MiFID has been in force since November 2007 and is currently under review by the European Commission (the “EC/Commission”).   The Commission issued a consultation paper on 8 December 2010 (the “Consultation Paper”) on possible amendments to MiFID, which will be open for comment by market participants, regulators and other stakeholders until 2 February 2011.  A formal Commission proposal for reform and an impact assessment are expected in Spring 2011.

The Commission proposes significant changes, in particular to the own account specialist commodity dealer exclusions, and given the extent and significance of the changes, the time limit for responses to the Consultation Paper is very limited.  Indeed, whereas it was initially suggested that the review would only result in minor tweaks to the MiFID framework, it has, in fact, resulted in a much more prescriptive and powerful instrument, which will have a particularly large impact on commodity companies. In addition, the fact that the Commission has only scheduled a short time between its receiving comments and its publishing a formal proposal implies that its current suggestions are already entrenched.

Aims of the review

MiFID is generally seen as having been successful in achieving its aims of increasing competition, enhancing the single market, increasing harmonisation and transparency, and protecting investors.  The focus, above all, is on transparency which is why the commodity industry will be particularly impacted upon as this previously enjoyed very little regulatory oversight.  This is a departure from the Commission’s previous focus on increasing competition through the EEA.

Specifically the proposals under consultation attempt to:

  • establish a safer, more transparent, more responsible financial system in the wake of the financial crisis;
  • target less regulated and ‘more opaque’ parts of the financial system e.g. instruments traded over the counter (“OTC”) in accordance with the recent G20 consensus;
  • target the commodities markets, due to the increased presence of financial investors arguably leading to excessive price increases, price dislocation and volatility, and due to recent concerns about integrity in EU energy and carbon markets;
  • provide for rapid changes in market structure and technological development in EU equity markets e.g. the development of high frequency trading;
  • strengthen investor protection; and
  • contribute to the development of a ‘single rulebook’ for EU financial markets, by minimising the discretion Member States have under EU financial services regime.