MiFID II: Transparency Calculations and DVC

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 of 1 October 2017 to 30 September 2018 as well as updates to already published DVC periods. 

The number of new breaches is 48: 42 equities for the 8% cap, applicable to all trading venues, and 6 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 2018 to 13 May 2019. The instruments for which caps already existed from previous periods will continue to be suspended.

In addition, ESMA highlights that some trading venues in the meantime have submitted corrected data that affects past DVC publications. For a total number of 5 instruments, this means that previously identified breaches of the 8% and 4% caps proved to be incorrect. For these instruments, the suspensions of trading under the waivers should be lifted.

As of 9 November, there is a total of 630 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) 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 of 1 September 2017 to 31 August 2018 as well as updates to already published DVC periods. 

The number of new breaches is 69: 57 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 11 October 2018 to 10 April 2019. The instruments for which caps already existed from previous periods will continue to be suspended.

In addition, ESMA highlights that some trading venues in the meantime have submitted corrected data that affects past DVC publications. For a total number of 3 instruments, this means that previously identified breaches of the 8% and 4% caps proved to be incorrect. For these instruments, the suspensions of trading under the waivers should be lifted.

As of 8 October, there is a total of 652 instruments suspended.

Please be aware that ESMA does not update DVC files older than 6 months. In other words, suspensions that were expected to be triggered in the past months due to the publication of the DVC results in the files related to the periods 1 January 2017 to 31 December 2017, 1 February 2017 to 31 January 2018 and 1 March 2017 to 28 February 2018 cannot be lifted anymore.

In addition, the “Expected suspension end date” for suspensions that are active as of 8 October 2018 has been changed whenever the suspension period was equal to 6 months and 1 day. The suspensions are expected to start before 8:00 am CET on the “Suspension start date” and terminate at the close of trading day on the “Suspension end date”.

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) has today updated its Questions and Answers regarding market structures  and transparency issues  under the Market in Financial Instruments Directive (MiFID II) and Regulation (MiFIR).

The new Q&As provide clarification on the following topics:

               Classification of derivatives on derivatives for transparency purposes;

               Default liquidity status of bonds (amendment to an existing Q&A);

               Scope of the pre-trade transparency waiver provided under Article 9(1)(c) of MiFIR;

               Market Making activities and incentives to be provided during stressed market conditions;

               Treatment of bulk quotes for the calculation of the Order to Trade Ratio;

               Scope of Article 17(6) of MiFID II and Chapter IV (Articles 24-27) of Delegated Regulation (EU) 2017/589 (RTS 6);

               Arranging of transactions that are ultimately formalised on another trading venue;

               Registration of a segment of an MTF as an SME growth market; and

               Maker Taker schemes.

 The purpose of these Q&As is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR. They provide responses to questions posed by the general public and market participants in relation to the practical application of level 1 and level 2 provisions relating to transparency and market structures issues.

ESMA will continue to develop these Q&As in the coming months and will review and update them where required.

The European Securities and Markets Authority (ESMA) has today announced details of two new data completeness indicators for trading venues detailing the delivery of double volume cap (DVC) and bond liquidity data. The two indicators – the Completeness Ratio and the Completeness Shortfall – will assist trading venues in delivering complete and accurate data on a timely basis, by providing performance information on the timeliness and completeness of their data provision. The indicators will be published for the first time on 8 October for DVC data and by 1 November for bond liquidity.

In recent months ESMA, and the national competent authorities (NCAs), have been working to improve the timeliness and completeness of the data underpinning the monthly DVC and quarterly bond liquidity assessment publications. While these efforts have produced some positive results, the current situation remains unsatisfactory with significant data completeness issues.  

ESMA considers the provision of timely, complete and accurate data as essential for the proper implementation of MiFIR and compliance with its requirements. To ensure data completeness ESMA will start publishing completeness indicators for all venues covered by DVC and bond data reporting.

Steven Maijoor, Chair, said:

 “ESMA is committed to ensuring data completeness to facilitate the consistent application of the DVC and bond market liquidity rules across the EU. Moreover, we need to ensure a level playing field between trading venues. These goals can only be accomplished if the relevant data from trading venues is consistently complete and correct. The two indicators that ESMA will start publishing from October and November should make trading venues increase their efforts to provide timely and complete data. The DVC and bond liquidity assessments are key building blocks of the MIFID II objective to increase transparency.”

New indicators

In order to increase the incentives for trading venues to deliver data for the performance of the DVC and bond liquidity calculations on a timely basis, ESMA will publish two completeness indicators:

  • The Completeness Ratio: is an indicator that provides information on the completeness of a particular venue taken in isolation, irrespective of the performance of other venues. The completeness ratio is calculated as the number of records received from a venue divided by the total number of records expected from that venue over the relevant period. One record corresponds to a bi-weekly report in the case of completeness for the DVC and to a one-day report in the case of completeness for bond liquidity.
  • The Completeness Shortfall: is a measure that gives an indication of a venue’s performance in terms of completeness compared to other trading venues. It reflects the percentage of missing data for which a particular venue is responsible.

ESMA will publish one file containing trading venue identification information – MIC Code, full name, country of the NCA – and quantitative information – Completeness Ratio, Completeness Shortfall, number of ISINs, number of reporting periods and number of incomplete ISINs.

Next steps and publication of indicators

ESMA will publish completeness indicators as follows:

  • DVC: on 8 October 2018 with the next DVC update and then on a monthly basis. The period used to calculate the completeness indicators will include all the months related to (i) the calendar years relevant for any of the monthly files that can be modified on the DVC publication date and (ii) the calendar year relevant for the DVC publication of the month e.g. on 8 October 2018 the period will include all the months from 1 April 2017 to 31 August 2018.

A venue which has submitted all its DVC records will have a Completeness Ratio of 100% and a Completeness Shortfall of 0%. The completeness shortfalls across all venues adds up to 100%. 

  • Bond liquidity: from the next bond liquidity quarterly assessment publication by 1 November 2018 and then on a quarterly basis. The period used to calculate the completeness indicators will be the calendar quarter used for the quarterly liquidity assessment published on the publication day of such calculations (e.g. for the November 2018 publication the calendar quarter used will be 1 July 2018 – 30 September 2018).

A venue which has submitted all its bonds records will have a Completeness Ratio of 100% and a Completeness Shortfall of 0% (The completeness shortfalls across all venues adds up to 100%).  

The European Securities and Markets Authority (ESMA) has today published details of its action plan (within its updated Q&As on MiFID II and MiFIR transparency topics) for systematic internaliser (SI) regime calculations  ahead of their publication on 1 August 2018. ESMA’s action plan focuses on equity, equity-like instruments and bonds while postponing the publication for derivatives and other instruments to 1 February 2019. 

ESMA was required to amend its original action plan as data completeness for the various asset classes had not reached adequate levels when ESMA conducted its completeness analyses. Given the complexity and size of the task, ESMA then decided to focus on improving completeness for a select number of asset classes while postponing the publication for others.

The updated implementation schedule means ESMA will publish the necessary EU wide data, for the first time by:

  • 1 August 2018 - covering a period from 3 January 2018 to 30 June 2018 for equity, equity-like and bond instruments. Investment firms will then have to perform their first assessment and, where appropriate, comply with the SI obligations by 1 September 2018.
  • 1 February 2019 - covering a period from 1 July 2018 to 31 December 2018 for ETCs, ETNs, SFPs, securitised derivatives, emission allowances and derivatives. SI’s will have to eventually comply with the obligations from 1 March 2019.

ESMA will publish results only if trading venues have submitted data for at least 95% of all trading days and will not trigger publication if the quality of the data received for an instrument is not considered sufficient. The data publications will also incorporate OTC trading to the extent it has been reported to ESMA.

Following this, ESMA publications will be updated on a quarterly basis in respect of a rolling six months assessment period and investment firms are expected to self-assess and comply after a reduced two week period. ESMA notes that for the SI calculations having a high level of completeness in the reported information is crucial.

ESMA’s updated Q&As on MiFID II and MiFIR transparency topics also provides clarification on the following topics:

  • Reporting of a new ISIN in FIRDS and FITRS following a corporate action; and
  • Application of the DVC to instruments that have been subject to a corporate action.

Next steps

In order to reach comprehensive results ahead of publication on August 1, additional work is required by ESMA, NCAs and trading venues. To achieve a high completeness ratio allowing results to be published for a high number of instruments, ESMA has performed a first completeness check of the data available in the system for the period 3 January to 1 June 2018 at the beginning of June. Based on this work, ESMA has liaised with NCAs and trading venues to increase the completeness rate as quickly as possible.

Background

The SI regime requires investment firms to assess whether they are SIs in a specific instrument (for equity, 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 determined in the Commission Delegated Regulation (EU) No 2017/565 it will be deemed an SI and will have to fulfil the SI-specific obligations. ESMA decided to compute the total volume and number of transactions executed in the EU in order to help market participants as that data is essential for the operation of the SI regime and is not otherwise easily available.

The European Securities and Markets Authority (ESMA), in cooperation with national competent authorities (NCAs) in the European Economic Area (EEA), has overseen the launch of the Markets in Financial Instruments Directive II (MiFID II) and the Markets in Financial Instruments Regulation (MIFIR) on Wednesday 3 January.

A key element in ensuring the new regime functions properly is ensuring the availability of data to market participants – firms and trading venues – and NCAs. This data is now available on ESMA’s website and will be continuously updated.

The European Securities and Markets Authority (ESMA) has published an updated version of the MiFID II/MiFIR transitional transparency calculations (TTC) for equity and bond instruments. This updated version mainly reflect schanges in the classification of the instruments and the related parameters and resubmission of data by some trading venues. This new version is the one to be used by market participants, infrastructures and authorities under the new regulatory framework from 3 January 2018.

MiFID II’s implementing measures on transparency for financial instruments require NCAs to compute and publish transparency calculations on financial instruments, including transitional ones prior to the date of application of MiFIR. NCAs from the European Economic Area (EEA), with the exception of Poland, have delegated to ESMA the compilation of TTC. ESMA has already provided TTC for non-equity instruments in July and September 2017.

ESMA has performed these calculations with due care and to the best of its ability. However, given the scope and complexity of the calculations, including the various underlying data sources, future corrections of the TTC cannot be ruled out. ESMA expects to continuously supplement and update the information provided, where necessary.

Next Steps

The TTC will be applicable starting 3 January 2018 and the equity instruments TTC will apply until 31 March 2019 and for bond instruments (liquidity assessment) until 15 May 2018. Further information is available on ESMA’s website.

The European Securities and Market Authority (ESMA) will provide updated Registers information in line with requirements under MIFIR/MiFID II. The launch, on 3 January 2018, will update existing registers under MiFID I and also provide for new registers under MiFID II/MiFIR. ESMA compiles the registers based on data provided by the National Competent Authorities of the Member States of the European Economic Area (EEA) on and from the 3 January 2018.

ESMA is currently working on a new release of  those registers for Q1 2018. Therefore, until the new register release is fully available as an IT functionality on our website, ESMA will provide an interim solution which involves it publishing, on a fortnightly basis, the latest registers information in an excel format which will be available for download. The list of affected registers is as follows:

·       Regulated markets

·       Multilateral Trading Facilities

·       NEW Organised trading facilities

·       Systematic Internalisers

·       NEW Approved Publication Arrangements  

·       NEW Consolidated Tape Providers  

·       NEW Approved Reporting Mechanisms

·       Suspension and Restorations (SARIS)*

·       Central counterparties will become obsolete and removed from publication

·       Shares admitted to trading on EU regulated markets will be replaced by FIRDS publication: Transparency 3 January 2018

ESMA will continue to monitor the data submitted to the registers and may make the files available, outside of the fortnightly schedule, should the requirement arise. ESMA encourages market participants to review the data provided and contact their National Competent Authority in case of any data discrepancy.

*SARIS file will be made available once a week in a pdf format.