MiFID and Derivative Markets Burçak Inel Head of Regulatory Affairs Federation of European Securities Exchanges (FESE) 9 th Annual Conference of the Association of Futures Markets Istanbul, 6 April 2006, 14:15 – 15:30 “Roundtable 2: Legal and Regulatory Issues ” Rue du Lombard Brussels, Belgium Tel: GSM: Fax: Disclaimer: This document is prepared for the purpose of presenting the subject matter and does not necessarily reflect the opinion of FESE or its members.

Outline of Presentation Introduction to the new European regulatory framework for securities MiFID Regime: An Overview Conclusion

The new European regulatory framework for securities  Financial Services Action Plan  Lamfalussy Process  Key Measures:  Market Abuse Directive  Prospectus Directive  Transparency Obligations Directive  Markets in Financial Instruments (MiFID)

MiFID A Lamfalussy Directive with 4 levels Scope:  Certain types of derivatives referred to in Section C7 and C10 of the Annex are excluded – to be determined by technical implementing measures (Level 2)  Dealing in own account in commodity derivatives is excluded – exact impact to depend on national implementation (Level 4) Recital (4): It is appropriate to include in the list of financial instruments certain commodity derivatives and others which are constituted and traded in such a manner as to give rise to regulatory issues comparable to traditional financial instruments. Article 2 Exemptions: 1. This Directive shall not apply to: (…) (i) persons dealing on own account in financial instruments, or providing investment services in commodity derivatives or derivative contracts included in Annex I, Section C 10 to the clients of their main business, provided this is an ancillary activity to their main business, when considered on a group basis, and that main business is not the provision of investment services within the meaning of this Directive or banking services under Directive 2000/12/EC; (k) persons whose main business consists of dealing on own account in commodities and/or commodity derivatives. This exception shall not apply where the persons that deal on own account in commodities and/or commodity derivatives are part of a group the main business of which is the provision of other investment services within the meaning of this Directive or banking services under Directive 2000/12/EC; (l) firms which provide investment services and/or perform investment activities consisting exclusively in dealing on own account on markets in financial futures or options or other derivatives and on cash markets for the sole purpose of hedging positions on derivatives markets or which deal for the accounts of other members of those markets or make prices for them and which are guaranteed by clearing members of the same markets, where responsibility for ensuring the performance of contracts entered into by such firms is assumed by clearing members of the same markets;

MiFID Regime Pan-European passport for investment services Affects:  Issuers of instruments  Intermediaries  Market operators  Investors A new client identification system  Retail clients  Professional clients  Eligible counterparties Transaction Reporting (all instruments) Transparency obligations (shares)  Pre-trade  Post-trade Conduct of business rules, o/w Best Execution (relevant when the instrument is traded in more than one venue) Rules for Regulated Markets

What’s next Level 2 (technical implementing measures): e.g. Refining the scope of instruments subject to MiFID Level 3 (supervisory convergence): e.g. Tailoring best execution requirements to non-equity instruments Reports (“Article 65” of MiFID) starting in 2007: 1. Before [November 2007], the Commission shall, on the basis of public consultation and in the light of discussions with competent authorities, report to the European Parliament and Council on the possible extension of the scope of the provisions of the Directive concerning pre and post-trade transparency obligations to transactions in classes of financial instrument other than shares. 3. Before [April 2008], the Commission shall, on the basis of public consultations and in the light of discussions with competent authorities, report to the European Parliament and Council on: (a) the continued appropriateness of the exemption under Article 2(1)(k) for undertakings whose main business is dealing on own account in commodity derivatives; (…) (d) the continued appropriateness of the exemption under Article 2(1)(i).