The Directive MiFID II disposes a series of provisions concerning three different types of trading venues, enriching the European scenario of financial markets.
Nowadays, other than the traditional official stock exchanges, European legislation encompasses also: Regulated Markets (“RMs”), Multilateral Trading Facilities (“MTFs”) and Organized Trading Facilities (“OTFs”). The most relevant part of this Directive provides norms concerning the process through which these trading venues may be established. It lays down the formal requirements and the characteristics that any Member State should evaluate while deciding on the authorisation to carry out this particularly critical activity. By doing this, European Union has harmonized the provisions in this field, granting a minimum level of control over these spreading phenomena. Whenever an undertaking is willing to exercise an activity as a market operator must compulsorily comply with all the requirements laid down in the directive. Depending on the type of trading venue it is going to be set up, such requirements may be stronger or flooder.
112 SeeENRIQUES,L.,GARGANTINI,M.(2017)The Overarching Duty to Act in the Best Interest of the Client in MiFID II in BUSCH,D.,FERRARINI,G. (eds.) Regulation of the EU Financial Markets: MiFID II and MiFIR, chapter 4.
113 Directive 2014/65/EU of 14 May 2014, recitals (71) and (72).
114 Recital (86) establishes how to reach better investors’ protection is necessary to create a distinction between three different categories: retail, professional and counterparties investors. However, the principles to “act honestly, fairly and professionally and the obligation to be fair, clear and not misleading apply to the relationship with any clients”.
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However, for the purposes of this dissertation, it is relevant to underline the conditions that the Directive establishes related to the admission of financial instruments to trading on regulated markets. As it will be underlined in the third chapter, regulated market may be defined as:
“a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments – in the system and in accordance with its non-discretionary rules – in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly”115. Regulated markets are “subject to the most onerous standards with respect to the issuer admission”116, especially if compared with other different types of trading systems.
This legal tool is focused also on the step further, establishing precise rules concerning the activity of a trading venues once it has been authorized.
As regards Regulated Markets (RMs), the most important provision is article 51.
According to this provision, Member States must have a clear and transparent set of rules regarding the admission of financial instruments to trading. More precisely, financial instruments must be capable of being traded in a fair, orderly and efficient manner. This provision is manifestly inspired to the cornerstones of the European capital market law. It ensures that each regulated market operator disposes of regulations able to grant transparency on two sides. On the first one, an issuer seeking for admission to trading of its financial instruments may have a whole picture of the prerequisites. On the other, once the financial instruments are admitted, there is an assurance that its trading will be conducted efficiently and orderly, excluding any unfair and arbitrary disposal of the instruments. Moreover, it establishes that, in case of transferable securities, these must be freely negotiable117. The definition of whether this requirement may be satisfied is disposed by article 1 of the Delegated Regulation.
In particular, a security may be deemed to be freely negotiable when it can be traded
115 Directive 65/2014/EU on market in financial instruments, article 4 n. (21)
116MOLONEY,N. (2014), p. 171.
117 Directive 2014/65/EU, article 51(1). These requirements seem to be similar to those analysed with reference to the admission to listing Directive. See further in this chapter on the debate concerning the parallelism between these two concepts.
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between the parties to a transaction and subsequently transferred without restrictions.
All the shares of the same class must be fungible, and no restrictions should be applied.
The second paragraph is focused on derivatives. A derivative may be shortly defined as a type of financial instrument (or contract) whose price and value depends on an underlying asset or group of assets. Rules concerning these types of securities should grant not only an orderly pricing but also the existence of settlement conditions that must grant effectiveness118.
Paragraph 3 reiterates the importance of the information flows and disclosure obligations, on the back of Prospectus and Transparency rules. In particular, it brings Member State to verify that regulated markets have installed (and continue to maintain) arrangements to investigate if issuer’s obligations to comply with Union Law’s in relation to “initial, ongoing or ad hoc disclosure and facilitation for members and participants in obtaining access to information” are effectively respected119. Connected with this theme, the fourth paragraph instructs regulated market to establish and maintain systems through which they may review and check the compliance of the issuers with the admission requirements, so that, in case of subsequent violation they may intervene120.
As regards article 51(5), it will be deeply interpretated in the following paragraphs of this chapter. It establishes the chance for securities already admitted to trading in a regulated market to be admitted to trading in a different regulated market, even without the consent of the issuer. Therefore, as it will be seen, this type of admission to trading, generally defined as “unilateral admission to trading”, does not require any particular information or disclosure obligation for the issuer.
The last paragraph, according to the Lamfalussy Report structure, delegates ESMA to develop a draft regulatory technical standard to be submitted to the European Commission. This document shall: specify the characteristics of different classes of financial instruments to be taken into account by the regulated market when assessing whether a financial instrument is issued in a manner consistent with the conditions;
clarify the arrangements that the regulated market is required to implement so as to be considered to have fulfilled its obligations recalled above and clarify the arrangements
118 Directive 2014/65/EU, article 51(2).
119 Directive 2014/65/EU, article 51(3).
120 Directive 2014/65/EU, article 51(4).
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that the regulated market has to establish in order to facilitate its members or participants in obtaining access to information121. These specifications brought to the adoption of the Delegated Regulation (EU) 2017/568 of 24 May 2016122. This delegated instrument elucidates and clarifies many important concepts, by not only giving the definition of freely negotiable securities but also by specifying whether trading may be considered fair, orderly, and efficient or not. In particular, as disposed by article 2, the regulator should look to information required to prepare the Prospectus (in relation with Prospectus Regulation) but also any otherwise publicly available information concerning: issuers in general, its historical financial data and its business overview123. By contrast, to assess whether a share is capable to be traded is such way, the operator should look at the distribution of the shares to the public. Moreover, there is an interesting link with the Listing Directive. Article 3 set out a principle, according to which, whenever a transferable security is admitted to official listing in accordance with the provisions of the relevant Directive, then it shall be deemed to be freely negotiable and capable of being traded in a fair, orderly and efficient manner124. From this set of rules is clear how market regulators and trading venues, through their admission to trading process, could grant a minimum level of protection for investors.
Therefore, the key perimeter to control this highly technical system is based on issuer- disclosure regime. In particular, issuers are able to signal the quality of their instrument by passing the “quality filter” test disposed by the trading venue itself. Moreover, ongoing requirements, mandatory disclosure and corporate governance obligations should ensure, especially for large public trading venues to which investors are mostly exposed, a secure and well organized capital raising and resources allocation process.