MiFID2: EU Parliament publishes correspondence with EU Commission on SIs operating broker crossing networks

The EU Parliament has published correspondence between members of the Committee on Economic and Monetary Affairs (ECON) and the EU Commission on MiFID2. In particular, the EU Commission Vice President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, Valdis Dombrovskis, has responded to a letter from the EU Parliament's negotiating team on MiFID2, following communications from the European Securities and Markets Authority (ESMA), which raised concerns in relation to the possible establishment of networks of systematic internalisers (SIs) operating broker crossing networks.

In a letter dated 24 February 2017, the Parliament's negotiating team highlighted that it shares ESMA's concern that certain investment firms may be setting up interconnected SIs to bring together third party buying and selling interests via matched principal trading, or other types of back-to-back transactions, which may potentially circumvent obligations under MiFID2 or go against the spirit of the legislation. As such, the letter requested that the Commission examine the issue and consider whether action should be taken.

The Vice President's response, dated 16 March 2017 and published on 23 March 2017, sets out the results of a preliminary investigation. The letter proposes that the Commission engage in a dialogue with ESMA and national competent authorities (NCAs) to determine the jurisdictions in which the alleged broker crossing networks could potentially be established and then engage with the relevant authorities on how to address the establishment of such networks within the MiFID2 rules.