Markets in Financial Instruments Regulation (MiFIR) and the accompanying Markets in Financial Instruments Directive (MiFID II) regulate the provision of investment services in a multitude of financial instruments at regulated trading venues, as well as in over-the-counter (OTC) trading. The legislative acts have fundamentally transformed the European securities market by expanding transparency provisions, strengthening the stability and integrity of financial market infrastructure, revising the markets’ microstructure (market making, algorithmic trading, requirements regarding the security mechanisms of trading venues and market participants, tick sizes) and aiming at improved quality and availability of market data.

However, in the implementation of the Regulation and the Directive, fragmentation of equity market structures has been observed against the background of the staggering number of registered execution venues in the EU which are subject to different regulatory requirements. Without establishing a level playing field and improving transparency and data quality, EU capital markets will not be able to benefit from a centrally consolidated overview of trading data which is a key objective within the legislation. In addition, the adequacy of open access provisions for exchange traded derivatives is being questioned, taking into account that forcing the interconnectedness of systemically important financial market infrastructures in derivatives could pose threats to market integrity and stability, and hamper innovation and competition.

The Regulation and Directive have been in force since July 2014, with the Directive provisions being transposed into national law Europe-wide by July 2017. In spring 2020, the European Commission conducted a public consultation on the priorities of a MiFID II/MiFIR review. However, since the Covid-19 pandemic required a swift policy response to support the economic recovery, it has been decided to split the review into a limited set of targeted amendments (“quick-fix”) in the second half of 2020, and a broader review that was postponed to the end of 2021. The broader review proposal included, amongst others, phasing out of payment-for-order-flows, consolidated tapes for market data provided by platforms on which financial instruments are traded, and new rules on commodity derivatives. It was adopted by the co-legislators in February 2024 and is pending publication in the Official Journal of the EU before entering into force.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.

One of the core goals of the Capital Markets Union (CMU) is to improve access to market-based sources of financing for firms irrespective of their size. The Listing Act aims at cutting red tape and making EU public capital markets more attractive for EU companies by making it easier for companies of all sizes, including small and medium-sized enterprises (SMEs), to list on European stock exchanges. This will help them grow and diversify their funding, which is particularly important for SMEs that rely excessively on bank loans.

The Listing Act includes amendments to the Prospectus Regulation, Market Abuse Regulation (MAR) and MiFIR/MiFID II, as well as a new Directive on Multiple Vote Share Structures (MVSS). The new regime narrows down disclosure obligations and simplifies the prospectus regime by standardising the format, language, and page limit across the EU. In doing so, it significantly improves the listing environment and structurally increases the attractiveness of going public, possibly paving the way for many start-ups to go public in European markets.

The original proposal was initiated by the Commission in 2024, with the co-legislators reaching a provisional agreement on the final text in February 2024. Its entry into force is pending final approval by the European Parliament and the Council of EU, with ESMA being mandated to draft level 2 and level implementing 3 measures subsequently.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.

The Financing for the Future Act aims to mobilise more private capital and to make Germany more attractive destination for businesses. The Act focuses especially on new, innovative start-ups, but also targets other small and medium-sized businesses that account for a significant portion of German economy. It aims to develop strong capital markets and mobilise financing for investments that need to play a crucial role in creating opportunities for growth-stage of companies.

The legislation enacted improved conditions for employee share ownership through new tax rules and easier access to capital markets through reducing the minimum capital required for an IPO. Importantly, the Financing for the Future Act pioneered in digitisation of capital markets by adding electronic shares to the scope of permitted securities. This created a legal framework under which securities could be issued and transferred electronically, using a distributed ledger technology (DLT).

The adopted text of the legislation was published in the German Federal Law Gazette (Bundesgesetzblatt) and has been in force since 2023. Deutsche Börse Group supported the initiative and continues to support innovation in capital markets through active implementation and thought leadership.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.

One of the Commission’s key objectives in the 2020 Capital Markets Union Action Plan was to make the EU a safer place for citizens to invest their savings, with the aim of channelling private funding into the economy and towards the green and digital transition. Some of the main obstacles to retail investors’ participation in capital markets were lack of access to relevant, comparable, and easily understandable information, as well as unduly marketing strategies and a lack of trustworthy financial advice available to retail investors.

To address these issues, the Commission initiated a proposal in 2023, empowering retail investors to make investment decisions that are aligned with their preferences and ensuring that they are duly protected and treated fairly. The Retail investment strategy introduces new requirements regarding disclosure rules, the role of financial advisors, marketing practices, and develops benchmarks against which the value of financial products can be assessed. This could significantly enhance retail investors’ trust and confidence to safely invest in their future and take full advantage of the EU’s capital markets union.

In 2024, the legislative package has entered interinstitutional negotiations between the European Parliament and the Council. Its application and entering into force, as well as the final text of the package, will depend on the negotiations and subsequent adoption by the co-legislators.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.

To strengthen the capital markets, the European Commission set out to establish a more effective supervisory framework for investment firms. The new regime entered into force in December 2019, recognising the special role of investment firms in the overall functioning of the EU financial markets by simplifying the rules for investment firms and facilitating investment flows throughout the EU. Investment Firms Regulation and Directive (IFR/D) are designed to ensure that key prudential requirements for investment firms are adequately set and that compliance with them is monitored.

For example, IFR/D introduces a classification scheme, divided into four categories, according to which capital requirements for investment firms are determined. The so-called “K-factors” are calculated for each individual firm, based on the various risks in the respective activities of the investment firm, which determine its classification and the final level of capital requirements. In addition, the regulation lays down the conditions under which investment firms located in non-EU countries may obtain market access to the European single market. At the same time, it strengthens the supervisory powers of the European Securities and Markets Authority (ESMA).

Following the adoption of the IFR/D (level 1) in 2019, EBA and ESMA began to finalise the majority of delegated acts. Further work within the Level 2 process is planned until 2025. The transposition period for rules prescribed in the Directive ended in June 2021. The regulatory review process will start in June 2024, with the Commission currently examining whether any changes to the existing regime are necessary.

As an operator of regulated markets, Deutsche Börse Group welcomed the new rules, as they acknowledge and support the important contribution of investment firms to trading and liquidity provision.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.

High-frequency trading (HFT) is an algorithmic trading technology allowing securities transactions to be executed via extremely quick high-performance computers. HFT participants provide liquidity to markets, dampen volatility, reduce total transaction costs, and significantly contribute to the reduction of spreads. The resulting improved price quality also benefits companies through lower financing costs. HFT thus plays a major role in efficient and functioning capital markets and has economic benefits.

However, as with other technological innovations, certain risks such as increased volatility, market manipulations or technical errors cannot be ruled out. Deutsche Börse Group effectively counteracts these risks through comprehensive safety measures such as plausibility checks and circuit breakers, thereby safeguarding proper conduct of trading. Additional regulatory measures which contribute to the minimisation of these risks should expressly be supported. 

Engaged firms must ensure maintenance of the necessary technical infrastructure in terms of their systems’ resilience and act in compliance with certain algorithmic trading thresholds preventing market distortions and market abuse. Investment firms are obliged to provide competent authorities with a description of the nature of its algorithmic trading strategies, details of the trading parameters or limits to which the system is subject, the key compliance and risk controls that it has in place and details of the testing of its systems at any time upon the authority’s request.

Trading venues must provide their share in preventing distortions caused by algorithmic trading through the building-in of circuit breakers, the regulation of minimum tick sizes, and by putting caps on the unexecuted orders in relation to transactions. HFT is regulated at EU level by MiFID II/MiFIR and at German national level by the German High-Frequency Trading Act.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.

The fifth Undertakings for Collective Investment in Transferable Securities (UCITS V) Directive and the Alternative Investment Fund Manager Directive (AIFMD) have reshaped the operational landscape of the European investment funds market. The UCITS Directive, which covers mutual funds, introduces uniform rules allowing mutual funds to be offered cross-border, whilst the AIFMD, which covers hedge funds and private equity, prescribes rules for authorising, supervising, and overseeing the managers of such funds. Jointly, both directives aim to implement a framework that increases transparency and ensures greater investor protection.

Market participants, in particular those appointed as depositary banks, have faced significant operational and legal challenges, due to this regulatory package, which may have affected their operating model, including their use of market infrastructure providers. In 2021, the Commission opened a review process resulting in proposal to amend both the AIFMD and UCITS. The co-legislators adopted the proposed amendments in February 2024, that will enter into force pending transposition into national legislation.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications. 

Recovery and Resolution for CCPs is the last missing piece in the puzzle of implementing the G20 objectives. It will complement the high standards implemented through EMIR and confirm the CCPs’ role as a neutral risk manager for financial markets. Its aim is to define measures to be taken in extreme but plausible events of financial distress and ensure the continuity of clearing of key critical contracts, while excluding the use of public resources and preserving financial stability.

Following adoption by the co-legislators, the final legislative text was published in the EU Official Journal in January 2021 and entered into force the following month. ESMA conducted important Level 2 work to specify the file’s application, especially on the No-Creditor-Worse-Off (NCWO) counterfactual and the 2nd Skin in the Game (SITG) technical standards. The new CCP Recovery and Resolution rules have been fully applicable since August 2022 with the EU becoming one of the first jurisdictions to have a fully-fledged recovery and resolution framework, setting a benchmark at a global level.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.