UK’s version of MiFID delivers 'some common sense' – Wholesale Markets Review

On 1 March, HM Treasury (HMT) published their response[1] to the Wholesale Markets Review (WMR) consultation, the exercise first kicked-off by Chancellor of the Exchequer, Rishi Sunak, at his Mansion House speech[2] last year, when he signalled that the UK would make use of “the freedom to do things differently and better”.

John Glen, the City Minister, set out the key points in his speech at an AFME[4] event yesterday – while still aligning to the principles of the EU MiFID regime, the UK has an opportunity to apply common sense to what many see as an overly complicated set of rules. The package of reforms aims to create a simpler, less prescriptive regime.

Is this the beginning of a divergence in regulatory approach between the UK and EU? Glen was quick to point out that this was not just “change for change’s sake” – it is about adapting the framework to the UK market’s needs. The response paper sets out the key objectives: 

  • Simplify the systematic internaliser regime.
  • Remove restrictions on firms’ ability to execute transactions to ensure best outcomes for investors.
  • Reconfigure the transparency regime for fixed income and derivatives markets.
  • Reduce the scope of the commodities position limits regime and delegate it to trading venues.
  • Ensure the FCA[5]  can help support the provision of a consolidated tape.

Some points of interest:

  • Trading Venues:while there is an open consultation from ESMA[6] around trading venue perimeter, the UK WMR also wants to look into the current ambiguity surrounding what is / isn’t a regulated trading venue.

“Although some respondents thought that changes to legislation were necessary to clarify the perimeter, most favoured regulatory guidance instead. The rationale for this was aligned with the position outlined in the consultation proposal; namely, that the regulatory perimeter should be flexible to accommodate changes in technology and not unduly limit innovation and competition”. As opposed to a locked-down legal definition in the EU.

  • Systematic Internalisers (SI): regime is too complex with too many calculations being required to drive the scope of SI, instead moving to a qualitative definition. Proposal to determine an SI at entity level rather an instrument level.
  • Derivative Trading Obligation: the consultation proposed bringing the counterparties in scope of the derivatives trading obligation (DTO) in line with those subject to the clearing obligation (CO). HMT also proposed to remove pre-trade transparency requirements, across all non-equity asset classes, for SIs and RFQ[7] venues (subject to giving further consideration to “all to all” RFQ venues).
  • Market Data: clear support for a consolidated tape for fixed income noting priority around data access, timeliness and quality. The government intends to make the necessary legislative changes to ensure that the FCA has all the necessary tools to take this forward when parliamentary time allows.
  • Transparency: general view that pre-trade was not as valuable as post-trade therefore efforts should be aligned to this. There are overlapping reporting requirements (e.g. MiFIR[8] transaction reporting and EMIR [9] reporting) as well as inconsistencies in the format or representation of data under the various reporting obligations. However, many have undertaken extensive implementation exercises, at significant operational and compliance costs, to meet these requirements and would therefore agree with HMT’s proposal not to make further changes.

While the direction of travel to support a common-sense approach to Wholesale Markets is welcome, many still raise questions as to how far the UK and EU may eventually diverge, despite positive rhetoric about shared principles.

This is just the start.


[1] https://www.gov.uk/government/consultations/uk-wholesale-markets-review-a-consultation

[2] https://www.gov.uk/government/speeches/mansion-house-speech-2021-rishi-sunak

[3] MiFID2 Markets in Financial Instrument Directive II

[4] AFME The Association for Financial Markets in Europe

[5] FCA Financial Conduct Authority

[6] ESMA European Securities & Markets Authority

[7] RFQ Request for quote

[8] MiFIR Markets in Financial Instruments Regulation

[9] EMIR European Market Infrastructure Regulation

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