Since we last provided an update on ESMA's Questions and Answers ("Q&As") on Directive 2014/65/EU of 15 May 2014 on markets of financial instruments ("MiFID II") and Regulation (EU) 600/2014 of 15 May 2014 on markets of financial instruments ("MiFIR") in our January 2021 newsletter, the following have been updated:
In this article, we will only focus on the transparency topics Q&A updated on 20 May 2022, which includes one new Q&A relating to non-equity transparency section.
In addition, on 27 June 2022, the CSSF published Circular 22/817 which adopts ESMA’s final report (the “Final Report”) ") on the guidelines on certain aspects of the appropriateness and execution-only requirements under MiFID II (the "Guidelines").
Transparency topics Q&A – non-equity and transparency
In the section on non-equity transparency, a new Q&A 23 has been added clarifying how to report "reference rate" in a specific annex of the regulatory technical standards. A new Q&A 24 clarifies which characteristics should prevail in the classification of a bond. ESMA notes that the classification of a bond determines its transparency regime. In that sense, the different thresholds of the issuance size are applied to newly issued bonds to determine their liquidity and different pre-trade and post-trade Large in Scale ("LIS") and Size Specific To Instrument ("SSTI") thresholds are applied based on the bond type. ESMA adds that it is therefore necessary to specify the "hierarchy" to allow for a consistent classification of bonds. For illustrative purposes, ESMA has also included a decision tree that demonstrates the hierarchy to be followed for the classification of bonds.
A new Q&A 6 has been added to the "double volume cap" section which relates to Article 5 MiFIR. The Q&A confirms who is responsible for checking whether a respective instrument is subject to an EU level suspension under the double volume cap mechanism.
CSSF Circular 22/817 adopting the Final Report
The Guidelines clarify the investment firm’s requirement to demand information on the knowledge and experience of clients to assess whether the available investment service or product is appropriate and to issue a warning in case it is not. For an overview of the guidance provided by these Guidelines, please consult our previous newsletter on ESMA’s Final Report.
Pursuant to CSSF Circular 22/817, competent authorities and firms must duly comply with the Guidelines as from 12 October 2022 onwards.