The Markets in Financial Instruments Directive 2014/65/EU (MiFID II) introduces a new type of services that are subject to authorisation and supervision: Data Reporting Services (DRSs) operated by Data Reporting Services Providers (DRSPs).

                       
                 
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DRSPs include the operation of:

Approved Publication Arrangements (APAs)

Approved Reporting Mechanisms (ARMs)and 

Consolidated Tape Providers (CTPs).

 

Authorisation requirements for DRSPs

 

Although the above types of DRSPs are engaged in different activities, MiFID II provides for similar authorisation process for all those entities. The common rules are laid down in Articles 59 - 63 MiFID II (see box). The overarching purpose is to ensure the integrity and security of the data DRSPs will handle.

Among the first DRSPs authorised by the UK FCA as from 3 January 2018 as an APA/ARM were London Stock Exchange plc, Bloomberg Data Reporting Services Limited, Abide Financial DRSP Limited and Xtrakter Limited APA/ARM while APA’s authorisation have Bats Trading Limited and Tradeweb Europe Limited.

clip2   Links

 

Data Reporting Services Providers (DRSPs) Register

 

Consolidated tape

 

FCA website on Data Reporting Services Providers

It is noteworthy, European Commission proposes to transfer the powers to authorise and supervise the Data Reporting Services Providers from the national competent authorities to ESMA by introducing new Articles 27a-27h in MiFIR and deleting Articles 59-66 in MiFID II (Working document on on the proposals to amend the European System of Financial Supervisions, Committee on Economic and Monetary Affairs, 23.01.2018 (COM(2017/0536 - C8- 0319/2017 - 2017/0230(COD), COM(2017/0537 - C8-0318/2017 - 2017/0231(COD), COM(2017/0538 - C8-0317/2017 - 2017/0232(COD)).

In the Brexit context the European Commission reminded on 13 July 2020 in the Notice to Stakeholders on Withdrawal of the United Kingdom and EU rules in the field of markets in financial instruments (REV1 - replacing the notice dated 8 February 2018) that, in the absence of the relevant agreement, UK based data reporting service providers which have not obtained a MiFID authorisation by a competent authority established in the EU will have to cease to serve EU markets.

 

 

MiFID II Articles 59 - 63

 

Authorisation procedures for data reporting services providers

 

Article 59

Requirement for authorisation

 

1. Member States shall require that the provision of data reporting services described in Annex I, Section D as a regular occupation or business be subject to prior authorisation in accordance with this Section. Such authorisation shall be granted by the home Member State competent authority designated in accordance with Article 67.

 

2. By way of derogation from paragraph 1, Member States shall allow an investment firm or a market operator operating a trading venue to operate the data reporting services of an APA, a CTP and an ARM, subject to the prior verification of their compliance withthis Title. Such a service shall be included in their authorisation.

 

3. Member States shall register all data reporting services providers. The register shall be publicly accessible and shall contain information on the services for which the data reporting services provider is authorised. It shall be updated on a regular basis. Every authorisation shall be notified to ESMA.

ESMA shall establish a list of all data reporting services providers in the Union. The list shall contain information on the services for which the data reporting services provider is authorised and it shall be updated on a regular basis. ESMA shall publish and keep up-to-date that list on its website.

Where a competent authority has withdrawn an authorisation in accordance with Article 62, that withdrawal shall be published on the list for a period of 5 years.

 

4. Member States shall require data reporting services providers to provide their services under the supervision of the competent authority. Member States shall ensure that competent authorities keep under regular review the compliance of data reporting servicesproviders with this Title. They shall also ensure that competent authorities monitor that data reporting services providers comply at alltimes with the conditions for initial authorisation established under this Title.

 

Article 60
Scope of authorisation

 

1. The home Member State shall ensure that the authorisation specifies the data reporting service which the data reporting servicesprovider is authorised to provide. A data reporting services provider seeking to extend its business to additional data reportingservices shall submit a request for extension of its authorisation.

 

2. The authorisation shall be valid for the entire Union and shall allow a data reporting services provider to provide the services, forwhich it has been authorised, throughout the Union.

 

Article 61

Procedures for granting and refusing requests for authorisation

 

1. The competent authority shall not grant authorisation unless and until such time as it is fully satisfied that the applicant complieswith all requirements under the provisions adopted pursuant to this Directive.

 

2. The data reporting services provider shall provide all information, including a programme of operations setting out, inter alia, thetypes of services envisaged and the organisational structure, necessary to enable the competent authority to satisfy itself that thedata reporting services provider has established, at the time of initial authorisation, all the necessary arrangements to meet itsobligations under the provisions of this Title.

 

3. An applicant shall be informed, within six months of the submission of a complete application, whether or not authorisation hasbeen granted.

 

4. ESMA shall develop draft regulatory technical standards to determine:

(a) the information to be provided to the competent authorities under paragraph 2, including the programme of operations;

(b) the information included in the notifications under Article 63(3).

ESMA shall submit the draft regulatory technical standards referred to in the first subparagraph to the Commission by 3 July 2015.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordancewith Articles 10 to 14 of Regulation (EU) No 1095/2010.

 

5. ESMA shall develop draft implementing technical standards to determine standard forms, templates and procedures for thenotification or provision of information provided for in paragraph 2 of this Article and in Article 63(4).

ESMA shall submit those draft implementing technical standards to the Commission by 3 January 2016.

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph inaccordance with Article 15 of Regulation (EU) No 1095/2010.

 

Article 62

Withdrawal of authorisations

 

The competent authority may withdraw the authorisation issued to a data reporting services provider where the provider:

(a) does not make use of the authorisation within 12 months, expressly renounces the authorisation or has provided no datareporting services for the preceding six months, unless the Member State concerned has provided for authorisation to lapse insuch cases;
(b) has obtained the authorisation by making false statements or by any other irregular means;

(c) no longer meets the conditions under which authorisation was granted;

(d) has seriously and systematically infringed the provisions of this Directive or of Regulation (EU) No 600/2014.

 

Article 63

Requirements for the management body of a data reporting services provider

 

1. Member States shall require that all members of the management body of a data reporting services provider shall at all times be ofsufficiently good repute, possess sufficient knowledge, skills and experience and commit sufficient time to perform their duties. The management body shall possess adequate collective knowledge, skills and experience to be able to understand the activities ofthe data reporting services provider. Each member of the management body shall act with honesty, integrity and independence ofmind to effectively challenge the decisions of the senior management where necessary and to effectively oversee and monitormanagement decision-making where necessary.Where a market operator seeks authorisation to operate an APA, a CTP or an ARM and the members of the management body ofthe APA, the CTP or the ARM are the same as the members of the management body of the regulated market, those persons aredeemed to comply with the requirement laid down in the first subparagraph.

 

2. ESMA shall, by 3 January 2016, develop guidelines for the assessment of the suitability of the members of the management bodydescribed in paragraph 1, taking into account different roles and functions carried out by them and the need to avoid conflicts ofinterest between members of the management body and users of the APA, CTP or ARM.

 

3. Member States shall require the data reporting services provider to notify the competent authority of all members of itsmanagement body and of any changes to its membership, along with all information needed to assess whether the entity complieswith paragraph 1.

 

4. Member States shall ensure that the management body of a data reporting services provider defines and oversees theimplementation of the governance arrangements that ensure effective and prudent management of an organisation including thesegregation of duties in the organisation and the prevention of conflicts of interest, and in a manner that promotes the integrity of themarket and the interest of its clients.

 

5. The competent authority shall refuse authorisation if it is not satisfied that the person or the persons who shall effectively direct thebusiness of the data reporting services provider are of sufficiently good repute, or if there are objective and demonstrable grounds forbelieving that proposed changes to the management of the provider pose a threat to its sound and prudent management and to theadequate consideration of the interest of its clients and the integrity of the market.

 

 

 

Requirements with respect to the management body of Data Reporting Services Providers

 

Requirements with respect to the management body of Data Reporting Services Providers are stipulated in Article 63 and Recital 53 MiFID II (see box).

  

 

MiFID II Article 63 

 

Requirements for the management body of a data reporting services provider

 

1. Member States shall require that all members of the management body of a data reporting services provider shall at all times be ofsufficiently good repute, possess sufficient knowledge, skills and experience and commit sufficient time to perform their duties.

 

The management body shall possess adequate collective knowledge, skills and experience to be able to understand the activities ofthe data reporting services provider. Each member of the management body shall act with honesty, integrity and independence ofmind to effectively challenge the decisions of the senior management where necessary and to effectively oversee and monitormanagement decision-making where necessary.

 

Where a market operator seeks authorisation to operate an APA, a CTP or an ARM and the members of the management body ofthe APA, the CTP or the ARM are the same as the members of the management body of the regulated market, those persons aredeemed to comply with the requirement laid down in the first subparagraph.

 

2. ESMA shall, by 3 January 2016, develop guidelines for the assessment of the suitability of the members of the management bodydescribed in paragraph 1, taking into account different roles and functions carried out by them and the need to avoid conflicts ofinterest between members of the management body and users of the APA, CTP or ARM.

 

3. Member States shall require the data reporting services provider to notify the competent authority of all members of itsmanagement body and of any changes to its membership, along with all information needed to assess whether the entity complieswith paragraph 1.

 

4. Member States shall ensure that the management body of a data reporting services provider defines and oversees theimplementation of the governance arrangements that ensure effective and prudent management of an organisation including thesegregation of duties in the organisation and the prevention of conflicts of interest, and in a manner that promotes the integrity of themarket and the interest of its clients.

 

5. The competent authority shall refuse authorisation if it is not satisfied that the person or the persons who shall effectively direct thebusiness of the data reporting services provider are of sufficiently good repute, or if there are objective and demonstrable grounds forbelieving that proposed changes to the management of the provider pose a threat to its sound and prudent management and to theadequate consideration of the interest of its clients and the integrity of the market.

 

MiFID II Recital 53

 

It is necessary to strengthen the role of management bodies of investment firms, regulated markets and data reporting services providers in ensuring sound and prudent management of the firms, the promotion of the integrity of the market and the interest of investors. The management body of an investment firm, regulated markets and data reporting services providers should at all times commit sufficient time and possess adequate collective knowledge, skills and experience to be able to understand the firm's activities including the main risks. To avoid group thinking and facilitate independent opinions and critical challenge, management bodies should therefore be sufficiently diverse as regards age, gender, geographic provenance and educational and professional background to present a variety of views and experiences. Employee representation in management bodies could also, by adding a key perspective and genuine knowledge of the internal workings of firms, be seen as a positive way of enhancing diversity. Therefore, diversity should be one of the criteria for the composition of management bodies. Diversity should also be addressed in firms' recruitment policy more generally. That policy should, for instance, encourage firms to select candidates from shortlists including both genders. In the interests of a coherent approach to corporate governance it is desirable to align the requirements for investment firms as far as possible to those included in Directive 2013/36/EU.

 

 

Article 63(2) of MiFID II empowers ESMA to develop guidelines for the assessment of the suitability of the members of the management body of DRSPs - ESMA in that regard issued Guidelines on specific notions under MiFID II related to the management body of market operators and data reporting services providers, 5 October 2016, ESMA/2016/1437.

 

Regulatory framework for DRSPs' services

 

Detailed regulatory conditions governing the DRSPs' operations are framed by Articles 84 - 89 of the Commission Delegated Regulation (EU) of 25.4.2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive. The above framework is supplemented by Commission Delegated Regulation (EU) 2017/571 of 2 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards on the authorisation, organisational requirements and the publication of transactions for data reporting services providers.

According to Recital 14 of the latter Regulation, all DRSPs are required to monitor that the data they are publishing or submitting is accurate and complete. DRSP is, moreover, under the obligation to have mechanisms for detecting errors or omissions caused by the client or itself.

Article 8(3) and (4) of the said Commission Delegated Regulation (EU) 2017/571 of 2 June 2016 requires a data reporting services provider to promptly notify the competent authority of its home Member State of any planned significant changes to the IT system prior to their implementation (in the case of ARMs, the above notifications must also be made to any competent authority to whom the ARM submits transaction reports).

According to Article 59(3) of MiFID II ESMA is required to publish and keep up to date a list of all Data Reporting Services Providers (DRSPs) in the European Union on its website (the register contains also data related to European Economic Area (EEA) / European Free Trade Association (EFTA) States). This list contains information on the service for which the DRSP is authorised, i.e. APA, ARM and CTP.

 

  

Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive, Articles 84 - 89

 

Article 84
Obligation to provide market data on a reasonable commercial basis
(Article 64(1) and 65(1) of Directive 2014/65/EU)

1. For the purposes of making market data containing the information set out in Articles 6, 20 and 21 of Regulation (EU) No 600/2014 available to the public on a reasonable commercial basis in accordance with Articles 64(1) and 65(1) of Directive 2014/65/EU, approved publication arrangements (APAs) and consolidated tape providers (CTPs) shall comply with the obligations set out in Articles 85 to 89.

2. Articles 85, 86(2), 87, 88(2) and 89 shall not apply to APAs or CTPs that make market data available to the public free of charge.

 

Article 85
Provision of market data on the basis of cost
(Article 64(1) and 65(1) of Directive 2014/65/EU)

1. The price of market data shall be based on the cost of producing and disseminating such data and may include a reasonable margin.
2. The costs of producing and disseminating market data may include an appropriate share of joint costs for other service provided by APAs and CTPs. 


 

Article 86 


Obligation to provide market data on a non-discriminatory basis


(Article 64(1) and 65(1) of Directive 2014/65/EU)

1. APAs and CTPs shall make market data available at the same price and on the same terms and conditions to all customers falling within the same category in accordance with published objective criteria.
2. Any differentials in prices charged to different categories of customers shall be proportionate to the value which the market data represent to those customers, taking into account:
(a) the scope and scale of the market data including the number of financial instruments covered and trading volume;
(b) the use made by the customer of the market data, including whether it is used for the customer's own trading activities, for resale or for data aggregation.
3. For the purposes of paragraph 1, APAs and CTPs shall have scalable capacities in place to ensure that customers can obtain timely access to market data at all times on a non-discriminatory basis. 


 

Article 87 


Per user fees


(Article 64(1) and 65(1) of Directive 2014/65/EU)

1. APAs and CTPs shall charge for the use of market data on the basis of the use made by individual end-users of the market data ('per user basis'). APAs and CTPs shall have arrangements in place to ensure that each individual use of market data is charged only once.
2. By way of derogation from paragraph 1, APAs and CTPs may decide not to make market data available on a per user basis where to charge on a per user basis is disproportionate to the cost of making market data available, having regard to the scale and scope of the market data.
3. APAs or CTPs shall provide grounds for the refusal to make market data available on a per user basis and shall publish those grounds on their webpage.


Article 88
Unbundling and disaggregating market data
(Article 64(1) and 65(1) of Directive 2014/65/EU)

1. APAs and CTPs shall make market data available without being bundled with other services.
2. Prices for market data shall be charged on the basis of the level of market data disaggregation provided for in Article 12(1) of Regulation (EU) No 600/2014 as further specified in Articles [Delegated regulation reference to RTS on data disaggregation]. 


 

Article 89 


Transparency obligation


(Article 64(1) and 65(1) of Directive 2014/65/EU)

1. APAs and CTPs shall disclose and make easily available to the public the price and other terms and conditions for the provision of the market data in a manner which is easily accessible.
2. The disclosure shall include the following:
(a) current price lists, including the following information:
(i) fees per display user;
(ii) non-display fees;
(iii) discount policies;
(iv) fees associated with licence conditions;
(v) fees for pre-trade and for post-trade market data;
(vi) fees for other subsets of information, including those required in accordance with the regulatory technical standards pursuant to Article 12(2) of Regulation (EU) No 600/2014;
(vii) other contractual terms and conditions;


(b) advance disclosure with a minimum of 90 days' notice of future price changes;


(c) information on the content of the market data including the following information:
(i) the number of instruments covered;
(ii) the total turnover of instruments covered;
(iii) pre-trade and post-trade market data ratio;
(iv) information on any data provided in addition to market data;
(v) the date of the last licence fee adaption for market data provided;


(d) revenue obtained from making market data available and the proportion of that revenue compared to total revenue of the APA or CTP;


(e) information on how the price was set, including the cost accounting methodologies used and information about the specific principles according to which direct and variable joint costs are allocated and fixed joint costs are apportioned, between the production and dissemination of market data and other services provided by APAs and CTPs.

 

  

 

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