Edwin Schooling Latter, head of markets policy at the Financial Conduct Authority, said regulators have been very mindful of balancing market transparency and liquidity in sweeping new regulations covering financial markets in Europe.

He spoke on a panel about Implementing MiFID II across Europe at a conference for wholesale firms hosted by the UK regulator last month.

The European Securities and Markets Authority has chosen an instrument by instrument approach (IBIA) for defining bond liquidity which is crucial under the proposed MiFID II regulations as certain pre-and post-trade requirements will only affect liquid instruments. Schooling Latter said MiFID II will have a significant impact on markets, some of which will be unintended, as transparency requirements are extended to non-equity markets.

“There is a complicated relationship between transparency and liquidity but most participants agree that one of the reasons that equities are so liquid is because the market is so transparent,” added Schooling Latter. “We are aware that requiring transparency for illiquid products and packages will make the job of market-makers more difficult which is why we chose the instrument by instrument approach for bonds versus class of financial instrument approach (COFIA).”

The regulators on the panel warned that firms have enough information to be in the early stages of implementing the MiFID II rules, as far as they are known, and should not assume that the deadline of January 2017 will be delayed.

Schooling Latter said: “Before the implementation of Emir we set out some regulatory priorities for the initial period of the regime. It will help us as regulators if we are kept informed of any implementation problems.”

Patrice Aguesse, head of market regulation division, regulatory policy and international affairs department at the French regulator, Autorité des Marchés Financiers, was also on the panel. Aguesse said: “We are aware of the technical challenges and open to discussing problems as they arise.”

Aguesse said the major MiFID II concerns raised with the French regulator have been the transparency requirements in non-equity markets and the additional data required for trade reporting.

The European Securities and Markets Authority issued more than 1,500 pages of  draft technical standards last month. Delegated Acts, the implementing measures, are expected to be published before the end of this year. If the draft technical standards are approved by the European Commission, Parliament and Council, MiFID II will come into force on 3 January 2017, the date written into the legislation. If changes are not made, the technical standards could be finalised in the first quarter of next year.

The regulators on the panel stressed that national competent authorities cannot delay the implementation date, which can only be changed by the European Commission, Council and Parliament. The Commission needs a qualified majority to reject the proposed standards and the Parliament needs an absolute majority.

Carsten Ostermann, team leader of secondary markets at Esma, said on the panel that the regulator has submitted 28 standards to the European legislators and there are only doubts over the acceptance of two or three.

Ostermann said: “We are aware of the need for further detail as soon as possible. We are setting up our implementation plans but it is a massive project and the legislative work is intensive so it will take time.”

Feature image by Brian Jackson/Dollar Photo Club