Germany takes lead on Mifid reform

By Rebekah Tunstead | 5 September 2019

The German Ministry of Finance has put itself forward as a key initiator of regulatory change in Europe with the publication of two position papers of recommended amendments to the second Markets in Financial Instruments Directive (Mifid II) and the Markets in Financial Instruments Regulation (Mifir) as the UK’s place within the bloc remains uncertain, according to Barbara Lempp managing director at the European Federation of Energy Traders (EFET).

“One reason why they are doing things this way could be because the UK is stepping out and more ambition is expected from the German government on these issues. A big ally is gone and [the German government] have to put down proposals on the table, not only follow the UK and the Netherlands for the more market-oriented member states,” says Lempp.

In the run up to Mifid II, national competent authorities in Germany (BaFin), the UK (the Financial Conduct Authority), the Netherlands (Authority for the Financial Markets) and France (Autorité des Marchés Financiers) played crucial parts in working with the European Securities and Markets Authority (Esma) to shape the rules.

“It was always our impression that they want to come up with some more proposals than they were expected to give in the past. There was a change of officials in the ministry and maybe that is also a reason for that. Maybe the new head is a little bit more ambitious than the department was in the past.”

On August 27, the German Ministry of Finance published two position papers on necessary amendments to investor protection provisions in Mifid and Packaged retail investment and insurance based products (Priips), and necessary amendments and revisions to secondary market provisions in Mifid II and Mifir.

The findings showed a “great deal of discontent” with several requirements under Mifid II and “a desire for an early refit covering certain requirements.” For example, position limits have “proven to be a substantial barrier” to the development and growth of new illiquid contracts.

With many municipalities in Germany giving their trading businesses over to bigger utilities because of compliance costs, Lempp says Germany’s position papers could encourage those municipalities to stay in the game. 

“[The position papers] may have an impact on their strategy stepping out of the market, which is not a very nice thing, but it is a development that we can see right now, and it is what I hear from municipalities,” says Lempp. “This is something that must be considered, whether you want to continue with wholesale trading or if you give it to bigger utility to do it for you.”

“[Municipalities in Munich] are coming back a little bit, but they completely decreased their facilities and their capacity, and completely changed their strategy.”

“[The two documents from the German Ministry of Finance] will encourage them because they see a little bit of change of mind. They see it is not as harsh as they expected, and there is somebody listening to their problems in the Ministry in Berlin. Of course, that could give them some hope.

In January Esma gave the European Commission a timeline of when it expects to complete several reports on Mifid II and Mifir. Reports on position limits, cross-border investment advice, trading obligation derivatives, and Algo trading are expected in September.

“It will be interesting to see if they really adapt, or they really pick up the concerns by market participants,” says Lempp. “Esma is still a very bank oriented organisation, and that is somewhat difficult for a commodity trader to be hear in that institution. We are working on that, and it’s why we meet them so often. But it is still difficult. If you look at the officials at Esma, they are all former bankers and not commodity traders. And a lot of people do not understand commodity trading.”

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