EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Europaudvalget 2019-20
EUU Alm.del Bilag 653
Offentligt

Public consultation on the review of the MiFID

II/MiFIR regulatory framework

Fields marked with * are mandatory.

Introduction

SECTIONS 1 and 3 of this consultation will soon also be available in all European Union languages.

SECTION 2 will only be available in English.

If you wish to respond in another language than English, please wait until then to provide your replies.

Background of this public consultation

As stated by

President von der Leyen in her political guidelines for the new Commission,

“our

people and our business

can only thrive if the economy works for them”.

To that effect, it is essential to complete the Capital Markets Union

(‘CMU’), to deepen the Economic and Monetary Union (‘EMU’) and to offer an economic environment where small and

medium-sized enterprises (‘SMEs’) can grow.

In the light of the mission letter to Executive Vice President Dombrovskis, the Commission services are speeding up the

work towards a CMU to diversify sources of finance for companies and tackle the barriers to the flow of capital. The

Action Plan on the

Capital Markets Union

as announced in

Commission Work Program for 2020

will aim at better

integrating national capital markets and ensuring equal access to investments and funding opportunities for citizens and

businesses across the EU.

In addition, the new

Digital Finance Strategy

for the EU aims to deepen the Single Market for digital financial services,

promoting a data-driven financial sector in the EU while addressing its risks and ensuring a true level playing field via

enhanced supervisory approaches. And the revamped Sustainable Finance Strategy will aim to redirect private capital

flows to green investments.

Finally, in the context of the

Communication on the

International role of the euro,

the Commission has published a

recommendations on how to increase the role of the euro in the field of energy. Furthermore, the Commission consulted

market participants to understand better what makes the euro attractive in the global arena. Based on those

consultations, the Commission has produced a Staff Working Document that provides an update on initiatives, and raises

considerations for specific sectors such as commodity markets.

The Directive and Regulation on Markets in Financial Instruments (respectively

MiFID II – Directive 2014/65/EU

– and

iFIR – Regulation (EU) No 600/2014)

are cornerstones of the EU regulation of financial markets. They promote

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

financial markets that are fair, transparent, efficient and integrated, including through strong rules on investor protection.

In doing so, MiFID II and MiFIR support the objectives of the CMU, the Digital Finance agenda, and the Sustainable

Finance agenda.

Responding to this consultation and follow up to the consultation

In this context and in line with the

Better Regulation principles,

the Commission has decided to launch an open public

consultation to gather stakeholders’ views.

The Commission’s consultation and separate

ESMA consultations on the functioning of certain aspects of the MiFID II

/MiFIR framework

are complementary and should by no means be considered mutually exclusive. The Commission and

ESMA consult stakeholders with respect to their specific area of competence and responsibility and with the objective to

gather important guidance for any future course of action on respective sides. Both the ESMA reports and this

consultation will inform the review reports for the European Parliament and the Council (see Article 90 of MiFID II and

Article 52 of MiFIR), including legislative proposals where considered necessary.

This consultation document contains three sections.

The first section aims to gather views from all stakeholders (including non-specialists) on the experience of two

years of application of MiFID II/MiFIR.

In particular, it will gather feedback from stakeholders on whether a targeted

review of MiFID II/MiFIR with an ambitious timeline would be appropriate to address the most urgent shortcomings.

The second section will seek views of stakeholders on technical aspects of the current MiFID II/MiFIR regime.

will allow the Commission to assess the impact of possible changes to EU legislation on the basis of proposals already

put forward by stakeholders in the context of previous public consultations and studies (e.g. study on the effects of the

unbundling regime on the availability and quality of research reports on SMEs and study on the digitalisation of the

marketing and distance selling of retail financial service) and in the context of exchanges with experts (e.g. in the

European Securities Committee or in workshops, such as the workshop on the scope and functioning of the consolidated

tape). This second section focuses on a number of well-defined issues.

The third section invites stakeholders to draw the attention of the Commission to any further regulatory aspects

or identified issues

not mentioned in the first and second sections.

This consultation is open until 20 April 2020.

Please note:

In order to ensure a fair and transparent consultation process

only responses received through our

online questionnaire will be taken into account

and included in the report summarising the responses. Should you

have a problem completing this questionnaire or if you require particular assistance, please contact

fisma-mifid-r-

[email protected].

More information:

on this consultation

on the consultation document

on the protection of personal data regime for this consultation

About you

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Language

of my contribution

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am giving my contribution as

Academic/research

institution

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organisation

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organisation (NGO)

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authority

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Other

First

name

Surname

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

(this won't be published)

Scope

International

Local

National

Regional

Organisation

name

255 character(s) maximum

The Danish Financial Supervisory Authority (DFSA)

Organisation

size

Micro (1 to 9 employees)

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Transparency register number

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Check if your organisation is on the

transparency register.

It's a voluntary database for organisations seeking to influence EU decision-

making.

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of origin

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and Miquelon

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Príncipe

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Please add your country of origin, or that of your organisation.

Afghanistan

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EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Anguilla

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and McDonald

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/Burma

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New Caledonia

New Zealand

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Niger

Nigeria

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Niue

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Northern

Mariana Islands

Tokelau

Tonga

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Cambodia

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EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Field

of activity or sector (if applicable):

Operator of a trading venue (regulated market, MTF, OTF)

Systematic internaliser

at least 1 choice(s)

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Data reporting service provider

Data vendor

Operator of market infrastructure other than trading venue (clearing house,

central security depositary, etc)

Investment bank, broker, independent research provider, sell-side firm

Fund manager (e.g. asset manager, hedge funds, private equity funds,

venture capital funds, money market funds, institutional investors), buy-side

entity

Benchmark administrator

Corporate, issuer

Consumer association

Accounting, auditing, credit rating agency

Other

Not applicable

Please

specify your activity field(s) or sector(s):

Financial supervisory authority

Publication

privacy settings

The Commission will publish the responses to this public consultation. You can choose whether you would like your details to be made

public or to remain anonymous.

Anonymous

Only your type of respondent, country of origin and contribution will be

published. All other personal details (name, organisation name and size,

transparency register number) will not be published.

Public

Your personal details (name, organisation name and size, transparency

I agree with the

personal data protection provisions

Choose your questionnaire

Please

indicate whether you wish to respond to the short version

(7 questions) or full version (94 questions) of the questionnaire.

The

short version

only covers the

general aspects of the MiFID II/MiFIR

regime

The

full version

comprises 87 additional questions addressing

technic al

features

The full questionnaire is only available in English.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

I want to respond only to the

short version

of the

questionnaire

I want to respond to the

full version

of the questionnaire

Section 1. General questions on the overall functioning of

the regulatory framework

The EU established a comprehensive set of rules on investment services and activities with the aim of promoting financial

markets that are fair, transparent, efficient and integrated. The first comprehensive set of rules adopted by the EU (MiFID

I - Directive 2004/39/EC.)

helped to increase the competitiveness of financial markets by creating a single market for

investment services and activities. In the wake of the financial crisis, shortcomings were exposed. MiFID II and MiFIR,

in application since 3 January 2018, reinforce the rules applicable to securities markets to increase transparency and

foster competition. They also strengthen the protection of investors by introducing requirements on the organisation and

conduct of actors in these markets.

After two years, the main goal of a MiFID II/MiFIR targeted review is to increase the transparency of European public

markets and, linked thereto, their attractiveness for investors. The Commission aims to ensure that European Union’s

share and bond markets work for the people and businesses alike. All companies, both small and large, need access to

the capital markets. The regulatory regime for financial markets and financial services needs to be fit for the new digital

era and financial markets need to work to the benefit of everyone, especially retail clients.

Question 1. To what extent are you satisfied with your overall experience with

the implementation of the MiFID II/MiFIR framework?

1 - Very unsatisfied

2 - Unsatisfied

3 - Neutral

4 - Satisfied

5 - Very satisfied

Don’t know / no opinion / not relevant

Question 1.1 Please explain your answer to question 1 and specify in which

areas would you consider the opportunity (or need) for improvements:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

MiFID II/MiFIR consists of many important measures to increase confidence in financial markets,

including to improve investor protection, and to foster competition among market players to the

benefit of investors and firms that need access to capital.

MIFID II/MiFIR introduced a large and complex set of rules. Hence, it is natural that the

implementation of the rules has taken some time, both for authorities and market players. In light

of this, the DFSA is overall satisfied with the implementation. From an investor protection

perspective, in general, the intention of the MiFID-II investor protection regulation has been

achieved in a partly satisfactory manner.

However, the experience with the implementation has also revealed that some parts of MiFID

II/MiFIR remain unclear or there is some unintended interaction with other rules. Furthermore,

the rules in MiFID II/MiFIR have also led to some unanticipated reactions from market players,

which now have to be evaluated.

An example of an area where more has to be undertaken, as the objective in MIFD II/MiFIR is

not fulfilled is trade transparency, cf. our answers below. A higher degree of transparency could

improve price formation and ensure that e.g. retail investors have the right information improving

their willingness to invest and thereby providing liquidity to the market and capital to firms. Trade

transparency has also been hampered by data quality issues implying that e.g. the LIS-, SMS-

and SSTI-thresholds are incorrectly set and instruments are classified with the wrong liquidity

status. Furthermore, the low data quality, in particular for OTC-trades, also implies that

confidence in the published transparency data is too low. Hence, it is not used as intended

implying less pre- and post-trade transparency in the market.

Another example is the need for better horizontal alignment between different EU legislative acts

in order to ensure similar definitions, adequate transparency and comparability between

investment products and services. Today different products and types of financial firms are

subject to different EU legislative acts combined with regulatory frameworks being increasingly

complex. Therefore, attention should be on ensuring a better horizontal alignment between

legislation regulating investment products (e.g. UCITS and AIFM and PRIIP) and the rules

regulating the services (e.g. MiFID II).

As of 1 January 2022 the PRIIPs regulation will also apply for UCITS funds. This in particular

calls for an up-coming alignment between MiFID II regulation on information on cost & charges

and the cost and performance information requirements under the PRIIPs regulation.

Consistency between cost measures in general is important since discrepancies can result in

reduced transparency.

The definitions and rules in MiFID II/MiFIR interact with much other regulation where

misalignment between them creates unintended consequences. An example of this is that an

alternative investment fund manager (AIFM) is allowed to seek authorisation under AIFMD to

perform services similar to that of an investment firm under MiFID II, without being subject to the

requirement of transaction reporting. This in effect means that the RCAs will no longer receive

the transaction reports on these activities that they have been receiving so far. Instead

transactionreports will be filed by the counterparties or the trading venue with a reduced level of

detail. This undermines the purpose of the MiFIR reporting requirements, which may have a

negative impact on the confidence to capital markets across Europe. A possible solution would

be to align AIFMD with MiFIR in order to ensure that the permission to an AIFM to perform the

activities similar to those of an investment firm would lead to obligations to report according to

the MiFIR regime.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 2. Please specify to what extent you agree with the statements

below regarding the overall experience with the implementation of the MiFID II

/MiFIR framework?

(disagree)

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

The EU intervention has been

successful in achieving or

progressing towards its MiFID II

/MiFIR objectives (fair, transparent,

efficient and integrated markets).

The MiFID II/MiFIR costs and

benefits are balanced (in particular

regarding the regulatory burden).

The different components of the

framework operate well together to

achieve the MiFID II/MiFIR objectives.

The MiFID II/MiFIR objectives

correspond with the needs and

problems in EU financial markets.

The MiFID II/MiFIR has provided EU

added value.

Question 2.1 Please provide qualitative elements to explain your answers to

question 2:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Overall, MIFID II/MiFIR has added value to the EU. The objectives of increased investor

protection, higher transparency and improvement of governance framework have contributed to

more orderly functioning capital markets and financial stability. MIFID II/MiFIR implied significant

changes to the financial markets and the objectives are not yet fully fulfilled, but the direction

stated with MIFID II/MiFIR is good.

MIFID II/MiFIR introduced a large and complex set of rules, and parts of the regulation have to

some degree been unclear and/or insufficient to handle specific detailed or technical aspects.

However, this has partly been alleviated by ESMA’s publication of Q&A’s, guidelines, opinions

etc. that have been successful in achieving or progressing towards the objectives of MiFID

II/MiFIR.

The firms’ costs to implement and be compliant with MiFID II/MiFIR have been very high. It

includes e.g. changes and adjustments in the way firms operate as well as changes to the

governance and compliance set-up. Furthermore, the heavy requirements for data reporting,

including reports to regulators, have implied significant costs to build up systems to manage this.

It should be noted that the lion’s share of these costs is up-front, i.e. before MiFID II/MiFIR

entered into force or shortly thereafter. However, the benefits are still to come during the next

several years, which should be recalled when evaluating costs compared to benefits. Moreover,

it also underlines the importance of being cautious if considering changes in the current set-up.

Considering liquidity and capital are trans-boundary by nature and the distinct advantages of

having large liquidity and capital pools as well as good cooperation across markets and

jurisdictions, we believe there would be merit in revisiting processes in relation to third country

regimes and equivalence assessment for a higher degree of effectiveness.

The orderly functioning of financial markets requires a high level of investor protection and

transparency, as these are core elements in ensuring confidence among market players. We find

the MIFID II/MIFIR handles this in a satisfactory way. Today MiFID II/MiFIR includes measures to

facilitate a firm’s ability to raise capital through the capital markets. While this is expedient, it is

likely that more can be done. Hence, it would be beneficial if the MIFID II/MiFIR-review could

back up some of the initiatives in the CMU, without harming investor protection.

Furthermore, it would be beneficial if - as a part of the a review of the regulation – priorty was

given to ensuring further horizontal alignment between a) legislation regulating investment

products (e.g. UCITS and AIFM and PRIIP) and b) the rules regulating the services (e.g. MiFID

II).

Question 3. Do you see impediments to the effective implementation of MiFID

II/MiFIR arising from national legislation or existing market practices?

1 - Not at all

2 - Not really

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

3 - Neutral

4 - Partially

5 - Totally

Don’t know / no opinion / not relevant

Question 3.1 Please explain your answer to question 3:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Regarding pre- and post-transparency for non-equity financial instruments, most NCA’s have

extensively used the national discretions to give the market players all the possible waivers and

deferrals. Hence, the intended improvement in transparency for non-equity instruments has not

materialised.

Furthermore, it could be seen as an impediment to the effective implementation of an adequate

MiFID II cost & charges methodology that there are currently different market practices with

regards to calculation methods/estimations used when investment firms ex ante must provide

clients with an illustration of the impact of costs on return. In particular, it seems to be important

to further harmonize how expected returns are estimated in ex ante situations.

Question 4. Do you believe that MiFID II/MiFIR has increased pre- and post-

trade transparency for financial instruments in the EU?

1 - Not at all

2 - Not really

3 - Neutral

4 - Partially

5 - Totally

Don’t know / no opinion / not relevant

Question 4.1 Please explain your answer to question 4:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Regarding equity instruments, the level of transparency appears slightly improved given that the scope of

instruments has widened since MIFID I. For shares, however, the level of transparency seems unchanged.

NCA’s have extensively used the possibility of national discretion to give market players all possible waivers and

deferrals. Apart from minor adjustments, the waivers are almost identical to the ones used under MIFID I.

Coupled with the evolution of periodic auctions on trading venues and the increase of off-exchange trades (SI

and OTC) this has more or less resulted in the same outcome as under MIFID I.

The DFSA notes that there may be good reasons for certain waivers and deferrals for equity instruments, e.g. to

ensure that also large transactions can take place. A large portion of dark trading is however, carried out in

systems benefitting from the reference price waiver (RPW). RPW systems have no limitations on order size, and

evidence indicates that the average order size is decreasing and hitting levels close to that of the lit market, cf.

ESMA’s MiFID II/ MiFIR review report on the transparency regime for equity and equity-like instruments, the

double volume cap mechanism and the trading obligations for shares.

It would be beneficial with an analysis of the use of the RPW in order to ascertain whether adjustment to or

deletion of the reference price waiver is beneficial in order to achieve more transparent European stock markets.

In addition, there is merit in considering whether the threshold values for standard market size are calibrated

appropriately. Most of the trading executed on SI’s is not subject to pre-trade transparency because of the low

threshold values for standard market size.

Finally, it is noted that the double volume cap mechanism does not seem to have reduced dark trading as it was

otherwise the intention, see also our answer to question 82. Hence, changes in pre-trade waivers should be

seen together with possible adjustments or deletion of DVC. E.g., it should be considered whether the LIS-

waiver should continue to exist as the only pre-trade waiver making the DVC unnecessary or alternatively delete

DVC and the reference price waiver, but keep the negotiated trade waiver and LIS. The LIS-waiver should

however, encompass both negotiated trades and reference price trades above the LIS threshold, i.e. no

restriction on the type of trading system for orders executed above the LIS threshold.

Regarding non-equity financial instruments, most NCA’s have extensively used the national discretion to give

the market players all the possible waivers and deferrals. Combined with the fact that the thresholds for illiquidity

are set in a way that includes most non-equity financial instruments, it implies that waivers and deferrals are

applicable to the absolute majority of financial instruments traded in the European markets. In addition, most

NCA’s have chosen to allow for 4 weeks of deferral of the traded volumes, i.e. publication is so late that is has

no or almost no consequence for transparency.

As a consequence of the different national rules for post-trade transparency, trades executed at the same time

can be published at different points in time over a longer period depending on the jurisdiction in which the

transaction was executed and by whom.

The DFSA notes that there may be good reasons for deferrals for non-equity instruments, e.g. to ensure that

also large transactions can take place. However, it is important that the deferral period is not too long and that

only the right instruments can get a deferral as postponement of trade information generally harms transparency

in the market.

Denmark has good experience with no deferrals for post-trade data for covered and corporate bonds, although

end of day publication is possible if the trade is above 13.4 million EUR for covered bonds and 2.7 million EUR

for corporate bonds. This is the case regardless of whether the bonds are defined as illiquid or liquid according

MiFIR. The transparency regime is industry-driven, and the industry sees the advantages of high transparency

as it is increasing liquidity.

With respect to derivatives, liquidity and trade sizes often differ significantly from bonds. Thus, there can be

good reasons for relatively long deferral periods, but, still, publication of volume after 4 weeks is more or less

useless from the point of view of transparency. It would be beneficial with more harmonisation of national

deferral regimes. In addition, the different national rules give the investors an opportunity of moving trades

towards the jurisdictions with the longest deferrals, and thus harming the overall transparency in the European

markets and giving rise to regulatory arbitrage.

Regarding publication of transparency data (both pre- and post-trade) for equity and non-equity instruments

there is a fragmentation of information as publication takes place several in places and a consolidated tape has

not emerged. Furthermore, use of different formats across trading venues and APA’s can make it very difficult to

find or access the relevant data, in particular at the APA’s. Private data vendors are consolidating the data but

they do not offer the full overview of the pre- and post-trade data. Furthermore, they are expensive to access

and are not relevant for the smaller investors.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 5. Do you believe that MiFID II/MiFIR has levelled the playing field

between different categories of execution venues such as, in particular,

trading venues and investment firms operating as systematic internalisers?

1 - Not at all

2 - Not really

3 - Neutral

4 - Partially

5 - Totally

Don’t know / no opinion / not relevant

Question 5.1 Please explain your answer to question 5:

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA believes that the current regulation has contributed to levelling the playing field

between Systemic Internalisers and trading venues (also taking into consideration the recent

changes of the tick-size regime for SI’s).

However, it is important to bear in mind that TV’s and SI’s are different types of execution

venues. Hence, a full level playing field is hardly possible and is not necessarily a goal as TV’s

and SI’s to some extent contribute to cover different needs in the market.

Question 6. Have you identified barriers that would prevent investors from

accessing the widest possible range of financial instruments meeting their

investment needs?

1 - Not at all

2 - Not really

3 - Neutral

4 - Partially

5 - Totally

Don’t know / no opinion / not relevant

Question 6.1 If you have identified such barriers, please explain what they

would be:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 6.1 Please explain your answer to question 6:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A market structure characterized by an open-architecture model, as is the case in Denmark,

given a high level of competition and absence of conflict of interest, should provide investors with

access to a wide range of financial instruments.

However, in practice conflicts of interests could, if not properly mitigated, cause difficulties with

regard to ensuring an adequate access to competitive financial instruments from third party

product providers having no close links with distributors. It is therefore very important to ensure

that conflict of interests are mitigated e.g. by enhancing transparency of costs and regulating

third party payments (inducements). There is still room for further improvements of the investor

protection regulation by e.g. strengthening disclosure requirements as well as the requirements

for inducements such as the quality enhancement regulation and the proportionality criteria.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Section 2. Specific questions on the existing regulatory

framework

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

PART ONE: PRIORITY AREAS FOR REVIEW

The issues in PART ONE are identified by the Commission services as priority areas for the review based on the

experience gathered in the two years of implementation of MiFID II/MiFIR. Many of them are listed in the review clauses

of MiFID II and MiFIR which means that the Commission needs input to assess the merit of amending the provisions to

make them more effective and operational. When applicable, references are made to the applicable review clause.

Other topics not listed in the review clauses stem from the many contributions received from stakeholders, including

public authorities, on possible shortcomings of the existing framework. A number of questions in subsection II on investor

protection in particular fall in the latter category

I. The establishment of an EU consolidated tape

The EU has a competitive trading environment but investors and their intermediaries often lack a consolidated view of

where financial instruments are traded, how much is traded and at what price. Except for the largest or most sophisticated

market players (who can purchase consolidated data pertaining to the different execution venues from data vendors or

build their own aggregated view of the market), investors have no overall picture of a fragmented trading landscape:

while the trading often used to be concentrated on one national exchange, notably in equities, investors can now choose

between multiple competing trading venues, which results in a more fragmented and hence more complex trading

landscape. At the same time, fragmentation per se should not be discarded as it is inherent to the introduction of

alternative trading systems (MTFs, OTFs) which has led to a significant increase in competition between trading venues

with positive effects on trading costs and increased execution quality. This section seeks stakeholders’ feedback on how

to improve investors’ visibility in the current trading environment via the establishment of a consolidated tape.

In order to optimise the trading experience, a single price comparison tool consolidating trading data across the EU -

referred to as the consolidated tape (‘CT’) - would help brokers to locate liquidity at the best price available in the

European markets, and increase investors’ capacity to evaluate the quality of their broker’s performance in executing an

order. A European CT could also be one major step towards “democratising” access to “market data” so that all investors

can see what the best price is to buy or sell a particular share. A CT may not only prove useful for equities but also for

exchange-traded funds (ETFs), bond or other non-equity instruments. Practical experience with a consolidated tape is

already available in the United States, where a consolidated tape has been mandated for shares (consolidating pre- and

post-trade data) and bonds (post-trade data).

A European CT could, for a reasonable fee, provide a real-time feed of information, not only for transactions that have

taken place (post-trade information), but also for orders resting in the public markets (pre-trade information). MiFID II

/MiFIR already provides for a consolidated tape framework for equity and non-equity instruments but no consolidated

tape has yet emerged, for various reasons that are explored in this consultation. On 5 December 2019

ESMA submitted

to the Commission a report on the development in prices for pre- and post-trade data and on the consolidated tape for

equity instruments.

This report included recommendations relating to the provision of market data and the establishment

of a post-trade consolidated tape for equities. In the following sections the Commission, taking into account the

conclusions from ESMA, welcomes views on how a European CT should be designed: what information it should

consolidate (e.g. pre- and/or post-trade transparency), what financial instruments should be included (e.g. shares, bonds,

derivatives), what characteristics should be retained for its optimal functioning (e.g. funding, governance, technical

specifications). Finally, the last subsection analyses possible amendments to certain MiFID II/MiFIR provisions (share

trading obligation and transparency requirements) with a possible link to the CT.

The review clauses in Article 90 paragraphs (1)(g) and (2) of MiFID II and Article 52 paragraphs (1), (2), (3), (5) and (7) of MiFIR

are covered by this section.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

1. Current state of play

This section discusses the absence of a CT under the current MiFID II/MiFIR framework, the issues of availability of

market data for market participants and the use cases for setting up a CT.

1.1. Reasons why a consolidated tape has not emerged

Article 65 of MIFID II provides for a framework for a post-trade CT in equity and non-equity instruments further detailed

in regulatory technical standards. The framework specifies key functioning features that a potential CT should adhere

to, such as the content of the information that a CT should consolidate as well as its organisational and governance

arrangements.

Since no CT provider has emerged so far, there is a lack of practical experience with the CT framework under MiFID II

/MiFIR. Several reasons have been put forward to explain the absence of a CT.

Question 7. What are in your view the reasons why an EU consolidated tape

has not yet emerged?

(disagree)

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

Lack of financial incentives for the

running a CT

Overly strict regulatory requirements

for providing a CT

Competition by non-regulated entities

such as data vendors

Lack of sufficient data quality, in

particular for OTC transactions and

transactions on systematic

internalisers

Other

Please specify what are the other reasons why an EU consolidated tape has

not yet emerged?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

N/A

Question 7.1 Please explain your answers to question 7:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The buy side will benefit from a CT that provides post-trade transparency from all the TV’s and

APA’s (SI and OTC trades) in the European market. Furthermore, a CT will be a regulatory

reporting hub that has the responsibility to translate all the TV and APA post-trade data into a

normalised format and also ensure that it provides high quality OTC data.

Despite the benefits for the buy side, a European CT has not emerged. This is to be seen

together with the fact that there are well-established data vendors providing a very large share of

the relevant post-trade information. They provide information based on the data that is easiest

accessible and with high data quality (i.e. the remaining part is mainly OTC trades), which also is

the data that is cheapest to provide. On the contrary, a CT is to provide an almost full coverage

of the European post-trade data with high quality (due to regulatory requirements). This is costly

and apparently is not in demand by the buy side to an extent where they are willing to cover

these costs. Hence, there is no commercial basis for running a CT.

Question 8. Should an EU consolidated tape be mandated under a new

dedicated legal framework, what parts of the current consolidated tape

framework (Article 65 of MiFID II and the relevant technical standards (Regulat

ion (EU) 2017/571))

would you consider appropriate to incorporate in the

future consolidated tape framework ?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA has not analysed whether some of the current requirements can be relaxed or even

deleted without harming the quality of the CT data provided or the confidence in the CTP.

The overall view of the DFSA is that the current MiFID II regulatory requirements for providing a

CT are high, but in general reasonable as they are to be seen together with the importance to

deliver the correct information to the market. If the market does not have confidence in the

information provided by the CT, it will have almost no value added compared to unregulated data

vendors. On the other hand, there should not be overly strict requirements as this can be costly

and therefore can imply that no CT is to be established. How to balance these considerations will

require a more thorough study.

1.2. Availability and price of market data

In its report submitted on 5 December 2019 to the Commission, ESMA considers that so far MiFID II/MiFIR has not

delivered on its objective to reduce the price of market data and the Reasonable Commercial Basis (‘RCB’) provisions

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

have not delivered on their objectives to enable users to understand market data policies and how the price for market

data is set.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

ESMA recommends, in addition to working on supervisory guidance on how the RCB requirements should be complied

with, a number of targeted changes to either the Level 1 or Level 2 texts to strengthen the overall concept that market

data should be charged based on the costs of producing and disseminating the information:

add a mandate to the Level 1 text empowering ESMA to develop Level 2 measures specifying the content, format

and terminology of the RCB information; and

move the provision to provide market data on the basis of costs (Article 85 of CDR 2017/565 and Article 7 of CDR

2017/567) to the Level 1 text;

add a requirement in the Level 1 text for trading venues, APAs, SIs and CTPs to share information on the actual

costs of producing and disseminating market data as well as on the margins with CAs and ESMA together with

an empowerment to develop Level 2 measures specifying the frequency, content and format of such information;

delete Article 86(2) of CDR 2017/565 and Article 8(2) of CDR 2017/567 allowing trading venues, APAs, CTPs

and SIs to charge for market data proportionate to the value the data represents to users.

Question 9. Do you agree with the above targeted amendments

recommended by ESMA to address market data concerns?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The rules on the price of market data, especially the term ‘reasonable commercial basis’, are

unclear and may involve very different interpretations. This results in undesirable discussions

among data providers, data buyers and NCA’s. Furthermore, potential different interpretations

imply a risk of unlevel playing field among data providers and Member States.

Against this background, the DFSA supports the ESMA proposals above. We believe they would

be an efficient, targeted way to reduce legal uncertainty. We also believe rules on the price of

market data should be located in level 1 as it is a political matter with considerable implications

for the distribution of earnings among market actors (especially market operators and investment

firms) and hence may influence the functioning of the market and the market landscape.

ESMA proposes to delete the articles allowing trading venues, APAs, CTPs and SIs to charge for

market data proportionate to the value which the data represents to users. It should be noted

that it might imply that retail investors would no longer be able to acquire real time market data at

a very low cost (e.g. 1€/month from a TV), thus impacting the information level among retail

investors and ultimately work against democratising the capital markets.

1.3. Use cases for a consolidated tape

Question 10. What do you consider to be the use cases for an EU

consolidated tape?

(disagree)

(rather

not agree)

(neutral)

(rather

agree)

(fully

agree)

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Transaction cost analysis (TCA)

Ensuring best execution

Documenting best execution

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Better control of order & execution

management

Regulatory reporting requirements

Market surveillance

Liquidity risk management

Making market data accessible at

a reasonable cost

Identify available liquidity

Portfolio valuation

Other

Please specify what are the other use cases for an EU consolidated tape that

you identified?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 10.1 Please explain your answers to question 10 and also indicate

to what extent the use cases would benefit from a CT:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The rankings above are based on a European CT with post-trade data. If the CT provides

consolidated, high quality post-trade information in the same format on all (or almost all) traded

financial instruments in the European markets, it seems to be an efficient way to access the

information for several purposes, including best execution, post-trade controls, evaluations and

reportings, research on e.g. liquidity, valuation etc.

Regarding the CT to be a use case for making market data accessible at a reasonable cost, it

should be noted that the current rules state that data is free after 15 minutes. Hence, if the CT

should make market data accessible at a reasonable cost, the market data should be available a

very short time after the transaction. This would set higher requirements to the CT.

2. General features of the consolidated tape

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

This section discusses the general features of a future European CT. The specific scope of the CT in terms of financial

instruments (shares, bonds, derivatives) and type of transparency (pre- and/or post-trade) are addressed in the following

section.

During the EC workshop, the ESMA consultation, conferences and stakeholder meetings, it became clear that a majority

of market participants believe that EU financial markets would benefit from the establishment of a CT. ESMA made the

following recommendations

which appear very important for the success of an EU consolidated tape:

ensuring a

high level of data quality

(supervisory guidance complemented with amendments of the Level 1

and 2 texts);

mandatory contributions:

trading venues and APAs should provide trading data to the CT free of charge;

CT to

share revenues with contributing entities

(on the basis of an allocation key that rewards price forming

trades);

contribution of users to funding of the CT, e.g. via

mandatory consumption

of the CT by users to ensure user

contributions to the funding of the CT

full coverage:

The CT should consolidate 100% of the transactions across all asset classes (with possible

targeted exceptions);

operation of the CT on an exclusive basis:

ESMA recommends that a CT is appointed for a period of 5-7

years after a competitive appointment process;

strong governance framework

to ensure the neutrality of the CT provider, a high level of transparency and

accountability and include provisions ensuring the continuity of service.

The EC workshop, conferences and stakeholder meetings revealed that opinions remained divergent on a variety of

issues, notably:

Whether pre-trade data should be included in CT:

the argument has been made that the US model for a

consolidated quotation tape comprises pre-trade quotes because of the

order protection rule

contained in

Regulation National Market System (NMS). The order protection rule eliminated the possibility of orders being

executed at a suboptimal price compared to orders advertised on exchanges and it established the National

Best Bid and Offer (NBBO) requirement that mandates brokers to route orders to venues that offer the best

displayed price. Although some stakeholders strongly support a quotation tape, others have expressed

reservations, either because there is no order protection rule in the European Union or because they do not

support the establishment of such a rule in the EU which could be encouraged by the establishment of a pre-

trade tape. Stakeholders also argue that a quotation tape will be very expensive and that latency issues in

collecting, consolidating and disseminating transaction data from multiple venues will always lead to a co-

existence of the CT and proprietary exchange data feeds.

What should be the latency of the tape:

Many stakeholders argue that the tape should be “real-time”, implying

minimum standards on latency such as a dissemination speed of between 200 and 250 milliseconds (“fast as the

eye can see”). Other stakeholders support an end of day tape.

How to fund the tape and redistribute its revenues:

stakeholders have mixed views on the optimal funding

model. They also caution against some aspects of the US model, where the practice of redistribution of CT

revenues has, in their view, provided market participants with an incentive to provide quotes to certain venues

that rebate more tape revenue, without necessarily contributing to better execution quality.

ESMA recommendations are limited to an equity post-trade CT (as foreseen in their legal mandate). The current section however

is not limited to pre-trade transparency and equity instruments and stakeholders should express their view on the appropriate

scope of transparency (pre- and/or post-trade) and financial instruments covered.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 11. Which of the following features, as described above, do you

consider important for the creation of an EU consolidated tape?

(disagree)

High level of data quality

Mandatory contributions

Mandatory consumption

Full coverage

Very high coverage (not lower

than 90% of the market)

Real-time (minimum standards on

latency)

The existence of an order

protection rule

Single provider per asset class

Strong governance framework

Other

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

Please specify what other feature(s) you consider important for the creation

of an EU consolidated tape?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 11.1 Please explain your answers to question 11 and provide if

possible detailed suggestions on how the above success factors should be

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

implemented (e.g. how data quality should be improved; what should be the

optimal latency and coverage; what should the governance framework

include; the optimal number of providers):

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A CT should provide value added compared to the existing data vendors. Hence, there must be

a very high level of data quality and full coverage (making it necessary with mandatory

contribution), but with the possibility of targeted exemptions if the costs are too high for providing

this information compared with the benefits. In addition, to ensure confidence in the CTP it is

important with a strong governance framework.

Currently, there are no CTPs indicating that the market is not attractive. Hence, it seems

inexpedient if there is more than a single CTP per asset class as the CTPs should then share the

market and revenue. This is especially important for market data as this is information demanded

only once.

The DFSA assesses that the use cases for a CT are for post-trade data. The assessment

reflects that even though the CT might only use 200 milliseconds to receive market data from the

different TV’s and APA’s, consolidate the data and publish it, there will be HFT firms that are

faster as they are co-located at the TV’s. Hence, for many financial instruments, in particular

shares, the ‘real time’ data from the CT is too old and the buyers would have to buy the data

directly from the TV’s. Thus, the CT does not seem to be able to play a useful role regarding pre-

trade data. Following this, it is also noted that if there is to be mandatory CT data consumption,

some buyers would have to pay twice for the data increasing their market data costs. In addition,

it is likely to be more costly if the data is to be published ‘real time’ compared to e.g. end of day,

and there would not be time to validate data and correct potential misreporting reducing the

quality of data.

Question 12. If you support mandatory consumption of the tape, how would

you recommend to structure such mandatory consumption?

Please explain your answer and provide if possible detailed suggestions on

which users should be mandated to consume the tape and how this should be

organised:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 13. In your view, what link should there be between the CT and best e

x e c u t io n

o b l i g a t i o n s?

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Please explain your answer and provide if possible detailed suggestions (e.g.

simplifying the best execution reporting through the use of an EBBO

reference price benchmark):

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 14. Do you agree with the following features in relation to the

provision, governance and funding of the consolidated tape?

(disagree)

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

The CT should be funded on the

basis of user fees

Fees should be differentiated

according to type of use

Revenue should be redistributed

among contributing venues

In redistributing revenue, price-

forming trades should be

compensated at a higher rate than

other trades

The position of CTP should be put up

for tender every 5-7 years

Other

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Please specify what other important feature(s) for the funding and

governance of the CT you did identify?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 14.1 Please explain your answers to question 14 and provide if

possible detailed suggestions on how the above features should be

implemented (e.g. according to which methodology the CT revenues shouldbe

redistributed; how price forming trades should be rewarded, alternative funding

models):

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It is important to have a comprehensive analysis of the costs of building and running a CT before

the CT project is started. This will form the basis of a good estimate of the prices, which the

users must pay. The users should then evaluate whether they would buy the CT data at this

price (potentially in a binding agreement) or not, thereby ex ante showing whether the costs of

the CT outweigh the benefits.

As the users of the CT data benefit from the CT, they should also be the ones to pay.

Furthermore, it seems efficient that fees reflect the use of the CT data

Whether the position of a CTP should be put up for tender every 5-7 years depends on the costs

of building a CT. If it is time-consuming and costly, then 5-7 years might be a too short a period

with revenue to cover these costs.

3. The scope of the consolidated tape

3.1. Pre- and post-trade transparency and asset class coverage

This section discusses the scope of the CT: what asset classes should be covered and what trade transparency data it

should include. This section also discusses how to delineate, within an asset class, the exact scope of financial

instruments that should be included in the CT.

Question 15. For which asset classes do you consider that an EU

consolidated tape should be created?

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

(disagree)

Shares pre-trade

Shares post-trade

ETFs pre-trade

ETFs post-trade

Corporate bonds pre-

trade

Corporate bonds post-

trade

Government bonds pre-

trade

Government bonds post-

trade

Interest rate swaps pre-

trade

Interest rate swaps post-

trade

Credit default swaps pre-

trade

Credit default swaps post-

trade

Other

(rather not

agree)

(neutral)

(rather

agree)

(fully

agree)

Pre-trade would not be executable but delivered at the same latency as the post-trade data. Pre-trade market data is understood

to be order book quote data for at least the five best bid and offer price levels. Post-trade market data is understood to be

transaction data.

Please specify for which other asset classes you consider that an EU

consolidated tape should be created?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

N/A

Question 15.1 Please explain your answers to question 15:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA sees the potential of extensive use of CT post trade data, e.g. evaluation of

transaction costs, best execution, portfolio valuation and liquidity analyses. This is the case for

several asset classes. Setting up a CT is likely to be a very big task. Hence, it is worth

considering starting with a smaller CT with only shares to ensure that it is running. Later on (e.g

at next submission of tender) the CT can be extended to include other asset classes.

Another important element in the design of the CT will be to determine the exact content of the information that a pre-

and/or post-trade CT should consolidate in relation to the information already disseminated under the MiFIR pre- and

post-trade transparency requirements. While Article 65 of MIFID II and the relevant regulatory technical standards specify

the exact content of the post-trade information a CT should consolidate under the current framework, there is no such

specification for pre-trade information.

Question 16. In your view, what information published under the MiFID II

/MiFIR pre- and post-trade transparency should be consolidated in the tape (all

information

or a

subset,

any

additional information)?

Please explain your answer, distinguishing if necessary by asset class and

pre- and post-trade. Please also explain, if relevant, how you would identify the

relevant types of transactions or trading interests to be consolidated by a CT:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The current requirements for information all seem relevant.

3.2. The Official List of financial instruments in scope of the CT

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

To provide market participants with legal clarity, a CT would benefit from a list setting out, within a given asset class, the

exact scope of financial instruments that need to be reported to the CT. This section discusses, for each asset class,

how to best create an “Official

List”

of financial instruments that would feature in the CT, having regard to the feasibility

of producing such a list.

There are different categories of shares traded on EU trading venues, including: (i) shares admitted to trading on a

Regulated Market (RM) - for which a prospectus is mandatory; (ii) shares admitted to trading on an Multilateral Trading

Facility (MTF) (e.g. small cap company listed on the small cap MTF) with a prospectus approved in an EU Member State;

(iii) shares traded on an EU MTF without a prospectus approved in a EU Member State (e.g. US blue chip company

listed on a US exchange but also traded on a EU MTF). While the first two categories have a clear EU footprint and

should be considered for inclusion in the CT, the inclusion of the latter category is more questionable because it consists

of thousands of international shares for which the admission's venue or the main centre of liquidity is not in the EU.

Question 17. What shares should in your view be included in the Official List

of shares defining the scope of the EU consolidated tape?

(disagree)

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

N.A.

Shares admitted to trading on a RM

Shares admitted to trading on an

MTF with a prospectus approved in

an EU Member State

Other

Please specify what other shares should in your view be included in the

Official List of shares defining the scope of the EU consolidated tape?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 17.1 Please explain your answers to question 17:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

The users’ benefit of a CT depends on the CT having an (almost) full market data coverage of

the trades of the financial instruments for which it publishes market data. Hence, if the majority of

liquidity is in European markets, the CT would provide a high coverage of these instruments.

On the other side, the CT will only be able to provide a smaller part of the full market data picture

for financial instruments with the main liquidity outside European markets, implying that it will be

of less benefit for users.

Question 18. In your view, should the Official List take into account any additional

criteria (e.g. liquidity filter to capture only sufficiently liquid shares) to capture

the relevant subset of shares traded in the EU for i n c l u s i on in the

consolidated tape?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

No, any CT should include (almost) all EU-listed instruments, independent of their liquidity. This

ensures that data users only need to access the data from the CT and not from other data

providers. The DFSA notes that if the CT excludes less liquid shares, it reduces the transparency

for these shares, which is deemed inappropriate.

Question 19. What flexibility should be provided to permit the inclusion in the EU

consolidated tape of shares not (or not only) admitted to an EU regulated market

or EU MTF?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

No flexibility seems appropriate. However, whether specific shares should be included in the CT

should depend on a cost benefit analysis.

ETFs, Bonds, Derivatives and other financial instruments

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 20. What do you consider to be the most appropriate way of

determining the Official List of ETFs, bonds and derivatives defining the

scope of the EU consolidated tape?

Please explain your answer and provide details by asset class:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

If possible, it seems beneficial to apply the same approach as for shares. However, derivatives

might be too complicated to include at this stage and it might be appropriate to let the CT focus

on the other instruments. However, any legislation should be prepared to include derivatives in

the future.

4. Other MiFID II/MiFIR provisions with a link to the consolidated tape

4.1. Equity trading and price formation

The share trading obligation (‘STO’) requires that EU investment firms only trade shares on eligible execution venues,

unless the trades are non-systematic, ad-hoc, irregular and infrequent (“de

minimis”

exception) or do not contribute to

the price discovery process. The STO can pose an issue when EU investment firms wish to trade international shares

admitted to a stock exchange outside the EU as not all stock exchanges outside the EU are recognised as equivalent.

The European Commission recognised as equivalent certain stock exchanges located in the United States, Hong Kong

and Australia, with the consequence that those stock exchanges are eligible execution venues for fulfilling the STO. In

addition, ESMA provided, in coordination with the Commission, further guidance on the scope of the STO.

Question 21. What is your appraisal of the impact of the share trading

obligation on the transparency of share trading and the competitiveness of EU

exchanges and market partic ip ants?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

In general, the STO splits the liquidity pool which would otherwise be global. This leads to

inefficient markets in terms of execution of client orders. There is also a risk that it makes the EU

less attractive for new listings. This should be thoroughly analysed.

Especially, the scope of the STO should be narrowed and only apply to instruments listed in the

EU. I.e. the STO has the worst implications for shares which have the main pool of liquidity

outside the EU. Here EU brokers cannot obtain a good price for their clients.

The rules concerning the extraterritorial application of the STO should be rethought. Elements for

consideration being inter alia: not cutting market participants off from the liquidity they need, they

can actually comply with the rules (considering third countries might have an equivalent version

of the STO and transactions can consist of a chain of transactions via branches operating in

multiple jurisdictions) and making the setup simpler and more readily enforceable.

On the point of third countries, the process of equivalence is too long considering the large

number of third countries. This process should also not, to the extent possible, favour particular

countries.

We would propose to improve definitions of what qualifies as OTC as it is difficult to assess what

constitutes non-systematic, ad hoc, irregular and infrequent. Particularly as figures indicate OTC

trading having a high volume.

Question 22. Do you believe there is sufficient clarity on the scope of the

trades included or exempted from the STO, in particular having regards to

shares not (or not only) admitted to an EU regulated market or EU MTF?

1 - Not at all

2 - Not really

3 - Neutral

4 - Partially

5 - Totally

Don’t know / no opinion / not relevant

Question 22.1 Please explain your answer to question 22:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Definitions of the exceptions non-systematic, ad hoc, irregular and infrequent are not clear and

they are interpreted differently across jurisdictions.

The magnitude of OTC trading is overwhelming, and it should be investigated how the

application of the above-mentioned exceptions is actually used in practice.

Question 23. What is your evaluation of the general policy options listed below

as regards the future of the STO?

(disagree)

(rather

not agree)

(neutral)

(rather

agree)

(fully

agree)

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Maintain the STO (status quo)

Maintain the STO with

adjustments (please specify)

Repeal the STO altogether

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 23.1 Please explain your answers to question 23:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The scope of the STO should be reconsidered to ensure a more balanced approach. Clearly

transparency is desired, but this should be balanced against competitive pricing, simplicity and

how trading occurs in practice.

Price formation is an important aspect of equity trading which is recognised with the requirement under the STO to

execute price-forming trades on eligible venues. At the same time, there is a debate about the status of systematic

internalisers (‘SIs’) as eligible venues under the STO.

Question 24. Do you consider that the status of systematic internalisers, which

are eligible venues for compliance with the STO, should be revisited and how?

(disagree)

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

SIs should keep the same current

status under the STO

SIs should no longer be eligible

execution venues under the STO

Other

Please explain in what other way(s) the status of systematic internalisers,

which are eligible venues for compliance with the STO, should be revisited:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 24.1 Please explain your answers to question 24:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not believe that SI’s should be excluded as a venue for execution of shares. The view

reflects that SI’s provide additional liquidity and convenience to investors warranting their presence as an

execution venue for shares. Furthermore, SI’s might provide further competition to the share trading

landscape.

Furthermore, the rules for trade transparency for trades conducted with SI’s are (almost) the same as for

trading venues and contribute to the price discovery process. The current situation with low transparency

for some SI trades does not reflect the rules or the SI’s directly, but rather issues regarding the APA’s

publishing the transparency data. It should not affect the view on SI’s being eligible for STO.

That being said, and in line with our answer to question 5.1, the thresholds for SI’s pre-trade requirements

might warrant a revision.

Question 25. Do you consider that other aspects of the regulatory framework

applying to systematic internalisers should be revisited and how?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA believes that the following aspects of the regulatory framework should be revisited:



The SI thresholds for the mandatory SI regime: The thresholds can easily be breached for

instruments with a very limited turnover. From a proportionality perspective, this is unfortunate, as it

can result in small actors being subject to the SI-regime, and only for a very limited set of

instruments.



The calibration of pre-trade thresholds: The SI pre-trade thresholds are quite low. An analysis should

be carried out as to whether these thresholds can be raised, taking into account the risk the SI’s are

exposed to due to their actual obligations to trade on the published prices.



The accessibility of SI pre-trade data could be improved: Even though SI’s are obligated to disclose

the APA they use to publish data, it has proven difficult to find the actual data. Hence, it should be

considered whether it is to be mandatory for SI’s to include a link to their APA’s web page of

publication.

It should also be considered how the regulatory requirements for publication through proprietary

arrangements can be more transparent to ensure a coherent quality across publication

arrangements.



Increased clarity on pre-trade requirements for non-equity instruments: Currently, there are no level-

2 mandates to elaborate on the pre-trade requirements for non-equity instruments. ESMA has

provided level-3 guidance on the subject, but legal basis and consistency in this area would be

highly beneficial.

Question 26. What would you consider to be appropriate steps to ensure a

level-playing field between trading venues and systematic internalisers?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

The DFSA believes that the current regulatory framework provides for a high degree of level playing field

between SI’s and TV’s. Still, we suggest revisiting the calibration of SI pre-trade thresholds (see our

answer to question 5.1).

More generally, there are questions raised as to whether the current MiFID II/MiFIR framework is sufficiently conducive

of the price discovery process in equity trading, in light of various elements of complexity (e.g. fragmentation of trading,

multiplicity of order types, exceptions to transparency requirements, variety of trading protocols).

Question 27. In your view, what would merit attention to further promote the

price

discovery

process

equity

trading?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A consolidated tape could increase the price discovery in equity trading. A CT providing

consolidated, high quality, post-trade information in the same format on all (or almost all) traded

financial instruments in the European markets would counteract the consequences of the

fragmentation of trades and the associated information. Furthermore, a CT could also increase

the data quality.

A higher level of transparency would also increase the price discovery process. It should be

reconsidered whether the current thresholds for e.g. SMS and LIS are correctly calibrated. It is

also worth considering whether the double volume cap mechanism fulfils its purpose of

minimising dark trading, including that the market players have reacted by moving trades away

from the lit market to e.g. period auctions, OTC trades and SI’s.

4.2. Aligning the scope of the STO and of the transparency regime with the

scope of the consolidated tape

For shares, in light of the strong parallel between the scope of the STO and the scope of the CT (see section “Official List”),

there may be merit in aligning the two. At the same time, should the scope of the STO be the same as the scope of the CT,

special consideration should be given to the treatment of international shares.

Question 28. Do you believe that the scope of the STO should be aligned with

the scope of the consolidated tape?

1 - Disagree

2 - Rather not agree

3 - Neutral

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 28.1 Please explain your answer to question 28:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A CT and the STO both have the purpose of increasing transparency thereby contributing to

price discovery. Hence, there seems to be advantages of aligning the official list for a CT and the

STO. However, the current situation with no CT – and hence no experience with a European CT

- advocates for the setup around a CT being as flexible as possible. This might not be the case if

there is to be full alignment between STO and the official list for a CT. Thus, the official list could

take the STO for European listed instruments (see the answer to question 17) reflecting the need

for investment firms to trade instruments having STO as a starting point, but commercial

considerations for a CT should also be taken into account.

Similarly, both for equity and non-equity instruments, there may also be merit in aligning, where possible, the scope of

financial instruments covered by the CT with the scope of financial instruments subject to the transparency regime.

Question 29. Do you consider, for asset classes where a consolidated tape

would be mandated, that the scope of financial instruments subject to pre-

and post-trade requirements should be aligned with the list of instruments in

scope of the consolidated tape?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 29.1 Please explain your answer to question 29:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The main priority for the CT should be to establish it. When it is established and there is more

experience with a European CT, more sophisticated requirements, e.g. alignment of the scope of

financial instrument subject to transparency requirements, may be considered.

A requirement for alignment may decrease the flexibility in establishing and running a CT and

thereby potentially increase the costs and operational risks of running the CT.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

4.3. Post-trade transparency regime for non-equities

For non-equity instruments, MiFID II/MiFIR currently allows a deferred publication of up to 2 days for post-trade

information (including information on the transaction price), with the possibility of an extended period of deferral of 4

weeks for the disclosure of the volume of the transaction. In addition, national competent authorities have exercised their

discretion available under Article 11(3) of MiFIR. This resulted in a fragmented post-trade transparency regime within

the Union. Stakeholders raised concerns that the length of deferrals and the complexity of the regime would hamper the

success of a CT.

Question 30. Which of the following measures could in your view be

appropriate to ensure the availability of data of sufficient value and quality to

create a consolidated tape for bonds and derivatives?

(disagree)

Abolition of post-trade transparency

deferrals

Shortening of the 2-day deferral

period for the price information

Shortening of the 4-week deferral

period for the volume information

Harmonisation of national deferral

regimes

Keeping the current regime

Other

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

Please specify what other measures could in your view be appropriate to ensure

the availability of data of sufficient value and quality to create a consolidated

tape for bonds and derivatives?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 30.1 Please explain your answer to question 30:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The current rules for trade transparency for non-equity instruments should not be seen as a

hurdle for running a CT. However, the information fragmentation and the different publication

formats increase the complexity of running a CT and can make it costly. On the other hand, it

advocates the need for a CT that can consolidate published market data.

II. Investor protection

Investor protection rules

should strike the right balance between boosting participation in capital markets and ensuring

that the interests of investors are safeguarded at all times during the investment process. Maintaining a high level of

transparency is one important element to enhance the trust of investors into the financial market.

In December 2019, the

Council conclusions on the Deepening of the Capital Markets Union

invited the Commission to

consider introducing new categories of clients and optimising requirements for simple financial instruments where this is

proportionate and justified, as well as ensuring that the information available to investors is not excessive or overlapping

in quantity and content.

Based on, but not limited to, the review requirements laid down in Article 90 of MiFID II, this consultation therefore aims

at getting a more precise picture of the challenges that different categories of investors are confronted with when

purchasing financial instruments in the EU, in order to evaluate where adjustments would be needed.

The

review clause in Article 90 paragraph (1)(h) of MiFID II is covered by this section.

Question 31. Please specify to what extent you agree with the statements

below regarding the experience with the implementation of the investor

protection rules?

(disagree)

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

The EU intervention has been

successful in achieving or

progressing towards more investor

protection.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

The MiFID II/MiFIR costs and

benefits are balanced (in particular

regarding the regulatory burden).

The different components of the

framework operate well together to

achieve more investor protection.

More investor protection corresponds

with the needs and problems in EU

financial markets.

The investor protection rules in

MiFID II/MiFIR have provided EU

added value.

Question 31.1 Please provide both quantitative and qualitative elements to explain your answer and

provide to the extent possible an estimation of the benefits and costs. Where possible, please provide

figures broken down by categories such as IT, organisational arrangements, HR etc.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Quantitative elements for question 31.1:

Estimate (in €)

Benefits

Costs

N/A

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Qualitative elements for question 31.1:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

In general, the DFSA finds the current investor protection regulation to be rather successful with

regard to achieving investor protection in the European markets. However, some clarification is

desirable in order to obtain a more adequate investor protection set forth in the regulation.

1. Easier access to simple and transparent products

The CMU is striving to improve the funding of the EU economy and to foster retail investments into capital markets. The

Commission is therefore trying to improve the direct access to simple investment products (e.g. certain plain-vanilla

bonds, index ETFs and UCITS funds). On the other hand, adequate protection has to be provided to retail investors as

regards all products, but in particular complex products.

Question 32. Which MiFID II/MiFIR requirements should be amended in order

to ensure that simple investment products are more easily accessible to retail

clients?

Yes

Product and governance requirements

Costs and charges requirements

Conduct requirements

Other

N.A.

Please specify which other MiFID II/MiFIR requirements should be amended:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

It is important to have sufficient investor protection measures in order to ensure that simple

investment products are more easily accessible to retail clients. Therefore, several MIFID-II

requirements should preferably be amended in order to enhance transparency and ensure

adequate investor protection.

Please also see our answer to question 32.2 and specific answers with regard to these topics:

Product governance requirements:

- See question 46-48

Cost & charges requirements:

- See question 1.1, question 3.1 and question 34 (cost & charges requirements)

- See question 49 (transparency of inducements)

Question 32.1 Please explain your answer to question 32:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

In general, it is important to ensure that retail clients in a transparent manner are provided with

an adequate access to simple and non-complex investment products such as e.g. certain index

ETFs. Furthermore, it is important to ensure transparency of costs & inducements for such

products, as well as to ensure an adequate target segment for these products as required by the

product governance regulation.

Product governance requirements:

- See question 46-48

Cost & charges requirements:

- See question 1.1, question 3.1 and question 34 (cost & charges requirements)

- See question 49 (transparency of inducements)

Question 33. Do you agree that the MiFID II/MiFIR requirements provide

adequate protection for retail investors regarding complex products?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 33.1 If your answer to question 33 is on the negative side, please

indicate in the text box which amendments you would like to see introduced

to ensure that retail investors receive adequate protection when purchasing

products considered as complex under MiFID II/MiFIR:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

N/A

Question 33.1 Please explain your answer to question 33:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

At this point in time, the DFSA finds MiFID II provides an adequate level of investor protection for

retail clients regarding complex products. Retail clients have access to an adequate range of

products and the appropriateness test is sufficient.

Furthermore, the DFSA is of the view that the product intervention measures have strengthened

the investor protection of retail investors by limiting distribution of speculative products such as

binary options and CFDs to this category of investors.

2. Relevance and accessibility of adequate information

Information should be short, simple, comparable, and thereby easy to understand for investors. One challenge that has

been raised with the Commission are the diverging requirements on the information documents across sectors.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

One aspect is the usefulness of information documents received by professional clients and eligible counterparties

(‘ECPs’) before making a transaction (‘ex-ante cost disclosure’). Currently, the ex-ante cost information on execution

services apply to retail, professional and eligible clients alike. With regard to wholesale transactions a wide range of

stakeholders consider certain information requirements a mere administrative burden as they claim to be aware of the

current market and pricing conditions.

Question 34. Should all clients, namely retail, professional clients per se and

on request and ECPs be allowed to opt-out unilaterally from ex-ante cost

information obligations, and if so, under which conditions?

Yes

Professional clients and ECPs should be exempted without specific conditions.

Only ECPs should be able to opt-out unilaterally.

Professional clients and ECPs should be able to opt-out if specific conditions

are met.

All client categories should be able to opt out if specific conditions are met.

Other

Please specify what is your other view on whether all clients, namely retail,

professional clients per se and on request and ECPs should be allowed to opt-

out unilaterally from ex-ante cost information obligations?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 34.1 Please explain your answer to question 34 and in particular the

conditions that should apply:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

If professional clients do not want to receive the ex-ante information e.g. because he is capable

of making the same calculations, a more flexible regime, where professional clients have the

opportunity to “opt-out” might be beneficial. The same applies to ECP. However, they have to be

properly informed of what information they will no longer receive, and should at any time be able

to “opt-in” again. Retail clients already have the opportunity to choose to be treated as

professional clients if certain conditions are met. Hence, if they meet these conditions they will

also be able to opt-out. The DFSA is not in favor of further segmentation of investor protection of

retail clients.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Another aspect is the need of paper-based information. This relates also to the Commission's

Green Deal,

the

Sustain

able Finance Agenda

and the consideration that more and more people use online tools to access financial markets.

Currently, MiFID II/MiFIR requires all information to be provided in a “durable medium”, which includes electronic formats

(e.g. e-mail) but also paper-based information.

Question 35. Would you generally support a phase-out of paper based

information?

1 - Do not support

2 - Rather not support

3 - Neutral

4 - Rather support

5 - Support completely

Don’t know / no opinion / not relevant

Question 35.1 Please explain your answer to question 35:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Generally, the Danish government strongly supports a digital society. Nevertheless, there might

be situations where retail clients should have the opportunity to expressly request paper based

information.

Question 36. How could a phase-out of paper-based information be

implemented?

Yes

General phase-out within the next 5 years

General phase out within the next 10 years

For retail clients, an explicit opt-out of the client shall be required.

For retail clients, a general phase out shall apply only if the retail client did not

expressively require paper based information

Other

Please specify in which other way could a phase-out of paper-based

information be implemented?

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 36.1 Please explain your answer to question 36 and indicate the

timing for such phase-out, the cost savings potentially generated within your

firm and whether operational conditions should be attached to it:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Please see our answer to question 35.1

Some retail investors deplore the lack of comparability of the cost information and the absence of an EU-wide database

to obtain information on existing investment products.

Question 37. Would you support the development of an EU-wide database (e.

g. administered by ESMA) allowing for the comparison between different

types of investment products accessible across the EU?

1 - Do not support

2 - Rather not support

3 - Neutral

4 - Rather support

5 - Support completely

Don’t know / no opinion / not relevant

Question 37.1 Please explain your answer to question 37:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not support the development of an EU-wide database administered by ESMA.

Enhanced transparency enabling investors to more easily compare different types of investment

products accessible across EU is more adequately achieved by ensuring that National Competent

Authorities are granted sufficient powers to take the needed supervisory measures to enhance said

transparency.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 38. In your view, which products should be prioritised to be

included in an EU-wide database?

(irrelevant)

All transferable securities

All products that have a

PRIIPs KID/ UICTS KIID

Only PRIIPs

Other

(rather not

relevant)

(neutral)

(rather

relevant)

(fully

relevant)

Please specify what other products should be prioritised?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Since the DFSA does not support the development of an EU-wide database administered by ESMA

none of the products mentioned in the table should be prioritized nor should other

products. For

further arguments please see our answer to question 37.1

Question 38.1 Please explain your answer to question 38:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Please see our answer to question 37.1.

Question 39. Do you agree that ESMA would be well placed to develop such a

tool?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 39.1 Please explain your answer to question 39:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Please see our answer to question 37.1.

3. Client profiling and classification

MiFID II/MiFIR currently differentiates between retail clients, professional clients and eligible counterparties. In line with

the procedure and conditions laid down in the Annex of MiFID II, retail clients can already “opt-up” to be treated as

professional clients. Some stakeholders indicated that the creation of an additional client category (‘semi-professional

investors’) might be necessary in order to encourage the participations of wealthy or knowledgeable investors in the

capital market. In addition, other concepts related to this classification of investors can be found in the draft Crowdfunding

Regulation which further developed the concept of sophisticated investors

.The CMU-Next group suggested a new

category of experienced High Net Worth (“HNW”) investors with tailor made investor protection rules

According to the draft of the Crowdfunding Regulation (to be finalised in technical trilogues) a sophisticated investor has either

personal gross income of at least EUR 60 000 per fiscal year or a financial instrument portfolio, defined as including cash deposits

and financial assets, that exceeds EUR 100 000.

According to the CMU-NEXT group “HNW investors” could be deﬁned as those that have sufficient experience and ﬁnancial

means to understand the risk attached to a more proportionate investor protection regime.

Question 40. Do you consider that MiFID II/MiFIR can be overly protective for

retail clients who have sufficient experience with financial markets and who

could find themselves constrained by existing client classification rules?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 40.1 Please explain your answer to question 40:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA supports the present solution in regards to the above.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 41. With regards to professional clients on request, should the

threshold for the client’s instrument portfolio of EUR 500 000 (See Annex II of

MiFID II) be lowered?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 41.1 Please explain your answer to question 41:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not see any need for lowering the threshold for the client’s portfolio of EUR

500.000.

Question 42. Would you see benefits in the creation of a new category of

semi-professionals clients that would be subject to lighter rules?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 42.1 Please explain your answer to question 42:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Due to previous experience with creating a new category of semi-professional clients in the area

of alternative investment funds, the DFSA does not see any benefit from creating the proposed

new category in this area. Experience showed that many clients who subsequently met the

threshold requirement of EUR 100,000 were actually not the right “targetgroup”, as these

investors had gathered all their savings for investment purposes but did not otherwise meet the

requested qualitative requirements such as sufficient insight in the area, experience, risk

adversity, etc... The clients were de facto not semi-professional but regular retail clients.

Question 43. What investor protection rules should be mitigated or adjusted

for semi-professionals clients?

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

(irrelevant)

Suitability or

appropriateness test

Information provided on

costs and charges

Product governance

Other

(rather not

relevant)

(neutral)

(rather

relevant)

(fully

relevant)

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Please specify what other investor protection rules should be mitigated or

adjusted for semi-professionals clients?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 43.1 Please explain your answer to question 43:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 44. How would your answer to question 43 change your current

operations, both in terms of time and resources allocated to the distribution p

rocess?

Please specify which changes are one-off and which changes are recurrent:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 45. What should be the applicable criteria to classify a client as a

semi-professional client?

(irrelevant)

(rather

not

relevant)

(neutral)

(rather

relevant)

(fully

relevant)

Semi-professional clients

should possess a minimum

investable portfolio of a certain

amount (please specify and

justify below).

Semi-professional clients

should be identified by a

stricter financial knowledge test.

Semi-professional clients

should have experience

working in the financial sector

or in fields that involve financial

expertise.

Semi-professional clients

should be subject to a one-off

in-depth suitability test that

would not need to be repeated

at the time of the investment.

Other

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Please specify what other criteria should be the one applicable to classify a

client as a semi-professional client:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 45.1 Please explain your answer to question 45 and in particular the

minimum amount that a retail client should hold and any other applicable

criteria you would find relevant to delineate between retail and semi-

professional investors:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

4. Product Oversight, Governance and Inducements

The product oversight and governance requirements shall ensure that products are manufactured and distributed to

meet the clients’ needs. Before any product is sold, the target market for that product needs to be identified. Product

manufacturers and distributors should thus be well aware of all product features and the clients for which they are suited.

To do so, distributors should use the information obtained from manufacturers as well as the information which they have

on their own clients to identify the actual (positive and negative) target market and their distribution strategy.

There is a debate around the efficiency of these requirements. Some stakeholders criticise that the necessary information

was not available for all products (e.g. funds). Others even argue that this approach adds little benefit to the suitability

assessment undertaken at individual level. Similar doubts are mentioned with regards to the review of the target market,

in particular for products that don’t change their payment profile. Concerns are raised that the current application of the

product governance rules might result in a further reduction of the products offered.

Question 46. Do you consider that the product governance requirements

prevent retail clients from accessing products that would in principle be

appropriate or suitable for them?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Don’t know / no opinion / not relevant

Question 46.1 Please explain your answer to question 46:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The product governance requirements cannot be seen to prevent retail clients from accessing

products that would in principle be appropriate or suitable for them.

On the contrary, product governance requirements can and should be seen to lower the risk of

misconduct and “misselling” of unsuitable products or inappropriate products to retail clients and

to professional clients.

Misconduct of investment firms and “misselling” of unsuitable products can cause significant

consumer detriment, undermine market confidence, threaten the integrity of the financial system,

and incur large costs to wider society.

In order to address some of these conduct risks, product governance requirements are of

outmost importance. These requirements provide a framework for robust and responsible

product design and distribution by manufacturers and distributors.

These requirements are even more important at this time having in mind the current low interest

environment. Low interests enhances the risks of “misselling” of investment funds in particularly

when it comes to customers with a low risk preference and a short investment horizon. The low

interest environment poses a risk of “misselling” of products characterized by expected

returns

after fees lower than the interest rate on deposit accounts.

Product governance requirements are therefore of the utmost importance to ensure adequate

investor protection for retail clients as well as for professional clients.

Question 47. Should the product governance rules under MiFID II/MiFIR be

simplified?

Yes

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

It should only apply to products to which retail clients can have access (i.e. not

for non-equities securities that are only eligible for qualified investors or that have

a minimum denomination of EUR 100.000).

It should apply only to complex products.

Other changes should be envisaged – please specify below.

Simplification means that MiFID II/MiFIR product governance rules should be

extended to other products.

Overall the measures are appropriately calibrated, the main problems lie in the

actual implementation.

The regime is adequately calibrated and overall, correctly applied.

Question 47.1 Please explain your answer to question 47:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Product governance requirements are of utmost importance to ensure adequate investor

protection for retail clients as well as for professional clients.

If the current product governance requirements are to be revised this should be to order to

strengthen the degree of investor protection inherent in the current regime.

Please also see our answer to question 46.1 and 48.1

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Further, even though ESMA clarified in its guidelines that the sale of products outside the actual target market is possible

in so far as this can “be justified by the individual facts of the case”, distributors seem reluctant to do so even if the client

insists. This consultation is therefore assessing if and how the product governance regime could be improved.

Question 48. In your view, should an investment firm continue to be allowed

to sell a product to a negative target market if the client insists?

Yes

Yes, but in that case the firm should provide a written explanation that the

client was duly informed but wished to acquire the product nevertheless.

Don’t know / no opinion / not relevant

Question 48.1 Please explain your answer to question 48:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Product governance requirements and the definition of a negative target market are of utmost

importance to ensure adequate investor protection for retail clients as well as for professional

clients.

The negative target market should be seen as an explicit indication of those clients for whose

needs, characteristics and objectives the product is not compatible and to whom the product

must not be distributed. Therefore, investor protection could preferably be enhanced by explicitly

stating that investment firms should not be allowed to sell an investment product to a client if a

client is characterized as falling into the negative target market.

If a client is characterized as falling into the negative target market it is of importance to reduce

the risk of “misselling” of unsuitable products. “Misselling” can cause significant consumer

detriment, undermine market confidence, threaten the integrity of the financial system, and incur

large costs to wider society.

For additional comments on the product governance requirements please see our answer to

question 46.1 and 47.1.

MiFID II/MiFIR establishes strict rules for investment firms to accept inducements, in particular as regards the conditions

to fulfil the quality enhancement test and as regards disclosures of fees, commissions and non-monetary benefits.

Question 49. Do you believe that the current rules on inducements are

adequately calibrated to ensure that investment firms act in the best interest

of their clients?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 49.1 Please explain your answer to question 49:

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

MiFID II aimed to strengthen the MiFID requirements for third party payments (inducements) e.g.

by strengthening the quality enhancement regulation, the proportionality criteria and the

disclosure requirements. However, there is still space for further improvements on these matters.

When receiving inducements from third parties investment firms must act honestly, fairly and

professionally in accordance with the best interests of the clients, and they are obliged to be

transparent about the inducements received and to the quality enhancements provided to clients.

These obligations for the investments firms could however benefit from further elaboration and

specified in order to enhance transparency and investor protection.

Inducements should be disclosed in a manner that is more comprehensive, accurate and

understandable e.g, by an explicit requirement to explain inducements in non-technical

language.

Furthermore, investment firms could be subject to a more explicit obligation to disclose quality

enhancing services to the clients in a more transparent manner - in order for clients to know

which services they are benefiting from or could benefit from if they request or use the service. A

list of quality enhancing services should preferably be disclosed and be easily accessible.

Furthermore, the regulation could be more detailed with regard to the current proportionality

criteria.

Firstly, it should be clarified that the proportionality criteria implies that inducements can only be

justified by the provision of an additional or higher level service

of relevance

to the client or of

added value to the client.

Secondly, clarification that services investment firms are required to provide by law, e.g. the

suitability test, cannot be included in additional or higher level services.

Thirdly, clarification that it would contradict with the firm's duty to act honestly, fairly and

professionally in accordance with the best interests of the client if the investment firm seeks to

fulfill the proportionality criteria by providing additional services

with no relevance

to the client or

with no added value for the client.

In situations where additional services cannot be documented as being of relevance to a

particular segment of clients, the investment firms must set

a maximum amount of inducements

to be received from each individual client in order for the proportionality criteria to be fulfilled at a

client level.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Some consumer associations have stated that inducement rules inducements under MiFID II/MiFIR are not sufficiently

dissuasive to prevent conflicts of interest in the distribution process. They consider that financial advisers are incentivised

to sell products for which they receive commissions instead of recommending the most suitable products for their clients.

Therefore, some are calling for a ban on inducements.

Question 50. Would you see merits in establishing an outright ban on

inducements to improve access to independent investment advice?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 50.1 Please explain your answer to question 50:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Different distribution models exit throughout in the Union and the current MIFID-II-regulation on

inducements has been in force only since January 2018.

Against this background, it seems to be too premature in 2020 to turn directly to banning

inducements completely for all retail products across the Union without further analysis and

consideration.

It might be advisable firstly to assess the impact the current MiFID II inducements regime on

distribution of investment product followed by thoroughly considering the pros and cons of an

outright ban on inducements. Furthermore, it would be advisable to assess the expected impact

of an outright ban depending on the different distribution models existing in the Union.

The market structure in Denmark is characterized by an open-architecture model with distribution

channels to retail investors primarily through banks who also have in-house manufacturing.

Taking this into consideration the effects of an outright ban on inducements should be carefully

considered before such a solution can be presented. For instance, an outright ban on inducements

could imply a risk that banks will have an incentive to turn to closed-architecture models because

of the loss of incentives to sell third party products

As regards the criteria for the assessment of knowledge and competence required under Article 25(1) of MiFID II,

ESMA

’s guidelines

established minimum standards promoting greater convergence in the knowledge and competence of staff

providing investment advice or information about financial instruments and services. Nonetheless, due to the diversified

national educational and professional systems, there are still various options on on how to test the relevant knowledge

and competences across Member States.

Question 51. Would you see merit in setting-up a certification requirement for

staff providing investment advice and other relevant information?

1 - Disagree

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 51.1 Please explain your answer to question 51:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

In Denmark staff must be certified if they are providing investment advices regarding complex

products. There are no certification requirements as to non-complex products.

Question 52. Would you see merit in setting out an EU-wide framework for

such a certification based on an exam?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 52.1 Please explain your answer to question 52:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA supports a certification requirement for staff providing investment advice and other

relevant information to investors. However, it must be emphasized that the DFSA only supports

the proposal if the Member States set the requirements for the competences. This is to

adequately be able to cater to market specificities across the EU and large product differentiation

from one Member State to another Member State.

5. Distance communication

Provision of investment services via telephone requires ex-ante information on costs and charges (please consider also

ESMA’s guidance on this matter). When a client wants to place an order on the phone, the service provider is obliged to

send the cost details before the transaction is executed, a requirement which may delay the immediate execution of the

order. Further, MiFID II/MiFIR requires all telephone communications between the investment firm and its clients that

may result in transactions to be recorded. Due to this requirement, several banks argue to have ceased to provide

telephone banking services altogether.

Question 53. To reduce execution delays, should it be stipulated that in case

of distant communication (phone in particular) the cost information can also

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

be provided after the transaction is executed?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 53.1 Please explain your answer to question 53:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 54. Are taping and record-keeping requirements necessary tools to

reduce the risk of products mis-selling over the phone?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 54.1 Please explain your answer to question 54:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

6. Reporting on best execution

Investment firms shall execute orders on terms most favourable to the client. The framework includes reporting

obligations on data relating to the quality of execution of transactions whose content, format and periodicity are detailed

in Delegated Regulation 2017/575 (also known as ‘RTS 27’). The best execution framework also includes reporting

obligations for investment firms on the top five execution venues in terms of trading volumes where they executed client

orders and information on the quality of information. Delegated regulation 2017/576 (also known as ‘RTS 28’) specifies

the content and format of that information.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 55. Do you believe that the best execution reports are of sufficiently

good quality to provide investors with useful information on the quality of

execution of their transactions?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 55.1 Please explain your answer to question 55:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 56. What could be done to improve the quality of the best execution

reports issued by investment firms?

(irrelevant)

Comprehensiveness

Format of the data

Quality of data

Other

(rather not

relevant)

(neutral)

(rather

relevant)

(fully

relevant)

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Please specify what else could be done to improve the quality of the best

execution reports issued by investment firms:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 56.1 Please explain your answer to question 56:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 57. Do you believe there is the right balance in terms of costs

between generating these best execution reports and the benefits for

investors?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 57.1 Please explain your answer to question 57:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

III. Research unbundling rules and SME research coverage

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

New rules on unbundling of research and execution services have been introduced in MiFID II/MiFIR, principally to

increase the transparency of research prices, prevent conflict of interests and ensure that research costs are incurred in

the best interests of the client. In particular, unbundling of research rules were put in place to ensure that the cost of

research funded by client is not linked to the volume or value of other services or benefits or used to cover any other

purposes, such as execution services.

The review clause in Article 90 paragraph (1)(h) of MiFID II is covered by this section.

Question 58. What is your overall assessment of the effect of unbundling on

the quantity, quality and pricing of research?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA has not analysed how the quantity, quality and pricing of research are affected by the

unbundling rules.

However, it is the DFSA’s overall impression that the rules have affected the industry, as before

MiFID II it was an established practice to bundle research and execution services. It will take

some time for the industry to adapt to the new rules, including how to react on the higher

transparency in the market with respect to the price of research and execution services, e.g.

through a more competitive market.

Some banks have mentioned that they have cut their research due to the unbundling rules. The

quality of this research has not been evaluated. However, it is possible that a bank’s decision to

cease certain research activity is a reflection of reduced sales potentially due to research buyers’

assessments of insufficiently high quality of said research..

Over the last years, research coverage relating to Small and Medium-size Enterprises (‘SMEs’) seems to suffer an overall

decline. One alleged reason for this decline is the introduction of the unbundling rules. Less coverage of SMEs may lead

to less SME investments, less secondary trading liquidity and less IPOs on Union’s financial markets. This sub-section

places a strong focus on how to foster research coverage on SMEs. There is a need to consider what can be done to

increase its production, facilitate its dissemination and improve its quality.

1. Increase the production of research on SMEs

1.1. EU Rules on research

The absence of a harmonised definition of the notion of “research” has led to confusion amongst market participants. In

addition, Article 13 of delegated Directive 2017/593 introduced rules on inducement in relation to research. Market

participants argue that this has led to an overall decline of research coverage, in particular on SMEs. Several options

could be tested: one option would be to revise the scope of Article 13 by authorising bundling exclusively for providers

of SME research. Alternatively, independent research providers (not providing any execution services to clients) could

be allowed to provide research to investment firms without these firms being subject to the rules of Article 13 for this

research.

Furthermore, several market participants argue that providers price research below costs. If the actual costs incurred to

produce research do not match the price at which the research is sold, it may have a negative impact on the research

ecosystem. Some argue that pricing of research should be subject to the rules on reasonable commercial basis.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Finally, several market participants also pointed out that rules on free trial periods of research services are not

sufficiently clear (ESMA

also drafted a Q&A on trial periods).

Question 59. How would you value the proposals listed below in order to

increase the production of SME research?

(irrelevant)

(rather

not

relevant)

(neutral)

(rather

relevant)

(fully

relevant)

Introduce a specific definition

of research in MiFID II level 1

Authorise bundling for SME

research exclusively

Exclude independent research

providers’ research from Article

13 of delegated Directive 2017

/593

Prevent underpricing in

research

Amend rules on free trial

periods of research

Other

Please specify what other proposals you would have in order to increase the

production of SME research:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 59.1 Please explain your answer to question 59 and in particular if

you believe preventing underpricing in research and amending rules on free

trial periods of research are relevant:

5000 character(s) maximum

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A specific definition of ”research” in MiFID II itself seems rather relevant in order to avoid legal

uncertainty among research providers, including in order to smooth the communication between

the buy-side and sell-side as well as to support alignment among market players and among

regulators.

The reason for research unbundling also applies to SME’s, i.e. an investment manager should

direct the client orders towards the firms being best at this and not to where he can access free

research. Furthermore, it we query whether authorising bundling for SME research would help to

increase the SME research production, cf. our answer to question 58.

We note that independent research providers do not provide execution services to clients.

Hence, there does not seem to be a risk of wrong incentives for investment managers regarding

their allocation of client orders. Thus, excluding independent research providers from Art. 13 can

be seen as a possible way to increase the production of SME research without harming the

benefits behind research unbundling.

Regarding the pricing of research, it should be thoroughly considered whether this is a relevant

topic in financial regulation and why rules should differ within financial services compared to

regular competition rules. Furthermore, it can be an extensive administrative burden for research

providers to assess all the elements of costs (and associated documentation) necessary to set a

price at a reasonable commercial basis, particularly as market data has shown that the term

“reasonable commercial basis” is difficult to define and would require extensive and clear

guidelines.

Free trial periods of research can be relevant for SME’s, especially following an IPO or issue of

shares to increase capital. In order to avoid disincentives regarding where to allocate clients’

order, the distribution of the free research should be considered, e.g. making it available to

everyone, e.g. by publishing on the research provider’s web page.

1.2. Alternative ways of financing SMEs research

Alternative ways of financing research could help foster more SME research coverage. Operators of regulated markets

and SME growth markets could be encouraged to set up programs to finance research on SMEs whose financial

instruments are admitted on their markets. Another option would be to fund, at least partially, SME research with public

money.

Question 60. Do you consider that a program set up by a market operator to

finance SME research would improve research coverage?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 60.1 If you do consider that a program set up by a market operator

to finance SME research would improve research coverage, please specify

under which conditions such a program could be implemented:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

This should be investigated in close cooperation between the potential stakeholders, i.e. market

operators, SME’s, research providers and research buyers.

Question 60.1 Please explain your answer to question 60:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A market operator has a financial incentive to boost SME research as this is likely to increase

liquidity, including the number of executions, and the number of SME listings, thereby increasing

the market operator’s revenue.

A market operator (normally) has several SME’s listed, which gives the potential to reduce the

costs for the individual analysis, e.g. if the research provider allows a discount in order to get

several customers, follows the same pre-defined approach or template or if the market operator

can provide some technical assistance to the research provider.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 61. If SME research were to be subsidised through a partially public

funding program, can you please specify which market players (providers,

SMEs, etc.) should benefit from such funding, under which form, and which

criteria and conditions should apply to this program:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not support that SME research should be (partially) publicly funded.

However, if there is to be (partially) public funding, it is important that it be directed towards

research giving the highest value to research users. If research providers can apply for public

funding, it should e.g. be evaluated whether they know something about the market the SME is

participating in, the SME’s products etc. If the SME can benefit from public funding, e.g. by public

funding partially covering the costs of a marketing analysis, it should be considered whether the

research users would use it, e.g. due to conflict of interest.

The growing use of artificial intelligence and machine learning in financial services can help to foster the production of

research on SMEs. In particular, algorithms can automate collection of publically available data and deliver it in a format

that meets the analysts’ needs. This can make equity research, including on SMEs, less costly and more relevant.

Question 62. Do you agree that the use of artificial intelligence could help to

foster the production of SME research?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 62.1 If you agree, which recommendations would you make on the

form that such use of artificial intelligence could take and do you see risks

associated to the development of AI-generated research?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 62.1 Please explain your answer to question 62:

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Collection of publicly available data and presentation of different key figures in a (standard) table

is beneficial for potential investors. AI is likely to be efficient for this purpose.

However, if the research is really to add value to the investors, it should include more than key

figures, i.e. an actual assessment of the firm’s operations, market environment, role in the

market, products, management etc. This is especially relevant for SME’s as their share price

highly reflects the expected future growth and earnings and to a much smaller extent, the most

recently updated key figures. Hence, the role of AI for good SME research seems insufficient and

should be supplemented by analyst work.

1.3. Promote access to research on SMEs and increase quality of research

The lack of access to SME research deprives issuers from visibility and financing opportunities. However, access to

SME research can be improved by creating a EU-wide SME research database.

The creation of an EU database compiling research on SMEs would ensure the widest possible access to research

material. Via this public EU-wide database, anyone could access and download research on SMEs for free. Such a tool

would allow investors to access research in a more efficient manner and at a lower cost, while improving SMEs visibility.

Question 63. Do you agree that the creation of a public EU-wide SME research

database would facilitate access to research material on SMEs?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 63.1 If you do agree that the creation of a public EU-wide SME

research database would facilitate access to research material on SMEs,

please specify under which conditions this database should operate:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The database must be intuitive and easy to use in order to be relevant for both retail investors

and investment firms. It includes the option to filter on e.g. country, sector, market operator etc.

Furthermore, also historic research should continue to be available as it provides information

about the previous expectations to the firm’s performance.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 63.1 Please explain your answer to question 63:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A single point to enter SME research will make it easy for investors to access the research

material, both for the individual SME and across SME’s.

Furthermore, it should be considered how to boost the visibility of the database to ensure that

persons interested in the information also know it is there and use it.

Question 64. Do you agree that ESMA would be well placed to develop such a

database?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 64.1 Please explain your answer to question 64:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

ESMA’s capacity is in the regulatory field, not in providing a research database.

Where issuer-sponsored research meets the conditions of Article 12 of Delegated Directive (EU) 2017/593, it can

qualify as an acceptable minor non-monetary benefit. One condition is that the relationship between the third party firm

and the issuer is clearly disclosed and that the information is made available at the same time to any investment firm

wishing to receive it or to the general public. However, issuers and providers of investment research consider that the

conditions listed under Article 12 would in most cases not apply to issuer-sponsored research. As a result, issuer-

sponsored research would not qualify as acceptable minor non-monetary benefit.

Question 65. In your opinion, does issuer-sponsored research qualify as

acceptable minor non-monetary benefit as defined by Article 12 of Delegated

Directive (EU) 2017/593?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 65.1 Please explain your answer to question 65:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

To ensure confidence among investors to equity analyses it is important that they know that the

research is issuer-sponsored and hence there might be a conflict of interest. Art .12 (3) b seems

to ensure that.

In addition, Article 37 of Delegated Regulation (EU) 2017/565 provides rules on conflict of interests for investment

research and marketing communication. Investment research is defined in Article 36 of delegated regulation 2017/565.

However, issuers and providers of investment research consider that the definition of Article 36 would in most cases not

apply to issuer-sponsored research which as a result, would not qualify as investment research. As a consequence, the

rules on conflict of interests applicable to marketing documentation would apply to issuer-sponsored research.

Question 66. In your opinion, does issuer-sponsored research qualify as

investment research as defined in Article 36 of Delegated

Regulation (EU) 2017/565?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 66.1 Please explain your answer to question 66:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Issuer sponsored research implies a significant risk that it is positively biased towards the issuer.

This might not be (implicitly or explicitly) demanded by the issuer, but the research provider has

an incentive to be positive as it may increase the likelihood that the provider will later on be hired

to conduct another analysis for the issuer. A research provider might also in general have an

incentive to write positive analyses as issuers are likely to prefer having “positive” researchers

analyse their firm.

Question 67. Do you consider that rules applicable to issuer-sponsored

research should be amended?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 67.1 If you do consider that rules applicable to issuer-sponsored

research should be amended, please specify how:

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 67.1 Please explain your answer to question 67:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The current rules seem to provide a good balance between making it possible with issuer

sponsored research and informing the investors about potential conflicts of interest. However,

there seems to be merit to further address the issue of possible conflict of interest (or make the

rules clearer), e.g. that the relationship between the research provider and the issuer should be

clearly stated, that the research is issuer sponsored and that there should be no target price,

recommendations etc. in the issuer sponsored analysis.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 68. Considering the various policy options tested in questions 59 to

67, which would be most effective and have most impact to foster SME

research?

(least

effective)

(rather

not

effective)

(neutral)

(rather

effective)

(most

effective)

Introduce a specific definition of

research in MiFID level 1

Authorise bundling for SME

research exclusively

Amend Article 13 of delegated

Directive 2017/593 to exclude

independent research

providers’ research from Article

13 of delegated Directive 2017

/593

Prevent underpricing of

research

Amend rules on free trial

periods of research

Create a program to finance

SME research set up by market

operators

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Fund SME research partially

with public money

Promote research on SME

produced by artificial intelligence

Create an EU-wide database

on SME research

Amend rules on issuer-

sponsored research

Other

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Please specify which other policy option would be most needed and have most

impact to foster SME research:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 68.1 Please explain your answer to question 68:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The quality of SME research has to be of at certain level if it is to provide value to the investors,

i.e. in addition to key figures, it must also include an assessment by analysts looking into the

future prospects for the SME. Such research must of course be financed. The market operator

and the issuer have a financial interest in SME research making it most efficient that they (partly

of fully) cover the costs of this research.

It does not seem to be a way forward to authorise bundling for SME research. It is important for

the execution of orders in SME shares that they are allocated to the firms being best at this.

Furthermore, the turnover in SME shares is low implying that a firm bundling execution and

research would not make enough money to finance a good SME analysis. Therefore, it is likely

that they would only provide some key figures and perhaps some superficial analysis. This will

be of little or no value to investors.

We also refer to our answer to question 59.1.

IV. Commodity markets

As part of the effort to foster more

commodity derivatives trading denominated in euros,

rules on pre-trade

transparency and on position limits could be recalibrated (to establish for instance higher levels of open interest before

the limit is triggered) to facilitate nascent euro-denominated commodity derivatives contracts. For example, Level 1 could

contain a specific requirement that a nascent market must benefit from more relaxed (higher) limits before a positon has

to be closed. Another option would be to allow for trades negotiated over the counter (i.e. not on a trading venue) to be

brought to an electronic exchange in order to gradually familiarise commodity traders with the beneficial features of “on

venue” electronic trading.

ESMA has already conducted a consultation on position limits and position management. The report will be presented

to the Commission at the end of Q1 2020. From a previous ESMA call for evidence, the commodity markets regime

seems to have not had an impact on market abuse regulation, orderly pricing or settlement conditions. ESMA stresses

that the associated position reporting data, combined with other data sources such as transaction reporting allows

competent authorities to better identify, and sanction, market manipulation. Furthermore, the Commission has identified

in its

Staff Working Document on strengthening the International Role of the Euro

that “There is potential to further

increase the share of euro-denominated transactions in energy commodities, in particular in the sector of natural gas”.

The most significant topic seems the current position limit regime for illiquid and nascent commodity markets. The

position limit regime is thought to work well for liquid markets. However, illiquid and nascent markets are not sufficiently

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

accommodated. ESMA also questioned whether there should be a position limit exemption for financial counterparties

under mandatory liquidity provision obligations. ESMA would also like to foster convergence in the implementation of

position management controls.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Another aspect mentioned in the Commission consultation on the international role of the euro is a more finely calibrated

system of pre-trade transparency applicable to commodity derivatives. Such a system would lead to a swifter transition

of these markets from the currently prevalent OTC trading to electronic platforms.

The review clause in Article 90 paragraph (1)(f) of MiFID II is covered by this section.

Question 69. Please specify to what extent you agree with the statements

below regarding the experience with the implementation of the position limit

framework and pre-trade transparency?

(disagree)

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

The EU intervention been successful

in achieving or progressing towards

improving the functioning and

transparency of commodity markets

and address excessive commodity

price volatility.

The MiFID II/MiFIR costs and

benefits with regard to commodity

markets are balanced (in particular

regarding the regulatory burden).

The different components of the

framework operate well together to

achieve the improvement of the

functioning and transparency of

commodity markets and address

excessive commodity price volatility.

The improvement of the functioning

and transparency of commodity

markets and address excessive

commodity price volatility correspond

with the needs and problems in EU

financial markets.

The position limit framework and pre-

trade transparency regime for

commodity markets has provided EU

added value.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 69.1 Please provide both quantitative and qualitative elements to explain your answer and

provide to the extent possible an estimation of the benefits and costs. Where possible, please provide

figures broken down by categories such as IT, organisational arrangements, HR etc.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Quantitative elements for question 69.1:

Estimate (in €)

Benefits

Costs

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Qualitative elements for question 69.1:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

1. Position limits for illiquid and nascent commodity markets

The lack of flexibility of the

position limit

framework for commodity hedging contracts (notably for new contracts covering

natural gas and oil) is a constraint on the emergence euro-denominated commodity markets that allow hedging the

increasing risk resulting from climate change. The current de minimis threshold of 2,500 lots for those contracts with a

total combined open interest not exceeding 10,000 lots, is seen as too restrictive especially when the open interest in

such contracts approaches the threshold of 10,000 lots.

Question 70. Can you provide examples of the materiality of the above

mentioned problem?

Yes, I can provide 1 or more example(s)

No, I cannot provide any example

Please provide example(s) of (nascent) contracts where the position limit regime has constrained the

growth of the contract:

Underlying cause of the constraint (A/B/C)*:

*Note: 1 The underlying cause of the constraint is due to (A) the position limit becoming too restrictive

as open interest increases, (B) an incorrect categorisation under the position limits framework or (C) the

underlying physical markets are not efficiently reflected.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Size of the OTC space the contract(s) is/are trying to enter (in €):

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Market share the nascent contract(s) is/are expected to gain (in %):

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Contract(s) is/are euro denominated?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Question 71. Please indicate the scope you consider most appropriate for the

position limit regime:

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

(most

appropriate)

Current scope

A designated list of ‘critical’ contracts similar to

the US regime

Other

(neutral)

(least

appropriate)

Please specify what other scope you consider most appropriate for the

position limit regime:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Question 71.1 Please explain your answer to question 71:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Question 72. If you believe there is a need to change the scope along a

designated list of ‘critical’ contracts similar to the US regime, please specify

which of the following criteria could be used.

For each of these criteria, please specify the appropriate threshold and how

many contracts would be designated ‘critical’.

Open interest

Type and variety of participants

Other criterion:

There is no need to change the scope

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Open interest:

Threshold for open interest:

Number of affected contracts in the EU for open interest:

Please explain why you consider that the open interest is a criterion that

could be used:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Type and variety of participants:

Threshold for the type and variety of participants:

Number of affected contracts in the EU for the type and variety of

participants:

Please explain why you consider that the type and variety of participants is a

criterion that could be used:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Other criterion:

Please specify what other criterion could be used and explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Threshold for this other criterion:

Number of affected contracts in the EU for this other criterion:

Question 72.1 Please explain your answer to question 72:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

ESMA has questioned stakeholders on the actual impact of position management controls. Stakeholder views expressed

to the ESMA consultation appear diverse, if not diverging. This may reflect significant dissimilarities in the way position

management systems are understood and executed by trading venues. This suggests that further clarification on the

roles and responsibilities by trading venues is needed.

Question 73. Do you agree that there is a need to foster convergence in how

position management controls are implemented?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 73.1 Please explain your answer to question 73:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Question 74. For which contracts would you consider a position limit

exemption for a financial counterparty under mandatory liquidity provision o

bligations ?

This exemption would mirror the exclusion of the related transactions from the

ancillary activity test.

Yes

Nascent

Illiquid

Other

N.A.

Please specify for which other contracts you would consider a position limit

exemption for a financial counterparty under mandatory liquidity provision

obligations:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 74.1 Please explain your answer to question 74:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Question 75. For which counterparty do you consider a hedging exemption

appropriate in relation to positions which are objectively measurable as

reducing risks?

Yes

A financial counterparty belonging to a predominantly commercial group that

hedges positions held by a non-financial entity belonging to the same group

A financial counterparty

Other

Please specify for other which counterparties you consider a hedging

exemption appropriate:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Question 75.1 Please explain your answer to question 75:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

2. Pre-trade transparency

MiFIR RTS 2 (Commission

Delegated Regulation (EU) No 2017/583)

sets out the large-in-scale (LIS) levels are based

on notional values. In order to translate the notional value into a block threshold, exchanges have to convert the notional

value to lots by dividing it by the price of a futures or options contract in a certain historical period.

Some stakeholders argue that the current provisions of RTS2 lead to low LIS thresholds for highly liquid instruments and

high LIS thresholds for illiquid contracts. This situation makes it allegedly hard for trading venues to accommodate

markets with significant price volatility. This hinders their potential to offer niche instruments or develop new and/or fast

moving markets.

Question 76. Do you consider that pre-trade transparency for commodity

derivatives functions well?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

If you do not consider that pre-trade transparency for commodity derivatives

functions well, please (1) provide examples of markets where the pre-trade

transparency regime has constrained the offering of niche instruments or the

development of new and/or fast moving markets, and (2) present possible

solutions including, where possible, quantitative elements:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

Question 76.1 Please explain your answer to question 76:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

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PART TWO: AREAS IDENTIFIED AS NON-PRIORITY FOR

THE REVIEW

This section seeks to gather evidence from market participants on areas for which the Commission does not identify at

this stage any need to review the legislation currently in place. Therefore, PART TWO does not contain policy options.

However, should sufficient evidence demonstrate the need to introduce certain adjustments, the Commission may decide

to put forward proposals also on the topics listed below. As in the first section, certain questions are directly linked to the

review clauses in MiFID II/MiFIR while others are questions raised independently of the mandatory review clause.

V. Derivatives Trading Obligation

Based on the G20 commitment, MiFIR article 28 introduced the move of trading in standardised OTC derivative contracts

to be traded on exchanges or electronic trading platforms. The trading obligation established for those derivatives (DTO)

should allow for efficient competition between eligible trading venues. ESMA has determined two classes of derivatives

(IRS and CDS) subject to the DTO. These classes are a subset of the EMIR clearing obligation.

The Commission invites market participants to share any issues relevant with regard to the functioning of the DTO

regime, the scope of the obligation and the access to the relevant trading venues for DTO products.

The review clause in Article 52 paragraph (6) of MiFIR is covered by this section.

Question 77. To what extent do you agree with the statements below regarding

the experience with the implementation of the derivatives trading obligation?

(disagree)

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

The EU intervention been successful

in achieving or progressing towards

more transparency and competition

in trading of instruments subject to

the DTO.

The MiFID II/MiFIR costs and

benefits with regard to the DTO are

balanced (in particular regarding the

regulatory burden).

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

The different components of the

framework operate well together to

achieve more transparency and

competition in trading of instruments

subject to the DTO.

More transparency and competition

in trading of instruments subject to

the DTO corresponds with the needs

and problems in EU financial markets.

The DTO has provided EU added

value.

Question 77.1 Please provide both quantitative and qualitative elements to explain your answer and

provide to the extent possible an estimation of the benefits and costs. Where possible, please provide

figures broken down by categories such as IT, organisational arrangements, HR etc.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Quantitative elements for question 77.1:

Estimate (in €)

Benefits

Costs

The DFSA does not have figures on this. A calculation would in any case rely on a long array of

assumptions.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Qualitative elements for question 77.1:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 78. Do you believe that some adjustments to the DTO regime should

be introduced, in particular having regards to EU and non-EU market making

activities of investment firms?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

If you do believe that some adjustments to the DTO regime should be

introduced, please explain which adjustments would be needed and with

which degree of urgency:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

There is a risk that the DTO and equivalent regulations in third countries conflict. An implication

of this is that EU investment firms cannot access the liquidity they need. This is to some extent

handled by the process by which derivatives are declared subject to the DTO.

Today a suspension possibility for the DTO exists. The objective is to enable EU market

participants to access liquidity should it dry up in the EU. However, the process surrounding the

suspension is in practice so long that it does not mitigate the risk.

Question 78.1 Please explain your answer to question 78:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DTO should be designed in such a way that market participants can access the liquidity they

need and also take into account other jurisdictions’ equivalent regulations.

Question 79. Do you agree that the current scope of the DTO is appropriate?

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 79.1 Please explain your answer to question 79:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish FSA agrees. The scope of the instruments subject to the DTO consists of a

combination of the clearing obligation and additional liquidity tests. This seems appropriate as

market participants can execute orders at fair prices; meanwhile it is increasing transparency. It

should be considered whether the process can be further enhanced as liquidity may deteriorate.

The introduction of EMIR Refit has not been accompanied by direct amendments to MiFIR, which leads to a misalignment

between the scope of counterparties subject to the clearing obligation (CO) under EMIR and the derivatives trading

obligation (DTO) under MiFIR. ESMA consulted in Q4 2019 on the need for an adjustment of MiFIR, receiving broad

support for such an amendment and

ESMA published their report on 7 February 2020.

Question 80. Do you agree that there is a need to adjust the DTO regime to

align it with the EMIR Refit changes with regard to the clearing obligation for

small financial counterparties and non-financial counterparties?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 80.1 Please explain your answer to question 80:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA agrees that the DTO should be adjusted to reflect the changes introduced by EMIR

REFIT; not doing so would erode the policy objectives of EMIR REFIT, i.e. relieving burdens for

small FC’s and NFC’s.

The DFSA thus fully supports that “small FC’s” are excluded from the scope of the DTO, and

furthermore, that the DTO for NFC+’s is made asset class specific.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

VI. Multilateral systems

According to MiFID II/MiFIR, a ‘multilateral system’ means any system or facility in which multiple third-party buying and

selling trading interests in financial instruments are able to interact in the system. MiFID II/MiFIR also requires all

multilateral systems in financial instruments to operate as a regulated trading venue - being either a regulated market or

a multilateral trading facility (MTF) or an organised trading facility (OTF) - bringing together multiple third-party buying and

selling interests in a way that results in a contract.

Some trading venues express concerns due to emerging trends which allow alternative type of electronic platforms to

offer very similar functionality to a multilateral system for the matching of multiple buying and selling interests. These

electronic platforms are not authorised as regulated trading venues, hence they do not have to comply with the associated

regulatory requirements, notably in terms of reporting obligations or business rules to manage clients’ relationships. The

main argument advanced against regulation of these electronic systems is that they match trading interests on a bilateral

basis and not via a multilateral system. However, according to traditional trading venues, this alternative electronic

protocol may cause competitive distortions, effectively creating a level playing field distortion against the regulated trading

venues which are bound by MIFID II/MiFIR provisions. There is a debate whether MiFID II

/MiFIR should therefore take a more functional approach and define the operation of a trading facility in broader terms

than the current definition of trading venues or multilateral system as to encompass these systems and ensure fair

treatment for market players.

Question 81. Do you consider that the concept of multilateral system under

MiFID II/MiFIR is uniformly understood (at EU or at national level) and ensures

a level playing field between the different categories of market players?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 81.1 If your response to question 81 is rather positive, please also

indicate if, in your opinion, the current definition of multilateral system is

adequately reflecting the actual functioning of the market:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Question 81.1 If your response to question 81 is rather negative, please

indicate which amendments you would suggest and why:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 81.1 Please explain your answer to question 81:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer

VII. Double Volume Cap

MiFID II/MiFIR introduced a Double Volume Cap (‘DVC’) to curb “dark” trading by limiting, per platform and at EU level,

the use of certain waivers from pre-trade transparency. Some stakeholders have criticized the DVC as a too complex

process failing to reduce off-exchange trading in the EU. For instance, according to a 2019 Oxera study, the equity market

share of systematic internalisers has risen to 25% since application of the DVC while the share of on venue trading is

declining. For example, the market share of CAC40 shares trading on the primary stock exchange (Euronext) fell from

75% in 2009 to 62% in 2018 and Oslo Børs’s market share of trading on OBX-listed shares dropped from 95% in 2009

to 62% in 2018. The proportion of public order book trading on the primary exchange in major equity indices has declined

to between 30% and 45% of overall on-venue trading. The Commission services are seeking stakeholder’ s views on

their experience with the DVC and its impact on the transparency in share trading.

The review clauses in Article 52 paragraphs (1), (2) and (3) of MiFIR are covered by this section.

Question 82. Please specify to what extent you agree with the statements

below regarding the experience with the implementation of the Double Volume

Cap?

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

(disagree)

(rather

not

agree)

(neutral)

(rather

agree)

(fully

agree)

The EU intervention been successful

in achieving or progressing towards

the objective of more transparency in

share trading.

The MiFID II/MiFIR costs and

benefits are balanced (in particular

regarding the regulatory burden).

The different components of the

framework operate well together to

achieve more transparency in share

trading.

More transparency in share trading

correspond with the needs and

problems in EU financial markets.

The DVC has provided EU added

value

Question 82.1 Please provide both quantitative and qualitative elements to explain your answer and

provide to the extent possible an estimation of the benefits and costs. Where possible, please provide

figures broken down by categories such as IT, organisational arrangements, HR etc.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Quantitative elements for question 82.1:

Estimate (in €)

Benefits

Costs

N/A

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Qualitative elements for question 82.1:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The double volume cap mechanism does not seem to have fulfilled its objective of more trade

transparency in equity trading. The view is based on the fact that the share of equity trades in the

lit market has not increased following the DVC suspensions. In general, there seems to have

been a substitution towards off-exchange trades (SI and OTC) combined with the evolution of

period auctions at trading venues. Furthermore, more trades above the large in scale (LIS)

threshold have emerged, benefitting from the LIS waivers.

Thus, the DVCM does not seem to have added much value to the European stock markets as

transparency is almost unaffected. It is inexpedient as trade transparency is important for the

price discovery process. In addition, transparency increases confidence in the market across

investors, including retail investors, which in general have inferior access to market information

than the professional players and hence have increased difficulties assessing whether they trade

at the right prices.

The DVCM requires on an ongoing basis extensive high quality data reports from all the trading

venues. It has been costly to establish and operate the associated systems to report and handle

this data. In particular in the beginning of MiFID II, there were problems associated with the data,

indicating that the DVCM set high requirements to trading venues and the ESMA.

VIII. Non-discriminatory access

MiFIR introduces an open access regime to trade and clear financial instruments on a non-discriminatory and transparent

basis. The key purpose of MiFIR open access provisions is to facilitate competition among trading venues and central

counterparties and prevent any discriminatory treatments. It aims at creating more choice for investors, lowering costs

for trade execution, clearing margins and data fees. Open access might therefore bring opportunities for new entrants in

the market to compete with traditional providers. Furthermore, it could potentially help fostering financial innovation,

developing alternative business models which could allow cost efficiency gains in trading and clearing operational

processes compared to the current situation.

MiFIR open access provisions provide safeguards to preserve financial stability without adversely affecting systemic risk.

The relevant competent authority of a trading venue or a central counterparty shall grant open access requests only

under specific conditions, notably that open access would not threaten the smooth and orderly functioning of the markets.

MiFIR open access rules also added multiple temporary transitions periods and opt-outs (Article 35 and 36 of MiFIR) for

an exemption from the application of access rights, with the majority of opt-outs ending on 3 July 2020.

The Commission will have to submit to the European Parliament and to the Council reports on the application and impact

of certain open access provisions. With this in mind, the Commission would like to gather feedback from market

stakeholders which could be useful for the preparation of the reports.

The review clauses Article 52 paragraphs (9), (10) and (11) of MiFIR are covered by this section.

Question 83. Do you see any particular operational or technical issues in

applying open access requirements which should be addressed?

Yes

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Don’t know / no opinion / not relevant

Question 83.1 If you do see any particular operational or technical issues in

applying open access requirements which should be addressed, please specify

for which financial instrument(s) this would apply and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA does not have sufficient experience with this part of MIFID II/R to provide an answer.

Question 83.1 Please explain your answer to question 83:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Regarding this specific question, the DFSA does not have sufficient experience to provide an

answer. However, it should be noted that the DFSA has the general view that legislation should

support open access in order to foster innovation and increased competition.

Question 84. Do you think that the open access regime will effectively

introduce cost efficiencies or other benefits in the trading and clearing areas?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 84.1 If you do think that the open access regime will effectively

introduce cost efficiencies or other benefits in the trading and clearing areas,

please indicate the specific areas (such as type of specific financial

instruments) where, in your opinion, open access could afford most cost

efficiencies or other benefits when compared to the current situation:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

N/A

Question 84.1 Please explain your answer to question 84:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The good experience with introducing competition to equity trading in MiFID I has overall

been a success with lower trading prices, reduced spreads, faster and more resilient

technology, and a fundamental rebalancing of the relationship between the providers of

infrastructure and the investors and issuers.

It seems likely that there is a potential for non-equity instruments to go through the same

transformation, especially as the technology has developed in recent years making the

changes cheaper and/or possible.

Question 85. Are you aware of any market trends or developments (at EU level

or at national level) which are a good or bad example of open access among f

inancial

market

infrastructures?

Please explain your reasoning and specify which countries:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

One could think of MiFID I’s lift of the exchange monopoly and the consequently positive

development, please see our answer to question 84.1.

CSDR does also have potential to increase competition in the European financial markets, but as

the CSDR is new, the results still have to appear.

IX. Digitalisation and new technologies

Technology neutrality is one of the guiding principles of the Commission’s policies and one of the key objectives of the

Commission’s Fintech Action Plan.

A technology-neutral approach means that legislation should not mandate market

participants to use a particular type of technology. It is therefore crucial to address obstacles or identify gaps in existing

EU laws which could prevent the take-up of financial innovation or leave certain of the risks brought by these innovations

unaddressed.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Furthermore, it is evident that digitalisation and new technologies are transforming the financial industry across sectors,

impacting the way financial services are produced and delivered, with possible emergency of new business models. The

digital transformation can bring huge benefits for the investors as well as efficiencies for industry. To promote digital

finance in the EU while properly addressing the new risks it may bring, the Commission is considering proposing a new

Digital Finance strategy building on the work done in the context of the FinTech action plan and on horizontal public

consultations. The Commission recently published

two public consultations focusing on crypto assets and operational

resilience in the financial sector,

and may consult later this year on further topics in the context of the future Digital

Finance strategy.

In that context, and to avoid overlapping, this consultation will only focus on targeted aspects, which are not covered by

these horizontal consultations. The Commission will of course take into consideration any relevant input received in the

horizontal consultations in its future policy work on the MiFID II/MiFIR framework.

Question 86. Where do you see the main developments in your sector: use of

new technologies to provide or deliver services, emergence of new business

models, more decentralised value chain services delivery involving more

cooperation between traditional regulated entities and new entrants or other?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

There seems to be a general movement towards more use of technology, both in using

technology as part of providing services to customers and companies. For example, we have

seen firms offering technologically based solutions addressing the suitability and

appropriateness tests required under MiFID II. The DFSA is in dialogue with companies looking

into more technology-driven solutions for operating MTFs and companies wanting to offer shares

and equity-like instruments to the public in a decentralised manner through the use of blockchain

Additionally, we also see the same development as in other countries and as discussed within

the ESMA and with the European Commission. It includes e.g. crowdfunding to raise capital and

new ways to trade financial instruments, e.g. execution only-trades using apps instead of trading

through a bank’s systems, and an increase in algorithmic trading, including high frequency

trading.

Question 87. Do you think there are particular elements in the existing

framework which are not in accordance with the principle of technology

neutrality

and

which

should

addressed?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

In general, the current regulation is aimed at identifiable legal or physical entities performing a

regulated activity. This is particularly troublesome for services built on decentralised networks,

e.g. block chain. For example it can be difficult to identify an entity for investment services

provided through ‘smart contracts’ on a fully decentral blockchain. Even when it were possible, it

would give rise to questions regarding proportional enforcement of the infringements.

With regard to the use of artificial intelligence (AI), the DFSA has already seen investment firms

using AI for various purposes without the regulation setting prohibitive barriers.

Question 88. Where do you think digitalisation and new technologies would

bring most benefits in the trading lifecycle (ranging from the issuance to

econda ry

trading) ?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

In general, our view is that the use of technology will no doubt have the potential to bring benefits

for the sector. Thus, the focus should be on how new risks can be mitigated by amending or

developing new regulation, thereby assuring that benefits come with an acceptable level of

assurance.

Question 89. Do you consider that digitalisation and new technologies will

significantly impact the role of EU trading venues in the future (5/10 years

time)?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 89.1 Please explain your answer to question 89:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

In general, it is the view of the DFSA that technology has the potential to disrupt the

infrastructure and processes underlying trading venues, which could result in lower entry

barriers.

The online environment puts a strong focus on providing products to customers as fast as possible, with as few barriers

as possible. As far as financial services are concerned, this might endanger retail clients if they do not take enough time

to reflect on purchasing complex financial products. On the other hand, making the product quick and easy to purchase

(e.g. speedy or ‘one-click’ products) makes it easier for clients to buy and sell at least simple investment products online.

Taking all of the above into consideration, the Commission would like to gather feedback on whether certain rules in the

MiFID II/MiFIR framework on marketing and provision of information to clients should be adjusted to better suit the

provision of services online.

Question 90. Do you believe that certain product governance and distribution

provisions of the MiFID II/MiFIR framework should be adapted to better suit

digital and online offers of investment services and products?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 90.1 Please explain your answer to question 90:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 91. Do you believe that certain provisions on investment services

(such as investment advice) should be adapted to better suit delivering of

services through robo-advice or other digital technologies?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 91.1 Please explain your answer to question 91:

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

X. Foreign exchange (FX)

Spot FX contract are not financial instruments under MiFID II/MiFIR. Some stakeholders and competent authorities

raised concerns as regards the regulatory gap and requested the Commission to analyse if policy action would be

needed.

Question 92. Do you believe that the current regulatory framework is

adequately calibrated to prevent misbehaviours in the area of spot foreign

exchange (FX) transactions?

1 - Disagree

2 - Rather not agree

3 - Neutral

4 - Rather agree

5 - Fully agree

Don’t know / no opinion / not relevant

Question 92.1 If you do not believe that the current regulatory framework is

adequately calibrated to prevent misbehaviours in the area of spot foreign

exchange (FX) transactions, which recommendations would you make to

improve the robustness of the regulatory framework?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

The Danish FSA believes that there is a regulatory gap as the spot FX transactions currently do

not fall under the scope of the EU regulation, which could otherwise be relevant in the context of

potential misbehaviours, i.e. MiFID II/ MiFIR or MAR.

Since spot FX transactions are prone to market manipulation, we would recommend improving

the legal mandate for National Competent Authorities to investigate misbehavior in spot FX

markets, including, amongst other things, the ability to question and retrieve information from

financial counterparties and trading venues or platforms trading in the relevant spot FX contracts.

Furthermore, the ability for Member States to sanction market abuse cases in FX spot markets,

e.g. by imposing fines, would also serve to improve the status quo.

The above could be achieved through e.g. the introduction of market regulation targeting spot FX

markets directly, or the introduction of entity based regulation targeting the conduct of senior

managers in financial firms. Such regulation could either take a form of an add-on to the already

existing EU regulation – e.g. MiFID II/MiFIR or MAR – or be introduced through an entirely new

regime applicable only to spot FX, i.e. a tailor-made spot FX regime.

It must be emphasized, however, that the adoption of the Global FX Code of Conduct (the

“Code”) is still ongoing and a review of the code is planned for the near future. As such, any

amendments to existing regulation or introduction of new regulation should be measured and

appropriately take into account the developments in the adoption and review of the Code.

Question 92.1 Please explain your answer to question 92:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It is our view that the introduction of any new regulation for spot FX may be premature at this

point in time. Thus, the development of an FX regime should wait until further experience is

gathered from the application of the Code including after its planned review. Such a way forward

would allow for a proper assessment of the existing regime, which a new FX framework could

build on.

Question 93. Which supervisory powers do you think national competent

authorities should be granted in the area of spot FX trading to address

improper business and trading conduct on that market?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Please see our answer to question 92.1. In addition thereto, it could be considered whether

cases of recidivism should entitle the national competent authorities to impose trading bans on

specific market participants.

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

Section 3. Additional comments

You are kindly invited to make additional comments on this consultation if you

consider that some areas have not been covered above.

Please, where possible, include examples and evidence.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA has no comments.

Question 94. Have you detected any issues beyond those raised in previous

sections that would merit further consideration in the context of the review of

MiFID II/MiFIR framework, in particular as regards to the objective of investor

protection, financial stability and market integrity?

Please explain your answer:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA has not detected any other issues that would merit further consideration in this

context.

Should you wish to provide additional information (e.g. a position paper, report)

or raise specific points not covered by the questionnaire, you can upload your

additional document(s) here:

EUU, Alm.del - 2019-20 - Bilag 653: Notat og høringssvar vedr. EU-Kommissionens offentlige høring om MiFID II/MiFIR

The maximum file size is 1 MB.

You can upload several files.

Only files of the type pdf,txt,doc,docx,odt,rtf are allowed