are expected to be developed and implemented by November 4, 2025.
The consolidated tape system (CTS) is a major structural change and is targeted to be fully operational by May 2026. The initial setup and framework for data submission by contributors and the selection of consolidated tape providers (CTPs) will occur over a two-year period ensuring a smooth transition to the new system. CTPs will provide a unified source of trade information by asset class.
In summary, the MiFIR Refit introduces a structured implementation schedule with key milestones designed to enhance market transparency, data quality, and operational efficiency. Financial institutions and market participants must adhere to these timelines to comply with the new regulatory framework.
Enhanced Regulatory Oversight
The scope of transaction reporting under MiFIR is expanded to potentially include Alternative Investment Fund Managers (AIFMs) and management companies. ESMA will assess this inclusion over the next 12 months.
Investment firms can now act as designated publishing entities for specific financial instruments, improving the clarity and responsibility of transaction reporting. ESMA will maintain a public register of these entities.
Prohibition of Payment for Order Flow (PFOF) prohibits brokers from receiving fees, commissions, or non-monetary benefits from third parties for order execution or forwarding. This aims to eliminate conflicts of interest and ensure that brokers act in the best interests of their clients.
While the prohibition took effect in May, Member States may exempt firms under their jurisdiction from this prohibition until June 30, 2026. Regulatory authorities will monitor brokers’ activities and impose penalties for non-compliance. Brokers must also provide clear and transparent disclosures about their order execution policies.
The introduction of a consolidated tape for each asset class will provide necessary market data, including best bid and offer information, replacing the need for separate reports. As a result, the requirement for execution venues to publish annual best execution reports has been permanently suspended.
Pending Standards
ESMA is consulting on three new regulatory technical standards (RTSs) under the MiFIR to enhance market transparency and data quality. The first standard focuses on pre- and post-trade transparency for non-equity instruments such as bonds, structured finance products, and emissions allowances. This standard aims to ensure timely and clear trade information for stakeholders while balancing the need for real-time transparency with the ability to defer publication when necessary.
The second standard mandates that pre- and post-trade data be made available on a reasonable commercial basis (RCB). This is to ensure that market data is accessible, fair, and non-discriminatory. The consultation includes discussions on the cost-based nature of fees and the applicable reasonable margin, aiming to make this data affordable for users while maintaining fair access.
The third standard addresses the obligation to provide high-quality instrument reference data suitable for both transaction reporting and transparency purposes. The proposed amendments aim to align this data with other relevant reporting frameworks and international standards, thereby improving data quality and consistency across the board.
At this time, feedback from stakeholders is still being collected, and ESMA will publish a final report and submit the draft technical standards to the European Commission by the end of the fourth quarter of 2024. This review process is crucial for ensuring that the technical standards effectively support the regulatory objectives of MiFIR.
Market Structure Enhancements
ESMA is developing RTSs to manage trading halts, price collars, and other market structure enhancements ensuring better market stability during volatility. These are planned to be rolled out by November 4, 2025.
Enhanced disclosure requirements for commodity derivatives is introduced to curb speculative activities and improve market oversight.
The Double Volume Cap (DVC) mechanism under MiFIR has undergone significant changes aimed at enhancing market transparency and simplifying the regulatory landscape. The updated MiFIR now introduces a single volume cap set at 7% for trading under the reference price waiver. This replaces the previous double volume cap system, which had separate thresholds for individual venues and the entire EU market. By consolidating the thresholds into a single 7% cap, the regulation aims to reduce complexity and ensure a more straightforward approach to monitoring and controlling dark trading activities.
Changes to systematic Internalisers (SI’s) quoting obligations will require technology updates to ensure compliance with new minimum quote size requirements and facilitate better pricing transparency.?Equity SIs must now make public firm quotes based on a minimum size determined by regulatory technical standards (RTS). Non-equity SIs are no longer obligated to publish firm quotes but may do so voluntarily.
Improved Data Quality and Transparency
The regulation requires real-time publication of data to ensure all market participants have timely access to the same information, crucial for making informed trading decisions and maintaining a fair market.
Trading venues and SIs must ensure the accuracy, completeness, and consistency of their data, covering transaction details, order book data, and post-trade information. The introduction of standardized reporting formats is designed to create a more transparent and cohesive market environment.
MiFIR Refit enhances the scope and consistency of transaction reporting by introducing new data fields and aligning reporting standards across EMIR, SFTR, and MiFIR. This standardization facilitates easier comparison and consolidation of data across different platforms.
Technology Impacts
The consolidated tape is a significant component of the MiFIR Refit, aiming to aggregate trade data from multiple sources into a single, unified view for each asset class. This initiative is designed to enhance market transparency, reduce information asymmetry, and improve the quality of market data available to investors.
As of now, the groundwork for the consolidated tape initiative, including the legislative framework and initial criteria for CTP selection are in place.
The consolidated tape system is expected to be fully operational by May 4, 2026. This timeline allows for the necessary steps to be completed, including the selection and approval of CTPs, the setup of data submission frameworks, and the establishment of robust data aggregation and dissemination systems.
Financial institutions will need to update their reporting systems for real time processing and to accommodate new data fields and harmonized reporting standards across EMIR, SFTR, and MiFIR.
The MiFIR Refit and MiFID II updates represent significant steps towards a more transparent, resilient, and competitive financial market environment in the European Union. Financial institutions must adapt to these changes by enhancing their governance frameworks, streamlining reporting workflows, improving data management practices, and updating their technology infrastructure to comply with new regulatory requirements. These efforts are intended to provide a more efficient and investor-friendly market landscape.
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