Regulators Prepare For MiFID II

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Regulators Prepare For MiFID II

Change Is Afoot

The regulatory landscape for binary options has been getting tougher and tougher for the brokers, but this is a good thing. It helps keep the shady, unregulated brokers from doing too much damage and it helps promote the legitimate binary options industry. Now it looks like things are going to get even tougher. The MiFID II is set to take effect early next year and it, along with changes suggested by CySEC, will completely alter the face of EU style binary options as we know it today.

What is the MiFID II. The MiFID is the Market in Financial Instruments Directive, it is the EU’s legislative framework for the regulation of financial markets and protection of consumers. Up to now it did not recognize binary options as a financial instrument and that is where a lot of today’s regulatory issues stem from. Cyprus chose to recognize and regulate binary options which means, because Cyprus is a member of the EU, that those registered and regulated binary options brokers may offer their services across borders within the EU so long as they register with the local authorities as well. Some local agencies took this to heart and allowed the brokers to function, others did not but the prevailing sentiment was that CySEC regulation is legal within the EU.

The MiFID II is a revised version of the original legislation that, among other things, recognizes binary options along with CFD’s and forex for the purposes of regulation. It is scheduled to take effect January 3rd, 2020 and is already forcing change within the industry. This new legislation is aimed at standardizing trading/platform function, increasing transparency, protecting consumers and the public. One of the many changes that have already taken place is the suspension of “old-style” bonus schemes that tie up deposits and prevent withdrawals.

The British FCA is the latest to get on board. The agency says that binary options are the number one asked about subject and made up more than 17% of all complaints in 2020. The reason is that many UK citizens are interested in trading and curious to know which broker’s are safe and which are regulated. The FCA has been on the fence about binary for many years, teasing us with hints they would regulate but never doing so. The agency now says that it expects to have full control of binary options regulation by 2020 in order to comply with the MiFID II and MiFIR (Markets in Financial Instruments Regulation).

CySEC of course has not been sitting still. They have recently revealed the framework for what they’d like to see binary options become, exchange traded. The new regulations would require more transparent pricing of options, a clearly displayed bid/ask spread, pairing buy/sell orders together to manage risks and others that sound very much like NADEX to me. NADEX is of course the North American Derivatives Exchange and the only US CFTC regulated binary options exchange that I use and can recommend at this time.

Regulators Prepare For MiFID II

Change Is Afoot

The regulatory landscape for binary options has been getting tougher and tougher for the brokers, but this is a good thing. It helps keep the shady, unregulated brokers from doing too much damage and it helps promote the legitimate binary options industry. Now it looks like things are going to get even tougher. The MiFID II is set to take effect early next year and it, along with changes suggested by CySEC, will completely alter the face of EU style binary options as we know it today.

What is the MiFID II. The MiFID is the Market in Financial Instruments Directive, it is the EU’s legislative framework for the regulation of financial markets and protection of consumers. Up to now it did not recognize binary options as a financial instrument and that is where a lot of today’s regulatory issues stem from. Cyprus chose to recognize and regulate binary options which means, because Cyprus is a member of the EU, that those registered and regulated binary options brokers may offer their services across borders within the EU so long as they register with the local authorities as well. Some local agencies took this to heart and allowed the brokers to function, others did not but the prevailing sentiment was that CySEC regulation is legal within the EU.

The MiFID II is a revised version of the original legislation that, among other things, recognizes binary options along with CFD’s and forex for the purposes of regulation. It is scheduled to take effect January 3rd, 2020 and is already forcing change within the industry. This new legislation is aimed at standardizing trading/platform function, increasing transparency, protecting consumers and the public. One of the many changes that have already taken place is the suspension of “old-style” bonus schemes that tie up deposits and prevent withdrawals.

The British FCA is the latest to get on board. The agency says that binary options are the number one asked about subject and made up more than 17% of all complaints in 2020. The reason is that many UK citizens are interested in trading and curious to know which broker’s are safe and which are regulated. The FCA has been on the fence about binary for many years, teasing us with hints they would regulate but never doing so. The agency now says that it expects to have full control of binary options regulation by 2020 in order to comply with the MiFID II and MiFIR (Markets in Financial Instruments Regulation).

CySEC of course has not been sitting still. They have recently revealed the framework for what they’d like to see binary options become, exchange traded. The new regulations would require more transparent pricing of options, a clearly displayed bid/ask spread, pairing buy/sell orders together to manage risks and others that sound very much like NADEX to me. NADEX is of course the North American Derivatives Exchange and the only US CFTC regulated binary options exchange that I use and can recommend at this time.

Adviser Points of View

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EU regulators prepare for no-deal Brexit with MiFID II back-up plans

Investment Week

Investment Week

Pan-European regulator European Securities and Markets Authority (ESMA) is in the process of drawing up memorandums of understanding (MoU) between the Financial Conduct Authorities (FCA) and the 27 other EU regulators in a safeguard against the fall-out of a no-deal Brexit.

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Speaking at the World Federation of Exchanges General Assembly and Annual Meeting in Athens on 3 October, ESMA Chair Steven Maijoor explained that with about 40% of equities issued in the EU27 trading in the UK preparing for a no-deal was essential.

EU and UK negotiators are currently facing deadlock over a Brexit deal, with disagreement over issues such as the border in Northern Ireland.

In addition, Prime Minister Theresa May’s so-called Chequers deal – which is not in favour with either the EU or many within May’s own Conservative party – fails to make provisions for financial services.

MiFID II, which came into force in January, only allows for trading on a third country trading venue when the European Commission has made an equivalence decision, with the EU’s highest authority only having issued one such judgement as yet to the SEC in the US.

A no-deal Brexit would therefore mean UK market participants losing their authorisations to conduct business across the EU, and the removal of any legal basis for the daily data exchange between the UK and the EU27 under MiFID II.

In order to avoid these consequences, as well as the impact no-deal would have on financial stability for the EU27, Maijoor explained: “In the case of a no-deal Brexit, [national regulators] and ESMA should have in place with our UK counterparts the type of MOUs that we have with a large number of third-country regulators.

“These MOUs are essential to meet our regulatory objectives and allow information exchange for effective supervision and enforcement, for example for market abuse cases.

“ESMA has coordinated the preparations for such MOUs together with the EU27. Taking the wider negotiations between the EU and UK into account, we plan to start negotiations with the UK FCA with the objective to have these MOUs in place sufficiently on time before the end of March 2020.”

Maijoor added that Brexit requires an improvement in the third country arrangements in securities markets legislation.

He explained: “The prospect of a very large financial market moving out of the EU, while likely continuing to be very interconnected with the EU financial markets, has triggered a reconsideration of our third country arrangements.

“I would mention in particular the need for a comprehensive and harmonised EU regime for third-country trading venues.

“A harmonised third country regime would contribute to a level-playing field between EU and non-EU trading venues and mitigate risks related to orderly markets, investor protection and ultimately stability.”

Brexit relocations

Elsewhere in his speech, the ESMA chief identified the large number of trading venues, asset managers and investment firms “currently seeking authorisations in the EU27 to continue to access their financial markets”.

Maijoor said it was important ESMA ensures the “consistent application of regulatory and supervisory standards to the relocation of activities, entities and functions from the UK to the EU27”.

He explained that in order to prepare for the relocation of “entities, activities and functions” to the EU27 a common approach is required at EU level to “safeguard investor protection, the orderly functioning of financial markets and financial stability”.

Authorities must therefore ensure, Maijoor said, new authorisations are granted in “full compliance with Union law and in a coherent manner across the EU27”.

He added that ESMA has set up a Supervisory Coordination Network where European supervisors can “report on and discuss cases of relocating UK market participants and which, based on the last few months of experience, usefully contributes to promoting consistent decisions by NCAs.”

Maijoor concluded: “The UK and EU27 financial markets are highly integrated, and preparing for Brexit requires major efforts from all involved, trading venues, CCPs, national competent authorities (NCAs), and of course ESMA.”

This is reproduced from Investment Week; all views are from the publication. This originally appeared online on 4 October 2020.

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