The financial crisis exposed weaknesses in the functioning and transparency of the financial markets. This led to a commitment by the G20 summit to improve the transparency of financial and commodities markets, mitigate systemic risk, and protect against market abuse. MiFID II and MiFIR are designed to address these objectives by strengthening the transparency framework for the regulation of markets in financial instruments, including where trading in such markets takes place over- the-counter (OTC). Increased transparency boosts investor protection, reinforces confidence, addresses previously unregulated areas, and ensures that supervisors are granted adequate powers to fulfil their duties.
Transparency requirements under MiFID II and MiFIR generally fall into two categories. Firstly, there are general transparency requirements which can be separated into pre-trade and post-trade disclosure of the details of orders submitted to and transactions conducted on a trading venue (i.e. a regulated market (RM), multilateral trading facility (MTF) or organised trading facility (OTF)). Secondly, transaction reporting which involves notifying the competent authority of identifying reference and post-trade data.3 Information must also be given to the regulators and the public regarding positions in commodity derivatives, including emission allowances and derivatives thereof (for more information regarding position controls, please see our briefing on that subject).
Once published, data may be subject to consolidation or further onward reporting by Approved Publication Arrangements (APAs), Approved Reporting Mechanisms (ARMs) and Consolidated Tape Providers (CTPs). Increased transparency will have implications for market participants in respect of additional costs, enhanced technology and the development of other market infrastructure. However, the result will provide greater power to the competent EU authorities to monitor systemic risk and market abuse.
This note gives a brief introduction to the impact of transparency and reporting on different market participants to provide some scale of the changes for those impacted.