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Regulated market means a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments in the system, in accordance with its non-discretionary rules, in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with the provisions of Title III of MiFID Directive.
ESMA database of European regulated markets see here. This is a key source for credible data on regulated markets activity in Europe.
For example, the MiFID II Impact Assessment of the UK HM Treasure (p. 17) referred to the fact the ESMA database showed there were (at the time of the document) 13 regulated markets in the UK and that was 13% of the total 104 regulated markets in Europe.
As the ESMA's list of regulated markets exhibits, most European countries have only a small number of regulated markets. The exceptions are Germany, United Kingdom, Spain and Italy, which posess a higher than average number.
In addition to the EU, the ESMA's list includes also regulated markets in Norway and Iceland.
The database lists also identification codes for regulated markets. The list is published for the purpose of identification of the counterparty to the transaction as regards to transaction reporting.
MiFIR undelines that the definitions of regulated market and multilateral trading facility (MTF) represent effectively the same organised trading functionality.
The said definitions exclude bilateral systems where an investment firm enters into every trade on own account, even as a riskless counterparty interposed between the buyer and seller.
Both regulated markets and MTFs execute orders in accordance with non-discretionary rules - an element differentiating them from organised trading facilities (OTFs).
Regulated markets and MTFs are not allowed to execute client orders against proprietary capital.
As opposite to MTFs and OTFs, regulated markets are characterized by the fact that the operating of this type of multilateral system does not represent an investment activity or service.
Pursuant to Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR) derivatives contracts the execution of which does not take place on a regulated market (or on an equivalent third-country market) are over-the-counter (OTC) derivatives.
For the purposes of the definition of OTC derivatives, in accordance with Articles 2a(3) and 2(7) of EMIR ESMA publishes the List of third-country markets considered as equivalent to a regulated market in the European Union.
In particular, European Commission deems US Designated Contract Markets (DCMs) that operate under the regulatory oversight of the CFTC as equivalent to EU regulated markets in accordance with EMIR - see the Commission Implementing Decision (EU) 2016/1073 of 1 July 2016 on the equivalence of designated contract markets in the United States of America in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council.
The Decision went into force on 22 July 2016. A list of the relevant DCMs is set out in the Annex to the said Commission Implementing Decision.
The practical effect of the Decision is that products traded on equivalent third-country markets (in this case DCMs subject to CFTC regulatory oversight) no longer fall under the OTC derivative definition under EMIR Article 2(7) and therefore are no longer subject to the EMIR obligations relevant to OTC derivatives (such as the inclusion within the calculation of the clearing threshold for non-financial counterparties).
Further, on 16 December 2016 the European Commission has adopted equivalence decisions to the same effect in relation to Australia, Canada, Japan and Singapore determining that the rules governing trading venues in those countries can be deemed equivalent to those in the EU (the European Commission's Press release IP/16/4385).
Impact on collateral
As said above, unlike MTFs and OTFs, positions on regulated markets (or on an equivalent third-country market) do not count towards EMIR clearing thresholds.
Pursuant to Article 29(1) MiFIR the operator of a regulated market must ensure that all transactions in derivatives that are concluded on that regulated market are cleared by a CCP.
It means, collateral applied for regulated markets trading will have to fulfil identical requirements to the ones already used for OTC markets under EMIR.
Hence, after the MiFID II entry into force derivatives trading settlements carried out on regulated markets will be governed by Article 46 EMIR (see here details for the collateral settlement on the OTC market under EMIR).
EMIR reporting requirement covers all derivatives, hence positions on all trading venues (regulated markets, MTFs, OTFs alike) and OTC are equally covered.
General operating conditions for regulated markets
MiFID II framework for regulated markets reflects the regulation of investment firms in respect of the conditions for authorisation and the general operating conditions. In particular, there are requirements governing:
- the stability of the management;
- the suitability of those who control the management; and
MiFID I already has the category of regulated markets. The changes to the existing framework for algorithmic trading and transparency notwithstanding, the most significant change MiFID II makes with respect to regulated markets is the update of the provisions dealing with the suitability of the management in the same way as the similar provisions for investment firms, and, more broadly, the introduction of a modified regime for the operation of the management board.
Consequently, when it comes to costs, regulated markets will need to commit resources to reviewing their existing management board arrangements to ensure that they comply with the specific requirements under MiFID II and make the necessary changes.
However, the management board requirements are aimed at ensuring that regulated markets are more effectively run. This should also help to strengthen the resilience of secondary trading and the quality of trading services that are offered (Financial Conduct Authority, Markets in Financial Instruments Directive II Implementation – Consultation Paper I (CP15/43), December 2015, CP15/43, p. 56).
MiFID II contains, moreover, provisions, which deal with the specifics of regulated markets. Among them are:
The above provisions are aimed at investor protection and ensuring that regulated market is properly run and has clear, transparent and non-discriminatory rules. Another purpose is that regulated markets are properly monitored and enforced.
MiFID II Directive leaves these provisions largely unchanged (with some exceptions relating to the suspension and removal of instruments from trading).
As with investment firms MiFID II introduces new provisions for regulated markets dealing with algorithmic trading. The requirements seek to ensure that the regulated markets have proper governance, testing and continuity arrangements around algorithmic trading to minimise disruption to trading on their markets. They also seek to ensure that trading venues encourage market making particularly in stressed market conditions.
|Last Updated on Friday, 05 May 2017 20:20|