Firm quote publication obligation for investment firms, including SIs, regarding equity and equity-like instruments

Investment firms must publish firm quotes for equity and equity-like instruments traded on a trading venue for which they are SIs and for which there is a liquid market. Absent a liquid market for such instruments, SIs must disclose quotes to their clients upon request. These requirements – as well as the regime on whom they must grant access to their quotes and how to execute orders received – apply where SIs deal up to standard market size. They do not when they deal in sizes above standard market size.

While SIs are free to choose the size at which they quote, the quote must at least represent the equivalent of 10 per cent of the standard market size of an equity or equity-like instrument. For a particular instrument traded on a trading venue, each quote must be firm for sizes up to standard market size for this (type of) instrument with its price mandatorily reflecting the prevailing market conditions.

The equity and equity-like instruments must be grouped in classes reflecting the arithmetic average value of the orders executed in the market for that financial instrument. The “standard market size” for each (type of) instrument must represent the arithmetic average value of the orders executed in the market for the financial instruments included in each class.

The “market” for each equity and equity-like instrument means all orders executed in the European Union for the respective instrument without those classified as large in scale compared to the standard market size. The grouping must be conducted annually by the NCA of the most liquid market for each instrument based on the average trade turnover in the market for this (type of) instrument. The national competent authority (NCA) must publish this information and send it to ESMA which, in turn, will publish it via its website. ESMA is also mandated with developing the technical standards for the above standardisations.

Execution of client orders

SIs must continuously publish their quotes “in a manner which is easily accessible to other market participants on a reasonable commercial basis” and update them regularly at any time while being allowed to withdraw them under exceptional market conditions. Where an investment firm reaches or exceeds the thresholds defined for systematic internalisation criteria, they must notify their NCA, who will notify ESMA which will establish a list of all SIs in the European Union.

SIs are generally obliged to execute the orders they receive from their clients for equity-like instruments for which they are SIs at the quoted prices at the time they receive the order. They may execute orders at a better price if the price falls within a public range close to market conditions. The above is not binding in case they deal with professional clients in transactions where the execution in several securities is part of one transaction or where conditions agreed upon with professional clients deviate from current market prices.

An SI that receives an order higher than its quotation but still below what is standard market size is free to execute the part of the order which goes beyond the quoted size at the quoted price. If an SI receives an order of a size between different sizes it has quoted, it may execute the order at one of the quoted prices. Both of the aforementioned cases are subject to the exceptions according to the previous paragraph.

Access to quotes

SIs may grant access to their quotes at their discretion given that the respective decision is in line with their commercial policy and given this policy is objective and non-discriminatory.

Such a policy may contain exclusion criteria related to client credit status or counterparty risk as well as criteria governing the final settlement of the transaction. Additional such provisions may limit the number of transactions from the same client which an SI may enter into at the published conditions, or the total number of transactions from different clients at the same time should the total significantly exceed the standard.

A delegated act by the European Commission will detail the quote accessibility criteria, the publication channel (through a Regulated Market (RM), an Approved Publication Arrangement (APA) or proprietary solutions) as well as the criteria for the aforementioned exceptions.

Firm quote publication obligation for SIs regarding non-equity instruments

Investment firms must publish firm quotes for non-equity instruments traded on a trading venue for which they are SIs and for which there is a liquid market upon client request and where they agree to provide a quote.

NCAs may waive the quotation obligation for

a) non-equity instruments for orders that are large in scale, and orders held in an order management facility of the trading venue pending disclosure,

b) actionable indications of interest in request-for-quote and voice trading systems that are above a size specific to the instrument,

c) derivatives not subjected to the trading obligation under MiFIR and other financial instruments for which there is no liquid market.

SIs must update their quotes at any time and may withdraw them only under exceptional market conditions. Quotes shown upon client request have to be made available to other clients as well. They have the discretion not to publish quotes or to enter into a transaction (similarly to the provisions for equity and equity-like instruments). The NCAs and ESMA are mandated with monitoring the application of these provisions.

Post-trade disclosure obligations for investment firms, including SIs, regarding equity and equity-like instruments

Investment firms which conclude transactions in equity and equity-like instruments traded on a trading venue, must publish the volume and price of those transactions and the time at which they were concluded, irrespective of whether traded on own account or on behalf of clients. This information has to be published via an APA as close to real time as is technically possible while the deferral regime is the same as described for trading venues.

Post-trade disclosure obligations for investment firms, including SIs, regarding non-equity instruments

Investment firms which conclude transactions in non-equity instruments traded on a trading venue, must publish the volume and price of those transactions and the time at which they were concluded, irrespective of whether traded on own account or on behalf of clients. This information has to be published – for each individual transaction once – through a single APA, as close to real time as is technically possible.

The trade information to be published via an APA must at least include:

• the identifier of the financial instrument,
• the price at which the transaction was concluded,
• the volume of the transaction,
• the time of the transaction,
• the time the transaction was reported,
• the price notation of the transaction,
• the code for the trading venue (here: “SI” or “OTC”) and, if applicable
• an indicator that the transaction was subject to specific conditions.

In order to avoid ambiguity over the question which party to a transaction is obliged to report and to prevent potential regulatory arbitrage, ESMA has imposed the publishing responsibility on the seller.

According to ESMA, in case one party to the transaction is an SI in the instrument traded, the obligation to publish via an APA will always be with the SI, even if the SI is the buyer. In the rare cases where both parties to a trade are SIs in the given instrument, the seller principle applies.

While the deferral regime is formally equal to that for equity instruments, NCAs may ask for certain items even during the deferral period.

Information for transparency and other calculations

NCAs may refer to trading venues, APAs and Consolidated Tape Providers to collect the information necessary to implement the transparency regime and for the supervision of the determination of investment firms’ SI status.