ESMA/FCA: The impact of Brexit on the trading obligation for shares (Article 23 MiFIR)

Further to concerns raised by shareholders following its March 2019 guidance, ESMA's statement is intended to further mitigate potential adverse effects of the application of the trading obligation for shares (STO), within the constraints of a no-deal Brexit. ESMA has concluded that an approach to the STO based only on the ISIN of the share would be more likely to minimise any such risk of disruption in the interest of orderly markets, so the EU27 STO would not be applied to the 14 GB ISINs included in its previous guidance. ESMA assumes that all EU27 and EEA ISINs are within the scope of the EU27 STO. GB ISINs are outside the scope of the EU27 STO. ESMA set out concerns over the UK’s approach, noting that it has held regular discussions with the FCA to try to identify a way forward to avoid conflicting requirements, but at this stage it is unclear what would be the scope of the UK STO. FCA has published a response, stating that the risks are "not mitigated" by this new approach, suggesting that Article 23 MIFIR implies overlapping obligations for firms. In the absence of reciprocal equivalence, applying both UK and EU STOs in a way that maintains the status quo for a limited period of time after exit remains an alternative way of mitigating disruption whilst longer term solutions are found. FCA intends to engage with market participants and trading venues on the matter and will continue to consider its approach to the implementation of any STO needed in the case of a no-deal Brexit.