Jonas Lindqvist, VP Product Management Principal Trading at Itiviti, talks to The TRADE about the past, present and future of MiFID II, with a specific focus on Brexit and the possible impact this will have on firms operating in Europe.
Further to the filming of this video, earlier this week The European Securities and Markets Authority (ESMA) issued a statement in relation to the impact of a no-deal Brexit following the United Kingdom leaving the European Union on 29 March 2019.
ESMA has concluded that in the absence of an equivalence decision for the UK post Brexit, they need to put in place a temporary measure allowing EU firms to continue trading UK shares without interruption.
At the core of the problem lies the MiFIR Trading Obligation for Shares, which states that EU firms must trade shares on Regulated Markets (or equivalent third country venues), MTFs or Systematic Internalisers, unless the trading is deemed “non-systematic, ad-hoc, irregular and infrequent”.
Without a final agreement between the UK and the European Union, UK venues will not be equivalent third country venues, which essentially make trades done at UK venues equivalent to OTC trades, which is only acceptable under the trading obligation if it is done in “non-systematic, ad-hoc, irregular and infrequent basis”.
As a temporary measure, ESMA decided to evaluate which of the UK shares have a liquid market in the Union even when excluding trading done in the UK.
This list of liquid UK shares will still be affected by the Trading Obligation for Shares even after a no deal Brexit.
However, the remaining UK shares will temporarily be treated as illiquid within the Union, regardless of actual liquidity in the UK, and trading these on UK venues will be considered "non-systematic, ad-hoc, irregular and infrequent" and hence in line with the Trading Obligation.
The consequence should be that EU investment firms should be able to continue trading most of the shares listed in the UK but avoid UK venues for the handful of UK instruments where the trading obligation still applies.
Read the full announcement here.