Dealing in securities : the law and regulation of sales and trading in Europe

"Begins with the essential questions: - whether brokerage and dealing in securities is regulated in a jurisdiction - what aspects of the activity could bring it in scope for authorisation; and - how it is determined which regulator has legal competence to supervise the business in scope. The recent liberalisation of national authorisation regimes across Europe in the wake of MiFID II and Brexit, which has resulted in tensions with recent attempts by the EU to harmonise centrally the single market authorisation regime, is fully addressed. It reviews the details of the activities of sales, sales trading, trading and execution, what they each constitute (with reference to established communication and order management systems), the potential conflicts of interest that they bring about for a firm and how such conflicts can be managed. Each of these activities are mapped against specific regulatory obligations, such as best execution, pre- and post-trade transparency, inducements, dealing commissions rules, the short selling regime and shareholder disclosures, depicting the obligations schematically to assist the practitioner. Also covers: - dealing commission unbundling, which has reformed the way the provision and consumption of independent research and corporate access are related to execution services, - the question of multilateral trading, in other words the point at which the activity of a broker becomes exchange-like and needs to be authorised as such, - principal trading and the ability of firms to advance risk to their clients in the wake of the Volcker rule in the United States and similar legislation in Germany and elsewhere, - the rise of Systematic Internalisers and the constraints imposed on them, such as the pre-trade transparency requirements and the tick size regime, and - electronic trading, algorithmic trading, direct electronic access and high frequency trading, as well as the risk control framework that is relevant to all these activities."-- Provided by publisher Preface Table of Statutes Tables of European Legislation and Materials Abbreviations 1 Introduction 2 Authorising and regulating securities dealing in Europe The universal public policy imperative of authorisation Determining the need for authorisation Deciding on whether the investment and the service are regulated Providing a service out of the jurisdiction, in the jurisdiction and into the jurisdiction Did the investor request the service? Solicitation and reverse solicitation Characteristic performance for services into the jurisdiction from abroad The European dual track system Harmonisation: the European single market in financial services Investment Services Directive 1993 MiFID II intra-EU and third country provision of services Providing services from one Member State to another: branch and services passports Third country regime under MiFID II Pan-European reverse solicitation Investment Firm Review: the evolution of the third country regime The approach of the single market to third countries: co-existence of national and international regimes UK perimeter guidance Brexit The impact of Brexit on authorisation regimes The centrifugal force of national interests Empty shells and the gravitational pull of the European Central Bank Annex Investment services and activities in MiFID II Ancillary services in MiFID II Investment instruments in MiFID II Client categories in MiFID II 3 Dealing in securities and the primary obligations Orders, RFQs and executions in the context of securities dealing Client orders and indications of interest Simultaneous execution Receipt of orders Record Keeping Trade booking How to understand Annex I of MiFID Conflicts of interest Conduct of business obligations Client classification Communication with clients Providing a written agreement Assessing suitability when giving investment advice Best execution Inducements Market Transparency Pre-trade transparency Post-trade transparency Regulatory and public disclosure regimes Transaction reporting Shareholding disclosures Short selling regime 4 Market abuse regime in Europe The objectives of a market abuse regime Sales and trading and the market abuse regime MAR and MAD II MAR: the main violations and scope Inside information – insider dealing Handling client information and the conundrum of insider dealing Market manipulation Stabilisation: legitimate form of market manipulation Market soundings, insider lists and cleansing events Proposed revisions to MAR Reporting obligations under the buyback programmes for issuers Definition of inside information Pre-hedging Market soundings 5 Dealing commissions and the unbundling challenge Introduction: what are dealing commission? Potential conflicts of interest The US experience: the soft dollar ‘safe harbor’ Determining ‘eligible research services’ Brokerage services Agency and riskless principal transactions Commission sharing arrangements and third-party research The US influence on the UK experience The change of the tide in Europe The corporate access debate What is corporate access? Corporate access prohibition in 2014 The MiFID II regime Payment mechanism The broker’s obligations The conflict of law arising between the EU and US regimes Practical guide: how does a firm price research or other services to avoid being classified as an inducement? Pricing principles How does a firm determine the initial price? Life since MiFID II 6 Multilateral and bilateral trading systems Broker crossing networks Bilateral trading and systematic internalisation MTFs and regulated markets Discretion The demise of BCNs Pre-trade transparency obligations of different trading systems RPW, NT and the double volume cap (DVC) Transparency in the SI regime Constraints on MTF and OTF operators Constraints introduced to systematic internalisers Interconnected Sis Tick sizes ESMA’s review of the trading functionality categories 7 Mandatory trading obligations The origin of trading obligations Shares trading obligation (STO) Exceptional circumstances and the conundrum of third-country venue equivalence The STO as a political weapon: the Swiss experience The STO in the Brexit crisis The impact of the impasse on the STO The derivatives trading obligation Trading obligation procedure Conditions for third-country venue equivalence Brexit implications for derivatives trading 8 Electronic trading Algorithmic trading Requirements imposed on algorithmic trading High frequency trading Advantages and disadvantages of HFT Requirements imposed on HFT Direct electronic access DMA Sponsored access Smart order router Risk control framework Future proposals 9 Best execution Introduction Best execution definition: the ‘sufficient steps’ standard Is the duty of best execution absolute? Better or best? When is best execution owed? The evolution of the best execution concept from equities to all asset classes The CESR / FCA guidance on when best execution applies in bilateral trading Challenges in the OTC markets Challenges in applying best execution to algorithmic trading Single venue or dark trading monitoring Monitoring programmes Reports to clients RTS27 reports RTS28 reports What happens when best execution goes wrong? 10 The future of market structure in Europe The UK’s approach to its perimeter The UK Future Regulatory Framework (FRF) The MiFID II review in Europe: revisiting what has not worked well Suspension of regulatory obligations under Covid-19 in the EU: the ‘MiFID quick fix’ The UK quick fix The longer-term agenda by the UK A future of repeated cliff edges and regulatory competition Index