MFA Submits Comments to European Commission on Proposed Amendment to MiFID II Systematic Internaliser Definition

On July 18, MFA submitted a comment letter to the European Commission in response to its draft Delegated Regulation to amend the “systematic internaliser” (SI) definition under MiFID II.

In the letter, MFA expressed concerns with the EC’s proposed drafting approach of defining “dealing on own account” for purposes of the SI definition.  As currently worded, the proposed amendment will have unintended consequences for asset classes of financial instruments for which the trading obligation does not apply, such as fixed-income instruments, ETFs and many derivatives. As a result, a large volume of such transactions will be concluded outside a trading venue and outside the SI regime. Trading in such instruments could thus become less transparent than intended or expected, as there would be no pre-trade transparency requirement and potentially no best execution reporting obligation on the part of the entity concluding the transaction with the client.

MFA asked the EC to reconsider its approach and if needed, offered to assist the EC with specific wording changes. As an alternative to the EC’s proposed amendment, MFA supported an approach that would define certain activities that cannot be undertaken by SIs, which should be based on ESMA’s issued Q&A guidance for the SI regime.