Dutch regulator the Authority for the Financial Markets (AFM) has published its policy recommendations this Tuesday in connection with the current review of MiFID II taking a look at the areas of equity, commodities and investor protection.
At present, the European Commission and the European Securities and Markets Authority (ESMA) are reviewing MiFID II, which came into effect on the 3rd of January 2018. In light of this, the AFM has carried out its own study and put forth its own recommendations based on this.
“Central underlying themes for equity are whether transparency has increased sufficiently, what the impact is on liquidity and how the market structure has changed, as a consequence of MiFID II,” the Dutch regulator said in its statement today.
“For commodities, we investigated the impact of the introduction of position limits, position management controls and pre-trade transparency requirements for trading venues that trade in commodity derivatives in the Netherlands. The MiFID II regime has enhanced retail and professional investor protection throughout the European Union (EU).
Whilst the AFM lays out a number of recommendations, which can be viewed here, some of them include the role that high-frequency trading firms play in the trading markets and whether measures such as speedbumps and periodic auctions are necessary.
AMF: HFT firms play a valuable role
According to the report, the Dutch watchdog believes that HFT firms are acting as genuine liquidity providers and play a valuable role in the market structure and price formation process, after discussions with various market participants.
“We are therefore not necessarily a proponent of the introduction of speedbumps or similar forms of barriers that could hamper the manner in which trading information is equally accessible to different types of participants, unless there are real concerns that a level playing field is impacted by low latency advantages of HFT firms,” the regulator said in its reports.
Taking a look at the MiFID II position limit regime for commodity derivatives, the watchdog believes that it has been working reasonably well for well-developed benchmark contracts.
“The AFM suggests to review and amend RTS 21 for less liquid contracts to capture the MiFID II objective of having position limits which prevent market abuse. The AFM also acknowledges that the scope of the position limit regime should be narrowed down to focus on benchmark physically settled contacts only.”