Specific MiFID exemption has been designed for persons which own or directly operate installations subject to Directive 2003/87/EC, but the issue whether it is properly formulated is open.
Which entities can be considered ‘compliance buyers’ on the ground of the 2003/87/EC Directive and the new MiFID Directive?
Theoretically, a variety of definitions can be build as the term is not legally defined but rather taken from professional jargon, but taking into account Article 2 of the new MiFID text enclosed to the Report of the Committee on Economic and Monetary Affairs Rapporteur Markus Ferber on the proposal for a directive of the European Parliament and of the Council on markets in financial instruments repealing Directive 2004/39/EC of the European Parliament and of the Council (COM(2011)0656 – C7-0382/2011 – 2011/0298(COD)) of 5 October 2012 (Report) as compliance buyers can conventionally be regarded:
‘persons who, when dealing emission allowances, do not provide any investment services or activities other than dealing on own account and do not execute client orders, and which own or directly operate installations subject to Directive 2003/87/EC.’
Article 2(1)(d) of the EP draft for new MiFID provides for such persons specific exemption from rigid financial market regulatory requirements. Aside from elaborate set of other exemptions contained in Article 2 of the new MiFID, the said point (d) explicitly mentions emission allowances in the above-described context and states that the Directive is not to be applied to:
‘(d) persons who do not provide any investment services or activities other than dealing on own account unless they:
(i) are market makers;
(ii) are a member of or a participant in a regulated market or multilateral trading facility (MTF) or have direct market access to a trading venue;
(iia) engage in algorithmic trading;
(iib) given the scale of their trading activities are deemed to have a significant market presence by the competent authority; or
(iii) deal on own account when executing client orders.
Persons who are exempt under point (i) do not also need to meet the conditions laid down in this point in order to be exempt.’
The point (d) also stipulates in fine (the sentence added in the Report):
‘This exemption shall apply to persons who, when dealing emission allowances, do not provide any investment services or activities other than dealing on own account and do not execute client orders, and which own or directly operate installations subject to Directive 2003/87/EC.’
What is particularly noteworthy in the above wording is that for compliance buyer to be eligible to make use of this exemption compliance buyer mustn’t be ‘a member of or a participant in a regulated market or multilateral trading facility (MTF) or have direct market access to a trading venue.’
While the notions for ‘regulated market’ or ‘multilateral trading facility (MTF)’ are legally defined to date, ‘direct market access’ is a new EP definition and means:
‘an arrangement where a member or participant of a trading venue permits a person to use its trading code so the person can transmit orders electronically to the investment firm's internal electronic trading systems for automatic onward transmission under the investment firm's trading code to a specified trading venue.’
As the issue is new it is not appropriate to enter into further details on this stage, but the preliminary question may be asked now whether compliance buyer really mustn’t be allowed to be a member of or a participant in a regulated market or multilateral trading facility (MTF) or have direct market access to a trading venue for the purposes of the said MiFID exemption, what reasons justify such a restriction and if there are any, whether they are proportionate to the scale of potential effects.