In March the The European Securities and Markets Authority (ESMA) launched a consultation on a package of rules relating to MiCA crypto asset regulations, including market abuse. One of the proposals relates to Maximum Extractable Value and appears to make it a reportable market abuse infringement. Crypto asset service providers (CASPs) have to do the reporting, which could be challenging. Consultation responses are accepted until June 25.
The proposed rules include the following paragraph: “ESMA notes that MiCA is clear when indicating that orders, transactions, and other aspects of the distributed ledger technology may suggest the existence of market abuse e.g., the well-known Maximum Extractable Value (MEV) whereby a miner/validator can take advantage of its ability to arbitrarily reorder transactions to front-run a specific transaction(s) and therefore make a profit.”
Patrick Hansen, Circle’s Director of EU Strategy & Policy, raised the issue on Linkedin, sparking a lively debate. It attracted a response from Peter Kerstens, an adviser at the European Commission who was involved in drafting MiCAR. He observed that not every MEV intervention amounts to market abuse but they can lead to market abuse. However, Kirstens added that “trading and inserting transactions based on information gleaned from the mempool/proposed block composition is very likely amounting to market manipulation/frontrunning.”
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