Industry Updates

European Parliament approves MiFID II and MiFIR revisions for CT and PFOF

The vote sees consolidated tape and PFOF agreements approved

Theo Andrew

EU flags outside of EU commission

The European Parliament has approved the MiFID II and MiFIR revisions including key proposals to establish a consolidated tape in Europe and a ban on payment for order flow (PFOF).

It comes after an agreement was reached between the European Council and the European Parliament in September 2023 following a trialogue period which concluded in June.

The European Securities and Markets Authority (ESMA) will now establish the technical standards throughout 2024.

The agreed ban of PFOF, a practice where brokers receive payments for forwarding investor orders to trading platforms such as market makers, must be implemented by 30 June 2026 at the latest.

Meanwhile, a major proposal under the adopted MiFIR plans will see three EU-wide consolidated tapes created, starting with bonds by mid-2025, a tape for equities and ETFs in 2026 and a derivatives tape in the same year.

Under the agreed proposals, the consolidated tape for equities and ETFs will include market data from all trading platforms such as exchanges to provide investors with “up-to-date” transaction data for the whole of the EU.

ESMA confirmed it will select a single venue to operate the consolidated tape for each asset class for a period of five years.

Despite this, the Association for Financial Markets in Europe (AFME) called for “more ambition” from the EU and member states in implementing a successful capital markets union.

It said implementing the agreed equities and fixed income consolidated tapes should be a priority going forward.

“A key element in this respect would be to enhance the equity tape with additional levels of order book depth,” Adam Farkas, CEO of AFME, said.

“We specifically recommend that at an appropriate time the equity pre-trade tape is expanded to include five levels of depth of the order book.

“This is technically possible and would be the most valuable option for the future subscribers to the tape, providing them with a wide range of non-latency sensitive use cases. Importantly, this would also ensure the commercial viability of the consolidated tape provider.”

Last November, the European Fund and Asset Management Association (EFAMA), UCITS ETFs could see up to a $1trn windfall from a real-time consolidated tape for equities and ETFs.

It noted the EU’s legislative process has only taken “timid steps” towards greater transparency and data consolidation, but added it was positive a more robust framework could still be implemented.

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