MiFID II: Transparency Calculations and DVC

On 21 June 2019 ESMA has published the updated results of the annual equity transparency calculations. The updated results are due to apply from 8 July 2019.

This update has among other things an impact on the average daily number of transactions on the most relevant market in the EU determining the tick size to be applied for trading on European markets. ESMA has very recently been made aware of an issue with the updated calculations which appears to affect the results for shares whose main pool of liquidity is in a third country while having less than one transaction a day on average on the most relevant market in the EU.

ESMA is investigating this issue and will revert in due course with a revised set of results for the relevant shares. In order not to impose a potentially incorrect tick size in the meantime, ESMA wishes to clarify that European trading venues are until further notice not bound by the tick sizes deriving from the ESMA publication of 21 June 2019 for third-country shares with an average daily number of transactions lower than one on the most relevant market in the EU. All those shares should be considered third-country shares for which the trading venue with the highest turnover is located in a country outside the EEA.

ESMA acknowledges that this change at short notice is not ideal, but believes this announcement avoids market disruption due to potentially incorrect tick sizes for third-country shares. ESMA will aim to quickly rectify the issue.

The European Securities and Markets Authority (ESMA) has today made available updated results of the annual transparency calculations for equity and equity-like instruments.

As announced on 6 March ESMA has today started to make available the updated annual transparency calculations for equity and equity-like instruments. Those calculations include:

  • the liquidity assessment as per Articles 1 to 5 of CDR 2017/567;
  • the determination of the most relevant market in terms of liquidity (MRM) as per Article 4 of CDR 2017/587 (RTS 1);
  • the determination of the average daily turnover (ADT) relevant for the determination of the pre-trade and post-trade large in scale (LIS) thresholds;
  • the determination of the average value of the transactions (AVT) and the related the standard market size (SMS); and, 
  • the determination of the average daily number of transactions on the most relevant market in terms of liquidity relevant for the determination of the tick-size regime.

The updated results of the annual transparency calculations for equity and equity-like instruments shall apply from 8 July 2019 until 31 March 2020, and they reflect:

  • the adjustment of the average daily number of transactions (ADNTE) on the most relevant market (MRM) determining the tick-size regime for shares whose main pool of liquidity is in a third country in accordance with CDR 2019/443;
  • late corrections of the underlying data used to perform the calculations by reporting entities. This is the data provided to Financial Instruments Transparency System (FITRS) by trading venues and approved publication arrangements (APAs) in relation to the calendar year 2018.
  • the adjustment of the most relevant market (MRM) in accordance with CDR 2017/590.

In the updated results, there are 1,379 liquid shares and 370 liquid equity-like instruments other than shares, subject to MiFID II/MiFIR transparency requirements.

The full list of assessed equity and equity-like instruments will be available through ESMA’s Financial Instruments Transparency System (FITRS) in the XML files from 21 June 2019 (link available here) and through the Register web interface (link available here).  

Background

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

Pre-trade transparency requirements may be waived for transactions, whose size is above large-in-scale thresholds (LIS), and systematic internalisers (SIs) have pre-trade transparency obligations for instruments traded on a traded venue which are liquid and when dealing with orders up to the standard market size (SMS).

The publication of post-trade information can be deferred for transactions whose size is above large-in-scale thresholds (LIS).

MiFID II/MiFIR introduce the tick-size regime to orders in shares, depositary receipts based on the average daily number of transactions in the most relevant market in terms of liquidity and to orders in exchange-traded funds (ETFs) on the basis of their price.

Next steps

From 1 April 2020, the next annual transparency calculations for equity and equity-like instruments to be published by 1 March 2020, will become applicable.

 

Today, ESMA Executive Director, Verena Ross delivered a keynote speech at the ICMA Annual General Meeting and Conference in Stockholm, Sweden.

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.

ESMA has started today to make available the third quarterly liquidity assessment for bonds that are available for trading on EU trading venues as at the end of December. For the Q1 2019 period, there are currently 987 liquid bonds subject to MiFID II transparency requirements. The increased number of liquid bonds is the result of a higher level of data completeness driven particularly by better data reporting by systematic internalisers.

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. 

The full list of assessed bonds are available through FITRS in the XML files from the publication date of  30 April 2019  and through the Register web interface   

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 May 2019 to 15 August 2019.

Please note that 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 European Securities and Markets Authority (ESMA) has decided today to delay the publication of the systematic internaliser (SI) regime data  for equity, equity-like instruments and bonds.

Due to a technical issue, ESMA will delay the publication of the systematic internaliser (SI) regime data for equity, equity-like instruments and bonds. This publication will now occur by the end of next week.

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 2019The SI-assessment for those asset classes does therefore not need to be performed until this publication has taken place.

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) considers, that following the extension of Article 50(3) in relation to the United Kingdom’s withdrawal from the European Union, it is necessary to provide clarity to stakeholders that transparency calculations due in May and June as well as in the following months will now be published.

ESMA is clarifying that it intends to perform and publish the calculations for:

  • Quarterly SI-determination (systematic internalisers) for equity instruments and bonds and for the quarterly liquidity determination for bonds on 30 April 2019; and,  
  • Double volume cap on 8 May 2019.

ESMA also wishes to inform stakeholders that it will not perform the annual calculations for non-equity instruments other than bonds in 2019 due to continued concerns about the quality and completeness of data. Therefore, the results of the transitional transparency calculations will continue to apply for one more year and the first regular annual calculations for non-equity instruments will be published by 30 April 2020.  

Extension of Article 50(3) TEU

ESMA’s statement on the publication of databases and IT-systems, including the update on 28 March, informed the public of ESMA’s approach concerning the various transparency calculations in case of a no-deal Brexit. The statement explained that in case of a no-deal Brexit the publication of the transparency calculations would be suspended for a period of two months.

Following the European Council’s decision on 11 April extending Article 50(3) TEU resulting in a new potential no-deal Brexit date of 31 October 2019, ESMA clarified that any references to 12 April 2019 in existing ESMA statements and measures on a no-deal scenario should be read as references to 31 October 2019, unless the European Council decides otherwise. Furthermore, ESMA announced to provide further guidance in relation to the application of this new date in due course. 

In accordance with the previous statement from 28 March 2019, the below dates of the operations of ESMA data systems detailed in its statement from 19 March 2019 are amended as follows:

  • The maintenance window of the Financial Instruments Reference Data System (FIRDS) system will take place from Friday 12 April 2019 21:30 CEST until Wednesday 17 April 2019 12:00 CEST (noon);
  • The maintenance window of the Financial Instrument Transparency System (FITRS) system will take place from Friday 12 April 2019 21:30 CEST until Monday 22 April 2019 12:00 CEST (noon);
  • For the purpose of transaction reporting during the FIRDS maintenance window, NCAs shall continue using the latest available reference data from before 12 April 2019; and, 
  • The termination / authorisation date for UK entries in ESMA databases submitted before Brexit, in particular financial instruments, authorised entities, prospectuses and others, will be set to 12 April 2019.

The European Securities and Markets Authority (ESMA) has published a statement updating on its preparations for a no-deal Brexit scenario in view of recent developments on timing.

ESMA wants to highlight that, in relation to previously published measures and actions issued on the basis of a no-deal Brexit scenario on 29 March 2019, reference to the date of 29 March 2019 in these statements should now be read as 12 April 2019.