Regulations aimed at enhancing data transparency, removing obstacles to the emergence of consolidated tapes, optimizing the trading obligations and prohibiting receiving payment for order flow have been published in the Official Journal of the European Union.

Regulation 2024/791 amending Regulation (EU) No 600/2014 (MiFIR) and Directive 2024/790 amending Directive 2014/65/EU (MiFID 2) on markets in financial instruments were published on March 8, 2024.

The move introduces consolidated publication systems and pre-trade transparency obligations. Professional and retail investors have access to near-real-time trading data (such as price and volume) on equities, bonds and derivatives on all trading venues in the EU, available in one place. Pre- and post-trade transparency obligations are imposed on trading platforms for bonds, structured financial products, emission allowances, derivatives and order packages.

The Regulation specifies the organizational requirements applicable to consolidated tape providers (CTP).

Consolidated tape providers

Among other things, CTPs:

• collect all data transmitted by data contributors in relation to the asset class for which it is authorized;
• collect fees from users, while providing access, free of charge, to the consolidated tape to retail investors, academics, civil society organizations and competent authorities;
• disseminate core market data and regulatory data to users as a continuous electronic live data stream on non-discriminatory terms as close to real time as technically possible;
• ensure that the core market data and regulatory data are easily accessible, machine-readable and usable for all users, including retail investors;
• have systems in place that can effectively check the completeness of the data transmitted by data contributors, identify obvious errors, and request the resubmission of data;
• adopt, publish on its website and regularly update service level standards covering an inventory of data contributors from whom data are received, modes and speed of delivery of core market data, regulatory data to users, measures taken to ensure operational continuity in the provision of core market data and regulatory data, and a list of the financial instruments that are covered by the consolidated tape.

CTPs have sound security arrangements in place, designed to guarantee the security of the means of transfer of data between the data contributors and the CTP and between the CTP and the users, to minimize the risk of data corruption and unauthorized access. CTPs maintain adequate resources and have back-up facilities in place to offer and maintain services at all times. And they redistribute part of the revenue generated by the consolidated tape. Every year, CTPs publish on their website performance statistics and incident reports relating to data quality and data systems.

The Regulation offsets out a general ban on payment for order flow, a practice pursuant to which brokers receive payments for forwarding orders to certain trading platforms. Member States are, however, able to allow investment firms in their jurisdiction to continue this practice for clients in that Member State until June 30, 2026 (at the latest).

Transparency on markets in financial instruments

The Directive aims at improving transparency on markets in financial instruments. It introduces the definition of “systematic internaliser”, an investment firm which, on an organized, frequent and systematic basis, deals on own account in equity instruments by executing client orders outside a regulated market, a multilateral trading facility (MTF) or an organised trading facility (OTF), without operating a multilateral system, or which opts in to the status of systematic internaliser. According to the Regulation, the systematic internaliser is excluded from the scope of the pre-trade transparency requirements for non-equity instruments.

The Directive strengthens the obligation to execute orders on the most favorable terms to the clients. Thus, investment firms monitor the effectiveness of their order execution arrangements and policy and assess whether the execution venues included in the order execution policy achieve the best possible result for the client. They also inform

• the client of the venue where the order was executed after the execution of such order, and;
• the clients with whom they have an ongoing client relationship, of any amendments of their execution order arrangements or policy.

The Directive is intended to increase the resilience of regulated markets. They must limit or suspend trading in emergency situations or in the event of major fluctuations in the price of a financial instrument, in a calibrated manner to avoid any significant disruptions, and disclose this information on their website.

Regarding investment firms and market operators operating an MTF or an OTF, they are required to have arrangements in place to ensure that they meet data quality standards.

Finally, the Directive introduces transparency obligations for operators of trading venues that trade commodity derivatives or derivatives on emission allowances in so far that they must apply controls on position management and provide daily or weekly reports on positions by category of position holder.

The Regulation and the Directive will enter into force on March 28, 2024. The Regulation will apply immediately in all EU countries, whereas Member States will have to implement the Directive by September 29, 2025.

Aurélia Viémont is a partner in the Banking & Finance team; Sarah Hantscher is a managing associate in the Banking & Finance and Insurance practices; Mélanie Poirrier is a managing associate in CMS Luxembourg Banking & Finance, Regulatory and Insurance practices; and Anne Picot-Guillot is a professional support lawyer in CMS Luxembourg Banking & Finance practice.