MiFID II: Transparency Calculations and DVC

The European Securities and Markets Authority (ESMA) has published today data for the systematic internaliser calculations for equity, equity-like instruments and bonds under the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR).

As announced on 30 October 2019, ESMA has published the total number of trades and total volume over the period April-September 2019 for the purpose of the systematic internaliser (SI) calculations for 22,015 equity and equity-like instruments and for 334,610 bonds.

The results are published only for instruments for which trading venues submitted data for at least 95% of all trading days over the 6-month observation period. The data publications also incorporate OTC trading to the extent it has been reported to ESMA. The publication includes data also for instruments which are no longer available for trading on EU trading venues at the end of December.

The publication of the data for the SI calculations for derivatives and other instruments has been delayed until 2020 at the latest, as set out in the updated plan announced by ESMA on 30 January 2019. The SI-assessment for those asset classes does not need to be performed until 2020 at the latest.

Background

According to Article 4(1)(20) of Directive 2014/65/EU (MiFID II) investment firms dealing on own account when executing client orders over the counter (OTC) on an organised, frequent systematic and substantial basis are subject to the mandatory SI regime.

Commission Delegated Regulation (EU) No 2017/565 specifies thresholds determining what constitutes frequent, systematic and substantial OTC trading. In particular, investment firms are required to assess whether they are SIs in a specific instrument (for equity and equity-like instruments, bonds, ETCs and ETNs and SFPs) or for a (sub-) class of instruments (for derivatives, securitised derivatives and emission allowances) on a quarterly basis based on data from the previous six months. For each specific instrument/sub-class, an investment firm is required to compare the trading it undertakes on its own account compared to the total volume and number of transactions executed in the European Union (EU). If the investment firm exceeds the relative thresholds it will be deemed an SI and will have to fulfil the SI-specific obligations. ESMA, upon request of market participants and on a voluntary basis, decided to compute the total volume and number of transactions executed in the EU in order to help market participants in the performance of the test since that data is essential for the operation of the SI regime and is not otherwise easily available.

The European Securities and Markets Authority (ESMA) has started today to make available new data for bonds subject to the pre- and post-trade requirements of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) through its data register.

As announced on 30 October 2019, ESMA has started today to make available the latest quarterly liquidity assessment for bonds available for trading on EU trading venues. For this period, there are currently 611 liquid bonds subject to MiFID II transparency requirements.

ESMA’s liquidity assessment for bonds is based on a quarterly assessment of quantitative liquidity criteria, which include the daily average trading activity (trades and notional amount) and percentage of days traded per quarter. ESMA updates the bond market liquidity assessments quarterly. However, additional data and corrections submitted to ESMA may result in further updates within each quarter, published in ESMA’s Financial Instruments Transparency System (FITRS), which shall be applicable the day following publication. 

The full list of assessed bonds will be available through FITRS in the XML files with publication date from 8 November 2019 (link available here) and through the Register web interface (link available here).

As communicated on 27 September 2018, ESMA is also publishing two completeness indicators related to bond liquidity data.

Background

MiFID II became applicable on 3 January 2018 introducing, amongst others, pre- and post-trade transparency requirements for equity and non-equity instruments, including for bonds. Post-trade, MiFID II requires real-time publication of the price and quantity of trades in liquid bonds. It is possible to defer the publication of post-trade reports if the instrument does not have a liquid market, or if the transaction size is above large-in-scale thresholds (LIS), or above a size specific to the instrument (SSTI). In order to assist market participants to know whether a bond should be considered as liquid or not, ESMA publishes these quarterly liquidity assessments for bonds.

Next steps

The transparency requirements for bonds deemed liquid today will apply from 16 November 2019 to 15 February 2020. 

The European Securities and Markets Authority (ESMA) has updated today its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II).

Today’s updates include DVC data and calculations for the period 1 October 2018 to 30 September 2019 as well as updates to already published DVC periods.

The number of new breaches is 62: 51 equities for the 8% cap, applicable to all trading venues, and 11 equities for the 4% cap, that applies to individual trading venues. Trading under the waivers for all new instruments in breach of the DVC thresholds should be suspended from 14 November 2019 to 13 May 2020. The instruments for which caps already existed from previous periods will continue to be suspended.

In addition, ESMA highlights that none of the previously identified breaches of the caps proved to be incorrect thus no previously identified suspensions of trading under the waivers had to be lifted.

As of 8 November 2019, there is a total of 385 instruments suspended.

Please be aware that ESMA does not update DVC files older than 6 months.

Background

MiFID II introduced the DVC to limit the amount of dark trading in equities allowed under the reference price waiver and the negotiated transaction waiver. The DVC is calculated per instrument (ISIN) based on the rolling average of trading in that instrument over the last 12 months.

The European Securities and Markets Authority (ESMA) will publish the systematic internaliser (SI) and bond market liquidity data on 8 November, this follows the latest developments around the departure of the United Kingdom (UK) from the European Union (EU).

ESMA will publish the SI regime data for equity, equity-like instruments and bonds and the quarterly liquidity assessment for bonds on 8 November 2019 and the requirements based on this publication will apply from 16 November 2019.

ESMA was due to publish the SI regime data for equity, equity-like instruments and bonds and the quarterly liquidity assessment for bonds by 1 November 2019. However, the developments concerning the UK’s departure from the EU have an impact on this publication date, which was already indicated in the 7 October public statement on ESMA’s Data Operational Plan under a potential no-deal Brexit scenario occurring on 31 October 2019.

Background

MiFID II became applicable on 3 January 2018 introducing, amongst others, pre-trade transparency obligations for SIs and pre- and post-trade transparency requirements for equity and non-equity instruments, including for bonds.

According to Article 4(1)(20) of Directive 2014/65/EU (MiFID II) investment firms dealing on own account when executing client orders over the counter (OTC) on an organised, frequent systematic and substantial basis are subject to the mandatory SI regime.

Commission Delegated Regulation (EU) No 2017/565 specifies thresholds determining what constitutes frequent, systematic and substantial OTC trading. In particular, investment firms are required to assess whether they are SIs in a specific instrument (for equity and equity-like instruments, bonds, ETCs and ETNs and SFPs) or for a (sub-) class of instruments (for derivatives, securitised derivatives and emission allowances) on a quarterly basis based on data from the previous six months. For each specific instrument/sub-class, an investment firm is required to compare the trading it undertakes on its own account compared to the total volume and number of transactions executed in the European Union (EU). If the investment firm exceeds the relative thresholds it will be deemed an SI and will have to fulfil the SI-specific obligations. ESMA, upon request of market participants and on a voluntary basis, decided to compute the total volume and number of transactions executed in the EU in order to help market participants in the performance of the test since that data is essential for the operation of the SI regime and is not otherwise easily available.

Post-trade, MiFID II requires real-time publication of the price and quantity of trades in liquid bonds. It is possible to defer the publication of post-trade reports if the instrument does not have a liquid market, or if the transaction size is above large-in-scale thresholds (LIS), or above a size specific to the instrument (SSTI). In order to assist market participants to know whether a bond should be considered as liquid or not, ESMA publishes these quarterly liquidity assessments for bonds.

The European Securities and Markets Authority (ESMA) has updated today its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II).

Today’s updates include DVC data and calculations for the period 1 September 2018 to 31 August 2019 as well as updates to already published DVC periods.

The number of new breaches is 75: 63 equities for the 8% cap, applicable to all trading venues, and 12 equities for the 4% cap, that applies to individual trading venues. Trading under the waivers for all new instruments in breach of the DVC thresholds should be suspended from 10 October 2019 to 9 April 2020. The instruments for which caps already existed from previous periods will continue to be suspended.

In addition, ESMA highlights that none of the previously identified breaches of the caps proved to be incorrect thus no previously identified suspensions of trading under the waivers had to be lifted.

As of 7 October 2019, there is a total of 376 instruments suspended.

Please be aware that ESMA does not update DVC files older than 6 months.

As also announced today in ESMA public statement on the “Use of UK data in ESMA databases ”, in case of a no-deal Brexit, ESMA will not perform the DVC calculations in November and December 2019 due to concerns about potential disruptions of the ESMA IT-systems after Brexit. The DVC calculations would be resumed in January 2020.

Background

MiFID II introduced the DVC to limit the amount of dark trading in equities allowed under the reference price waiver and the negotiated transaction waiver. The DVC is calculated per instrument (ISIN) based on the rolling average of trading in that instrument over the last 12 months.

On 29 March 2017, the United Kingdom of Great Britain and Northern Ireland (UK) invoked Article 50 of the Treaty on European Union (TEU) which triggered the process for its withdrawal from the European Union (EU), or Brexit. The invocation procedure provides that after a negotiation period of up to two years, the TEU cease to apply to the Member State which invoked Article 50.  

ESMA initiated a systematic analysis of the potential impact of a no-deal Brexit for EU securities markets and for ESMA as an organisation, when it was preparing for a potential no deal scenario on 29 March 2019 and 12 April 2019, and communicated to the market on its contingency planning.

On 10 April 2019, the European Council (Council) agreed a further extension to Brexit until 31 October 2019 to allow for the ratification of the Withdrawal Agreement by both Parties. If the Withdrawal Agreement fails to be ratified and no further extension is agreed by the Council, the UK will leave the EU on 31 October 23:00 (UK time).

The reference date for Brexit in all of ESMA’s previously published measures and actions, including public statements, issued regarding the possibility of a no-deal Brexit scenario, should now be read as 31 October 2019. The full list of statements and measures issued previously is available on ESMA’s website and also included in the annex to this statement.

Some of the measures announced need updating in case of a no-deal Brexit on 31 October 2019, so ESMA is issuing today updated measures in the following areas:

-       Public Statement on the Use of UK data in ESMA databases and performance of MiFID II calculations updating the communication issued on 5 February 2019.

-       Public Statement on the Impact of no-deal Brexit on MiFID II/MiFIR and the Benchmark Regulation (BMR) – C(6) carve-out, ESMA opinions on third-country trading venues for the purpose of post-trade transparency and position limits, post-trade transparency for OTC transactions, BMR ESMA register of administrators and 3rd country benchmarks calculations updating the communication issued on 7 March 2019.

-       Public Statement on Operational plans related to ESMA databases and IT systems updating the communication issued on 19 March 2019.

Next steps

There is still a high level of uncertainty as to the final timing and conditions of Brexit, and should these change, ESMA will adjust the approach for its IT applications and databases and will inform the public of the adjusted approach as soon as possible.

 

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, as today published an opinion on frequent batch auctions (FBAs) and the double volume cap mechanism. ESMA’s Opinion reflects the conclusions of its Final Report on Periodic Auctions (June 2019) which identified several shortcomings of FBA systems in the area of pre-trade transparency and the price determination. 

ESMA’s Opinion aims to provide sufficient clarification regarding the application of the pre-trade transparency requirements by FBA systems and the price determination process of FBA systems, ensuring consistent application throughout the EU.

  • Application of pre-trade transparency by FBA systems

ESMA considers that trading venues operating FBA systems initiating auction calls based on the first incoming order pending a potential match should inform market participants that an auction has started, thereby making market participants aware that there might be a trading opportunity and enabling them to participate in the auction.

  • The price determination process of FBA systems

ESMA’s Opinion sets out several practices which may undermine the price formation process and details three functionalities which would result in non-price forming FBA systems. Notably, systems that allow only for the submission of pegged orders and/or ‘adjusted limit orders’, the use of price band limitations and systems that lock in the prices at the beginning of an auction.

Next Steps

ESMA will keep monitoring developments in the market, including how trading venues adapt their systems to meet the guidance on the operation of FBA systems set out in this Opinion.

Should it prove necessary, ESMA will issue further guidance in order to ensure the convergent application of the MiFID II / MiFIR requirements across the EU, in particular with respect to transparency and price formation.

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