FRANCE Law and Practice Contributed by: Hubert de Vauplane and Hugo Bordet, Morgan Lewis & Bockius LLP
European regulators are closely monitoring the development of such platforms. Peer-to-peer platforms challenge the very defi - nition of trading venues under MiFID II: all the definitions refer to the notion of “multilateral sys- tem” and imply the use of an order book. Hence, peer-to-peer platforms organised to allow only bilateral trading might fall outside the scope of MiFID II. However, in January 2022, the ESMA published a consultation paper that clarifies, among other things, the definition of “multilateral system” . According to the ESMA’s publication, “The word ‘multiple’ refers to the system allowing various trading interests, to interact in the same system or facility,” including “systems where only two trading interests interact” . This would mean that peer-to-peer trading should not fall out of the scope of MIFID II only because it is bilateral. In any case, the peer-to-peer trading platforms that currently exist do not allow the exchange of financial instruments, since they are designed for crypto-assets. 6.7 Rules of Payment for Order Flow The AMF addressed the issue of payment for order flow in its “guide to best execution” pub - lished in 2014 and updated in 2020. The AMF is aware of three kinds of payments for order flow: non-public price reductions, provision of tools, or payment of connection fees and allocation of free shares in the company operating the trad - ing venue. To be considered lawful, these payments for order flow must satisfy three requirements: transparency vis-à-vis clients, enhancement of the service rendered and compliance with the duty to act in the best interest of the client.
Concerning the duty to act in the best interest of the client, which is defined in Article 314-14 of the AMF’s General Regulations, three cumulative conditions must be met with regard to payments for order flow: • first, they must be justified by the provision to the client of an additional or higher level of service, commensurate with the incentive received (such as the provision of access, at a competitive price, to a wide range of financial instruments; the provision of one or several value-added tools; the provision of periodic reports on the performance of finan - cial instruments and the associated costs and fee, etc); • second, they should not directly benefit the ISP, its shareholders or staff members, with - out any tangible benefit to the client; and • third, they should be justifiable by the provi - sion to the client of a long-term service in relation to the incentive received. In any case, the choice of trading venue must be made in a manner that complies with “best execution” obligations, as well as obligations relating to the prevention and management of conflicts of interest. In 2021, following the controversy over the impact of payment for order flow on retail trad - ers and speculation on “meme stocks” , the then- chairman of the AMF, Robert Ophèle, stated in a conference that he was in favour of a ban on payment for order flow in the EU. Since February 2024, these concerns have been acknowledged by European legislators, who have introduced a general ban on payment for order flow in Article 39b of MiFIR. This prohibi - tion will fully apply from 1 July 2026.
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