ESMA issues implementing rules for package orders under MiFID II
The European Securities and Markets Authority (ESMA) has published today its final report on draft regulatory technical standards (RTS) regarding the treatment of package orders under the amended Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). ESMA’s draft RTS specifies how the MiFIR pre-trade transparency requirements apply to package orders.
ESMA’s draft RTS establishes a methodology for determining those package orders for which there is a liquid market in the European Union as a whole, and which consequently may not benefit from most waivers from pre-trade transparency specified in MiFIR. The methodology assesses whether a package order is standardised and frequently traded based on a set of general criteria that it has to meet and which are complemented by asset-class specific criteria. Furthermore, the draft RTS determines that package orders where all components are subject to the trading obligation for derivatives, and which meet a number of additional criteria e.g. the package order has no more than four components, have a liquid market as a whole.
Package transactions are interlinked financial transactions comprising various instruments which firms execute jointly in order to reduce transaction costs and for risk management purposes. MiFIR’s pre-trade transparency regime requires the disclosure of trading interest in all non-equity instruments. However, national competent authorities will be able to waive this requirement if certain conditions are met. Package orders may be waived from pre-trade transparency where at least one of its components is large in scale or does not have a liquid market, unless there is a liquid market for the package order as a whole.
ESMA has sent its final draft RTS to the European Commission which has now three months to decide whether or not it wishes to endorse the standards.