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Chris Pickles

New EU Directives and their impact on Financial Information. Chris Pickles. Manager, Industry Relations. 14 December 2004. (Some) EU Directives in the works…. Savings Tax Directive Transparency Directive MiFiD (Market in Financial instruments Directive). Savings Tax Directive.

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Chris Pickles

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  1. New EU Directives and their impact on Financial Information Chris Pickles Manager, Industry Relations 14 December 2004

  2. (Some) EU Directives in the works… • Savings Tax Directive • Transparency Directive • MiFiD (Market in Financial instruments Directive)

  3. Savings Tax Directive • Issued on 3 June 2003 • Enters into force on 1 July 2005 • Aims to stop avoidance of tax payments on interest on debt-based instruments • Options: • Belgium, Luxembourg & Austria will implement a withholding tax • the other 22 EU member states will start to exchange information • Personal tax payable in each member state will affect value to an investor • Investment managers will want/need to show investors the true return on their savings in order to market their services more effectively • This will affect the instrument database that data vendors will have to maintain, as well as their methods of gathering and distributing price information

  4. Transparency Directive • Due to be issued in Autumn 2004 (!?) – will come into effect 2 years after being issued • Increased disclosure through quarterly reporting • Half-yearly reporting by debt-only issuers • More frequent disclosure of changes to major shareholdings within stricter deadlines

  5. Transparency Directive – indicative timescales Deadlines Actions June 2004 First mandate sent to CESR Oct/Nov 2004 (!?) Publication and entry into force of the Level 1 directive submitted to the European Commission June 2005 Technical advice from CESR July 2005 Publication of a working document on possible Level 2 legislation on the Commission’s web site/ Public call for comments September 2005 Commission proposal(s) for Level 2 legislation sent to ESC and published on the Internet December 2005 Vote in the European Securities Committee on Level 2 proposals January 2006 Formal adoption by the Commission Oct/Nov 2006 (!?) Transposition period for Level 1 directive (and possibly for Level 2 directive ) expires

  6. “Officially appointed mechanisms” • “The home Member State shall ensure that there is at least one officially appointed mechanism for the central storage of regulated information.” • “These mechanisms should comply with minimum quality standards of security, certainty on the information source, time recording and easy access by end users and shall be aligned with the filing procedure under Article 15(1).” • “The Commission may also specify and update a list of media for the dissemination of information to the public.”

  7. MiFiD – Markets in Financial Instruments Directive • Issued 30 April 2004 • Must be implemented by all 25 EU member states by 30 April 2006 • Impacts all asset classes except for FX • Applies to all investment firms in the EU • Impact for financial information - mainly “in respect of shares which are admitted to trading on a regulated market” that are traded off a regulated market • MTF • multilateral trading facility (eg ECN, ATS) that is not a Regulated Market (exchange) • Comitology • the involvement of CESR (Committee of European Securities Regulators) • Deadline for first responses to CESR: 4 October 2004 • Deadline for second responses to CESR: 21 January 2005

  8. Art.13 (4) + (5) - Organisational Requirements • (G-30 recommendation 12: “Ensure effective business continuity and disaster recovery planning”) • “An investment firm shall take reasonable steps to ensure continuity and regularity in the performance of investment services and activities.” • “An investment firm shall have…effective control and safeguard arrangements for information processing systems.” • Arrangements, regularly tested and updated, to ensure that it can continue to function and meet its regulatory obligations in the event of an unplanned severe business interruption. • …identify critical information systems…such as IT infrastructure, telecommunications and power supply… • CESR to provide technical advice to EC by 31 January 2005 regarding the minimum basic criteria to ensure that control and safeguard measures for information processing systems are considered as effective.

  9. Art.21 – Most favourable terms to client • “The order execution policy shall include…at least those venues that enable the investment firm to obtain on a consistent basis the best possible result for the execution of client orders.” • “…they shall assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client…” If “internalising” within an investment firm is a venue, how will internalisers make other investment firms aware of their quotes and prices?

  10. Art.27 – Obligation to make public firm quotes • “…require systematic internalisers in shares to publish a firm quote in those shares admitted to trading on a regulated market…” • “Systematic internalisers shall make public their quotes on a regular and continuous basis during normal trading hours.” • “The quote shall be made public in a manner which is easily accessible to other market participants on a reasonable commercial basis. • Possibilities: • via a regulated market • via a third party • via proprietary arrangements

  11. Art.28 – Post-trade disclosure by investment firms • “…require investment firms which…conclude transactions in shares admitted to trading on a regulated market outside a regulated market or MTF, to make public the volume and price of those transactions and the time at which they were concluded.” • “This information shall be made public as close to real-time as possible, on a reasonable commercial basis, and in a manner which is easily accessible to other market participants.” • Possibilities: • via a regulated market • via a third party • via proprietary arrangements • CESR advice – investment firms to make all data available for two weeks after trade

  12. Art.29 – Pre-trade transparency requirements for MTFs • “…make public current bid and offer prices and the depth of trading interests at these prices…on reasonable commercial terms and on a continuous basis during normal trading hours.”

  13. Art.30 – Post-trade transparency requirements for MTFs • “…make public the price, volume and time of the transactions executed under its system…” • …details of all such transactions be made public, on a reasonable commercial basis, as close to real-time as possible.”

  14. Articles 27/28/29/30 – Some issues • How do I get a complete market overview? • How do I publish my quotes & prices? • Data standard(s) • Source identification • Standardising of securities identifiers • “…on reasonable commercial terms”

  15. Articles 27/28/29/30 – How do I get a complete market overview? • Data vendors and exchanges (as public companies and service providers) are expected to compete against each other to gather and re-distribute this data • As these vendors compete against each other, they are unlikely to share this data with each other • Any single vendor is unlikely to be able to provide all of this information in a consolidated form to investment firms and asset managers • Investment firms and asset managers will have to: • either buy data from multiple vendors in order to consolidate it themselves • implications for IT systems and budgets • or have an incomplete view of the market • implications for competitiveness, profitability and compliance • Will competing vendors share this data with each other? • Will each country nominate a central data consolidation utility?

  16. Articles 27/28/29/30 – How do I publish my quotes & prices? • Data vendors don’t collect off-exchange equity prices from investment firms today • Electronic exchanges don’t have systems in place to collect quotes & prices for all off-exchange trades of shares that they admit for trading • Electronic exchanges don’t have systems in place to collect quotes & prices for all off-exchange trades of shares that are admitted for trading on other exchanges • CESR asks if publishing quotes solely on the firm’s own web site is sufficient • Investment firms don’t have systems in place to publish their equity quotes & prices • The deadline for compliance for all investment firms in the EU is 30 April 2006 • CESR Question 13.9 • “Should CESR initiate work, in collaboration with the industry and data publishers, to determine how best to ensure that post-trade transparency data be disseminated on a pan-European basis?”

  17. Articles 27/28/29/30 – Data standard(s) • “CESR notes that in order to be consolidatable the information disclosed by RMs, MTFs and firms need to fulfil certain criteria. Ideally it should follow (one) generally agreed data standard(s). Establishing such standards is supported by CESR but it is not seen primarily as the regulator’s role…” • What data standard(s) should the industry adopt?

  18. Articles 27/28/29/30 – Source identification • “The following information shall be made public trade by trade for every trade… • Market or other source identification • Security identifier • Date & time of trade • Volume • Price per share…..”

  19. Articles 27/28/29/30 – Standardising of security identifiers • CESR Question 13.7 • “Should the identifier of a security be harmonised and if so to what extent? What should be the applicable standard (ISIN code, other)?”

  20. Articles 27/28/29/30 – “…on reasonable commercial terms” • Investment firms will incur costs in order to comply with MiFiD • Some (but not all) of these costs will be IT costs • Investment firms are allowed to make their quotes & prices available “on a reasonable commercial basis” • Is this a potential new revenue stream for investment firms? • Could it be used to offset related IT costs? • Taking that exchanges and data vendors can charge millions for their market data, what is the market value of an investment firm’s market data? • Is this a potential new cost of business for each data vendor?

  21. MiFiD – by 30 April 2006 • 2nd Responses to CESR by 21 January 2005 • New internal systems to implement for data publishing and data collection • External network considerations • Commercial decisions • Industry involvement • When do you start?

  22. EU Directives – further information • EU Savings Tax Directive (Directive 2003/48/EC) • http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/l_157/l_15720030626en00380048.pdf • EU Transparency Directive web site • http://europa.eu.int/comm/internal_market/securities/transparency/index_en.htm#proposal • Original copy of MiFiD (Directive 2004/39/EC) • http://www.europa.int/eur-lex/en/archive/2004/l_14520040430en.html • CESR advice (CESR/04-261b and CESR/04-562) • www.cesr-eu.org/ - under “Consultations” Chris Pickles Manager, Industry Relations Radianz chris.pickles@radianz.com tel: +44 (0)7775 768172 www.radianz.com

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