ESMA Reminds Firms of Conduct of Business Obligations Under MiFIDII

The European Securities and Markets Authority (ESMA), today announced that is has issued a Public Statement on the risks for retail investors when trading under the highly uncertain market circumstances due to the COVID-19 pandemic.

ESMA also reminded investment firms of the key conduct of business obligations under MiFID when providing services to retail investors.

ESMA says that several National Competent Authorities (NCAs) have recently noticed a significant increase in retail clients’ trading activity.

It added that the financial market turmoil caused by the COVID-19 pandemic has led to high market Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term and an increase in market, credit, and Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term risks.

Protecting investors

In its statement, ESMA highlights the risks to retail investors when trading under these unprecedented market circumstances.

In the current environment, ESMA believes that firms have even greater duties when providing investment or ancillary services to investors, especially when these investors are new to the market, or have limited investment knowledge or experience.

It, therefore, reminds firms of their obligation to act in accordance with the best interests of their clients and points to the most relevant conduct of business obligations under MiFID II, namely product governance, information disclosure, suitability, and appropriateness.

In coordination with NCAs, ESMA will continue to monitor retail clients’ involvement in the financial markets, and firms’ compliance with the conduct of business requirements, it says.

ESMA states that it remains prepared to use its powers to ensure financial stability, orderly functioning of EU markets, and investor protection.