CESR consultatie ISD-2 Richtlijn

CESR consultatie ISD-2 Richtlijn

Markt-deelnemers, en met name 'retail investors' worden uitgenodigd te reageren op het consultatie-document. De consultatieperiode sluit op 17 september 2004. Gedurende deze periode (op 8/9 juli) zal CESR een Open Hearing houden te Parijs. De Autoriteit Financiële Markten zal een Open Hearing organiseren op 30 juni aanstaande.

Originele persbericht:

CESR BEGINS ITS FIRST CONSULTATION ON ITS DRAFT ADVICE TO THE EUROPEAN COMMISSION ON THE NEW INVESTMENT SERVICES DIRECTIVE

CESR publishes its first consultation paper on its draft advice to the European Commission regarding the possible technical measures to implement the proposed Markets in Financial Instruments Directive (MIFID) which revises the existing Investment Services Directive (ISD). CESR requests comments and reactions to its proposal and to the specific questions raised in the document by 17 September from both market participants and, in particular, from retail investors. A public hearing will also be held in Paris at CESR's premises on 8 and 9 July.

CESR's draft advice published today is structured into three sections relating to the regulation of intermediaries, markets and co-operation and enforcement issues.

• CESR's advice on Intermediaries covers the provisional mandates regarding organisational requirements for intermediaries, including internal compliance and control, internal procedures and systems for the provision of services, outsourcing of services, record keeping, safeguarding of clients' assets and funds; identification and management of conflicts of interest; conduct of business obligations, including fair, clear and not misleading information, information to clients, clients' agreement, best execution obligations and order handling rules.

In particular, CESR advice includes:

• A common approach to compliance and systems of internal control (Article 13): CESR proposes, for example, that investment firms be required to establish permanent and effective compliance policies, procedures and functions. In particular, the compliance function has to monitor, on an ongoing basis, the adequacy and effectiveness of the internal policies and procedures and report results at least to senior management. In addition, investment firms will have to set up, where appropriate, internal audit control systems and independent and internal audit risk control functions. This approach should enhance and strengthen the effectiveness of initial measures to check compliance with applicable rules and should therefore help regulators to detect any misbehaviour and by so doing protect investors;
  
• An initial proposal to achieve a common approach on best execution (Article 21): The Directive establishes a key rule to ensure that best execution is achieved despite the fragmentation of trading venues, which is a new scenario. At this stage, CESR's draft advice indicates its first orientations on this subject in the format of a concept paper which includes a summary of factors that investment firms have to take into account when achieving the best possible results for their clients. It also puts forward a proposal on how the 'order execution' policy should be designed and reviewed by investment firms. These measures are intended to increase investor protection and market efficiency.
  
• Key proposals on conflicts of interest, including inducements and specific proposals on investment research (Articles 13 and 18): CESR draft advice is intended to enhance the regulatory response to the emergence of conflicts between investment firms and or between the clients of investment firms. The proposed advice highlights criteria for the identification of conflicts; it also requires investment firms to pay special attention to proprietary trading, portfolio management and corporate finance business. The key proposal is that investment firms have to establish, maintain and enforce a written policy for identifying, preventing and managing conflicts.
  
  - CESR's advice on Markets covers the mandates on pre and post trade transparency information with the exception of the so called quote disclosure for systematic internalisers (which is expected to be included in the next set of Commission mandates anticipated shortly). Additionally, it covers the requirements thatdifferent instruments have to fulfil in order to be traded on regulated markets. For example, CESR's advice in relation to three key (markets) issues is as follows:
  
• The method and timing of disclosing the pre and post-trade information: In order to protect investor confidence, markets must function transparently and to achieve this, it is important that market users can access consolidated information from all the different trading venues so that prices can be compared. The Directive requires certain minimum information requirements to be met. CESR's draft advice proposes that the information should include the following (minimum) elements: Type of quote/order i.e. bids or offer; Security identifier (the code of the financial instrument); the number of shares the market participant is ready to buy (or sell), and the price at which the market participant is willing to buy (or sell). In addition, it proposes that information must be readily available and provided in a format that will enable a third party, such as a data disseminator to consolidate this information. Furthermore, this information should be released in real time during trading hours.
  
• Exemptions from transparency: In some cases, there are justified reasons to make exemptions from the pre-trade transparency or allow delays in post-trade transparency. CESR's draft advice proposes that these exemptions should apply not only to block trades waivers but also to certain market models such as "crossing systems" and certain types of orders such as iceberg orders. Consultees are invited to analyse whether there are other cases where exemptions should be allowed.
  
• Requirements for admission to trading (Art 40 ): CESR's draft proposals highlight the responsibility of regulated markets in making sure that fair and orderly trading is possible. CESR's draft advice indicates what regulated markets should consider when accepting a financial instrument to trading. In particular, it identifies the following elements that should be taken into account: the free float (in case of equity), the expected trading activity of the instrument and the appropriateness of the planned trading mechanism for the instrument together with some additional requirements for derivatives. The proposals are formulated in an open way and do not contain exact thresholds. The transparency requirements described in the two bullet points below fall within Articles 28, 29, 30, 44 and 45.
  
  - CESR's advice on co-operation and enforcement covers the provisional mandates regarding: transaction reporting, co-operation between competent authorities and exchange of information. It mainly addresses the following:
  
• Transaction reporting (Art. 25 par. 4 and 5): CESR's advice aims at proposing a common minimum content for transactions reports that competent authorities would request from investment firms and that they would be able to exchange on the basis of a common format. In this exercise, CESR has, to the fullest extent possible, taken into account the characteristics of existing reporting systems. In addition, the Directive establishes the channels to report financial transactions to the competent authority by investment firms, either directly or via regulated markets, multilateral trading facilities and trade-matching or reporting systems. CESR's draft advice sets out some minimum standards that these reporting channels must meet. From a prudential standpoint this will improve the quality of information reported, the timeliness of these reports, and the security and efficiency of the reporting process generally. In addition, the harmonisation of these requirements will make it easier for the transaction reports to be exchanged between competent authorities.
  
• Criteria for determining the most relevant market in terms of liquidity (Article 25 par. 3): To ensure market integrity is maintained and competent authorities can identify any potential cases of market abuse, the competent authority of the most liquid market for each particular financial instrument is entrusted with the responsibility of developing a complete overview of the activity regarding a financial instrument across Europe. In order to be in a position to prepare this, the Directive states that this authority should receive transaction reports for this instrument from fellow competent authorities. CESR's advice seeks to identify how supervisors will establish which competent authority is the most appropriate to take on this role. CESR proposes a "proxy approach", which means for example, that in case of shares, the competent authority of the most liquid market would be established by identifying where the share was first admitted to trading. In cases where the proxy approach does not provide a reliable result in the view of a supervisor, CESR proposes a revision procedure where more detailed statistics on liquidity are gathered from the various potential competent authorities; on the basis of this the potential supervisors would reach agreement on who should take on this role. Whilst these arrangements will not alter to whom firms or markets report, efficiency in how this is carried out could potentially have indirect cost implications for firms and markets.
  
• Co-operation and exchange of information (Art. 58): CESR proposes a general framework for co-operation between competent authorities. CESR's draft advice sets out, in particular, how requests from fellow regulators should be handled for different categories of confidential information and to whom requests for information should be made. The framework aims at striking a balance between greater clarity and legal certainty in this area, but also tries to be adaptable enough to cater for the many potential scenarios that may arise. Although cooperation among regulators is not of primary interest to market participants, effective arrangements for exchange of information are of importance for maintaining integrity of increasingly integrated markets and can reduce costs of competent authorities by increasing the efficiency of exchange of information.

Background

The EU Commission's provisional mandates, published by CESR on 22 January (Ref. CESR/04-021), requested CESR to submit its advice on the appropriate measures to implement the Directive by 31 January 2005. The implementing measures upon which CESR is giving technical advice will complement the high level political objectives (known as level 1 measures of the Lamfalussy Directive) which were adopted by the European Council on 21 April 2004, following a second reading in the European Parliament in March 2004. Additionally, CESR published with the Commission mandates in January 2004, the key milestones in CESR's work programme for this Directive (Ref. CESR/04-021) which includes an indicative consultative timetable. A second set of mandates from the European Commission is likely to follow shortly.

CESR's draft advice published today follows a call for evidence on 20 January (Ref. CESR/04-021) and approximately 40 responses were received. In addition, CESR published a concept paper on cooperation and enforcement on 1 March (Ref. CESR/04-073b) on which approximately 25 responses were received. The responses received can be found on CESR's website under the section consultations and past consultations.

The European Commission published on 22 January 2004, the first set of provisional mandates and requested CESR's technical advice to develop what is known under the Lamfalussy legislative process as the Level 2 technical implementing measures. The decision to revise the ISD, originally adopted in 1993, reflects common agreement that structural changes in EU financial markets requires legislation to be adapted in order to advance integration of the single market in financial services. MIFID will form one of the the cornerstones of the EU's securities regulatory regime, and is intended to deliver an effective 'single passport' allowing investment firms and regulated markets to operate across Europe.

The new Directive will, for example, broaden the range of investment services for which authorisation is required under the existing ISD Directive; clarify and expand the list of financial instruments that may be traded on regulated markets and between investment firms; it will also introduce rules on the provision of investment advice and conflicts of interest. Standards for regulated markets and multilateral trading facilities will be included, as well as new rules on handling client orders.

Responses to the Consultation can be submitted online by 17 September 2004 through CESR's website under the section 'Consultations'. Similarly to register for the hearing please visit the section 'Hearings'.