MiFIR: European Commission and ESMA issue guidance on the transition to the revisions to MiFIR

On 8 March 2024, the legislative acts to amend the Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II) and the Markets in Financial Instruments Regulation (Regulation (EU) 600/2014) (MiFIR) were published in the Official Journal of the European Union (OJEU).

On 27 March 2024, the European Commission (the Commission) and the European Securities and Markets Authority (ESMA) each published guidance to provide clarity to market participants on the application of, and the transition to, the revised rules. The guidance is discussed in more detail below. The majority of revised MiFIR applies from 28 March 2024. However, a number of key provisions must be supplemented by the Commission delegated acts in order to be fully operational, which means that the existing provisions, together with the existing delegated acts, will continue to apply until the date of application of the new/revised delegated acts, for example, MiFIR Article 26 transaction reporting.

Background

Both Directive (EU) 2024/790 (MiFID II Amending Directive) and Regulation (EU) 2024/791 (MiFIR Amending Regulation) entered into force on 28 March 2024. Member States are required to transpose the MiFID II Amending Directive into national law by 29 September 2025. The MiFIR Amending Regulation applies as of 28 March 2024 subject to its new transitional provision (new Article 54(3)) which specifies that delegated acts adopted under MiFIR that were applicable before 28 March 2024 will continue to apply until the date of application of new delegated acts.

We know from a previous statement issued by ESMA, on 21 March 2024, that ESMA received numerous queries from stakeholders on the provisions applicable as of the date of entry into force of the MiFIR Amending Regulation. As a result, ESMA acknowledged that public guidance was necessary, recognising that new requirements cannot be expected to be implemented without an appropriate lead time, particularly in respect to IT deployments.

The Commission’s draft interpretative notice

On 27 March 2024, the Commission published a draft interpretive notice (annexed to a communication) that aims to provide clarity to market participants on the transitional regime applicable until the new/revised Commission delegated regulations apply. Subject to formal Commission approval, the final notice will be published in the OJEU.

In the notice, the Commission states that the MiFIR Amending Regulation will enter into force on 28 March 2024 and apply as of that date. However, it notes that several provisions in the MiFIR Amending Regulation need to be supplemented by Commission delegated acts to become fully operational and cannot be supplemented adequately by the existing Commission delegated regulations. The Commission confirms that, in those cases, the existing delegated acts (applicable before 28 March 2024), together with the existing provisions in MiFIR that they supplement, will continue to apply until the date of application of the new/revised delegated acts, which will be on a phased basis.

The notice sets out, in further detail, the practical implication of this for specific provisions in MiFIR, particularly in relation to the volume cap mechanism, deferrals for non-equity instruments, the obligation to make pre and post trade data available on a reasonable commercial basis, the quotation rules for Systematic Internalisers (SIs) in equity instruments and transaction reporting obligations.

For example, there will be significant changes to the Article 26 MiFIR transaction reporting regime. The amended MiFIR transaction reporting rules will be supplemented by a new Commission delegated regulation that “will specify which financial instruments that have an index as the underlying need to be reported as well as modify certain details of the transactions to be reported”. Therefore, the revised MiFIR transaction reporting rules cannot be adequately supplemented under the existing Commission delegated regulation (i.e. RTS 22). Until a new Commission delegated regulation is adopted and enters into force, the existing transaction reporting rules under Article 26 MiFIR (as applicable before 28 March 2024) will continue to apply.

ESMA guidance

On 27 March 2024, ESMA issued a statement providing practical guidance on some key areas to contribute to the orderly transition and consistent application of revised MiFIR. Notably, the statement provides further guidance on the new provisions that need to be supplemented by delegated acts and those that are “self-executing” and do not need to be supplemented by delegated acts to be effective.

In particular, ESMA’s statement provides guidance on the practical impact of the transitional provision in new Article 54(3) on provisions relating to volume cap, equity and non-equity transparency, the quotation rules for SIs in equity and non-equity instruments, “designated publishing entity” (DPE) status and transaction reporting.

ESMA confirmed that the changes to the scope of the SI assessment (removing the quantitative test under Article 4(1)(20) of MiFID II), will apply once transposed into national law (within 18 months from 28 March 2024). Investment firms will need to reassess their SI status in advance that date to allow sufficient time to prepare for any potential change in status. In the meantime, ESMA will continue the quarterly publications for the quantitative SI assessment pending the implementation of the revised regime.

ESMA notes that none of the national competent authorities (NCAs) have granted an investment firm DPE status yet. A DPE will be responsible for making a transaction public through an approved publication arrangement when they are a party to it. ESMA has confirmed that the current approach of relying on SIs continues to apply in order to “give NCAs the necessary time for granting the DPE status”. In the meantime, EMSA and NCAs will proceed with the development of the DPE register.

ESMA may issue further and more detailed guidance on the topics covered in its statement at a later stage, if needed.

Next steps

ESMA confirmed that it will develop the draft technical standards required by the MiFIR Amending Regulation as soon as possible within the set deadlines.

ESMA also plans to establish a dedicated webspace to track the development of draft Commission delegated regulations and provide guidance to clarify which provisions are applicable to market participants at a given time.

Firms will need to review the Commission’s interpretive notice and ESMA’s guidance (and any new guidance issued in the future) carefully in order to be fully prepared for the transition to the new rules on the appropriate dates.

Key contacts

Patrick Brandt, Partner, Ciara Brady, Senior Associate, Louise Hogan, Senior Associate, Sarah Lee, Senior Knowledge Lawyer or any member of ALG's Financial Regulation Advisory team.

Published: 17 April 2024