Tuesday, 4 February 2014

Questions (195)

Andrew Doyle


195. Deputy Andrew Doyle asked the Minister for Finance the way the new agreement on the markets in financial derivatives impact here; and the action he will take on this issue. [5707/14]

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Written answers (Question to Finance)

I believe the Deputy is referring to the Markets in Financial Instruments Directive and Regulation (MiFID II and MiFIR - "MiFID"). Provisional political agreement on this file was achieved on 15 January 2014 but it remains subject to further technical work and will need to be ratified by both the European Parliament and the Council.  MiFID aims to make financial markets more efficient, resilient and transparent, and to strengthen the protection of investors. This is part of the G20 commitments to enhance transparency, mitigate systemic risk and protect against market abuse.

In relation to impacts here, I consider that MiFID will provide for better regulated capital markets where investor protection will be improved. My officials will commence with the transposition work following the entry into force of MiFID.

The provisional agreement reached contains some important provisions on the following areas:

- Investor protection

- Commodities Derivatives

- Trading

- Transparency

- Access to market infrastructure

Investor Protection. MiFID will enhance investor protection through the introduction of rules relating to product governance, product intervention and third-party inducements, and limiting the range of products that can be sold without an appropriateness test. Under the proposals and in order to ensure that retail clients receive unbiased clear information, independent financial advisors will be banned from receiving inducements.

Commodity Derivatives. MiFID contains important provisions which set out new rules for commodity derivative markets. The level of exemptions available has been reduced and more products will be defined as derivative financial instruments when compared with the current MiFID, and will therefore fall within the scope of MiFID and other financial legislation such as Market Abuse. MiFID also contains important provisions relating to position management, position limits and product intervention. These provisions are in respect of all financial instruments, most particularly commodity derivatives, and have the purpose of providing regulators with tools to avoid excessive speculation these financial instruments.

The MiFID proposals complement initiatives taken in other financial services files such as Market Abuse Regulation and Benchmarks, and together they are expected to result in a tighter regime for all commodity derivative markets, including food securities, whether traded Over-the-Counter (OTC) or through exchanges. This new legislative environment will be much more prescriptive than the current situation and will serve to prevent market abuse and to support orderly pricing in commodity derivatives and related commodity markets.

Trading. As part of the EU's G-20 commitment to enhance transparency on the Financial Markets, the MiFID proposals will likely see a significant proportion of trading on the OTC derivatives market move to a regulated venue. This will be achieved through the introduction of a new trading venue category called the Organised Trading Facility (OTF). This will have the effect of making European markets more transparent, subject to greater regulatory oversight, and of levelling the playing field between various venues offering trading services.

Transparency. The financial crisis exposed weaknesses in the transparency of financial markets; therefore strengthening transparency was an important aim of MiFID. It seeks to do this by introducing a new framework establishing requirements for the transparency of transactions in markets for financial instruments. The proposals will also cover non-equity instruments which will bring the EU in line with the approach undertaken in the US.

Access to market infrastructure. The proposals introduce non-discriminatory access to key market infrastructure such as trading venues, central clearing houses and benchmarks. This will increase competition and enhance investor protection.