The revised Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) have been a long time in development and introduce changes that will have a significant impact. Steven Maijoor, ESMA chair, described the new regulations as ‘the biggest overhaul of financial markets regulation in the EU for a decade.’

The directive covers transparency requirements for a broader range of asset classes; the obligation to trade derivatives on-exchange; requirements on algorithmic and high-frequency-trading and new supervisory tools for commodity derivatives. It will also strengthen protection for retail investors through limits on the use of commissions; conditions for the provision of independent investment advice; stricter organisational requirements for product design and distribution; product intervention powers; and the disclosure of costs and charges.

‘The reform of MiFID is an integral part of the EU’s strategy to address the effects of the financial crisis and aims to bring greater transparency to markets and to strengthen investor protection. These changes are key to restoring trust in our financial markets,’ Maijoor said.

There are concerns that the regulation will be too stringent without sufficient safeguards for investors.

Arjun Singh-Muchelle, senior adviser on regulatory affairs at the Investment Management Association (IMA), said: ‘While our main focus is trying to make a silk purse out of the volume caps, we are also looking for a coherent overall approach to market liquidity that works for investors.

‘On the volume caps, there are a number of questions where we need clarification: Who will provide the data? Will a legal requirement exist to provide the data? Who will be responsible for cleaning the raw market data? And how will it then be interpreted and published by ESMA?

‘ESMA must have the responsibility to closely monitor whether the volume cap is having an adverse impact on liquidity. If so, they need to raise alarm bells and put in place an emergency brake.’

As a result of the new rules, ESMA will have to produce new documentation on Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS), and will also provide technical advice to the European Commission to allow it to adopt delegated acts.

As a consequence, ESMA is releasing two documents. One is the consultation paper on MiFID/MiFIR technical advice, which has to be delivered to the European Commission by December 2014.The other is a discussion paper on MiFID/MiFIR draft RTS/ITS, which is expected to be issued in late 2014 or early 2015.

Maijoor said: ‘We appreciate the magnitude of this exercise for stakeholders. We strongly encourage all those affected by these reforms to provide their views to ensure that we take them into account in our final proposals.’

The closing date for responses to both papers is Friday 1 August. The papers are here: http://www.esma.europa.eu/content/Consultation-Paper-MiFID-IIMiFIR.

ESMA will hold three public hearings about secondary markets, investor protection and commodity derivatives issues on 7 and 8 July, with details to be released on its website shortly.