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Transparency

Transparency under MiFID II/MiFIR

The concept of transparency can be considered as one of the most impactful regimes under MiFID II/MiFIR in terms of how the provisions thereunder have been expanded to new market segments, firms and instruments.

Stipulating transparency requirements for trading venues as well as for Systematic Internalisers (SIs) and investment firms trading over the counter (OTC), MiFID II/MiFIR will expand their reach to include equity-like and non-equity instruments.

While national competent authorities (NCAs) may waive some of the pre-trade transparency obligations for trading venues, the European Commission reserves the right to review and adjust these requirements two years after they have come into force. In addition, a volume cap mechanism has been introduced to limit the trading under some of these waivers. In the past, the waivers had entailed “dark pools” of large amounts of trading being conducted anonymously, with regulators arguing that the inconsistent implementation of a waiver regime across venues has harmed price formation and weighed on transparency.

As outlined above, transparency under MiFID II/MiFIR concerns pre-trade transparency requirements and post-trade disclosure that, once implemented, expose the vast majority of trading in financial instruments to publication.

Transparency for trading venues

Transparency for equity and equity-like instruments

Pre-trade transparency requirements

Regulated Markets (RMs) and Multilateral Trading Facilities (MTFs) are obliged to continuously publish current bid and offer prices for shares, depositary receipts, ETFs, certificates and other similar financial instruments (“equity and equity-like instruments”) advertised through their systems. It also has to be reported what portion of the market would be willing to trade at each of these quotes (equally applicable to actionable indication of interests).

Waivers

The four types of waivers, the national competent authorities (NCAs) may grant to exempt firms from making public their quotes before the execution of the transaction are the reference price waiver, the negotiated trade waiver, the order management facility waiver and the large-in-scale waiver.

Volume cap mechanism

The percentage of trading in a financial instrument carried out on a trading venue under the negotiated trade waiver and the reference price waiver will be limited to 4 per cent of the total volume of trading in that financial instrument on all trading venues across the EU over the previous twelve months.

At the same time, the overall EU trading in a financial instrument under those waivers may not exceed 8 per cent of the total volume of its trading on all venues throughout the EU over the previous twelve months. These caps will be measured against a rolling twelve-month period. ESMA is mandated with publishing and updating this data on a monthly basis; prior to this, it has to collate this data from the respective reports filed by the competent authorities which granted the waivers to firms which have to report to ESMA.

Post-trade transparency requirements

Trading venues are obliged to publish the price, volume and time of the transactions executed in equity and equity-like instruments traded on that trading venue as close to real time as is technically possible.

It is also mandatory for them to provide access, on reasonable commercial terms and on a non-discriminatory basis, to the arrangements made for publishing the above information to investment firms which are obliged to publish those details of their transactions in equity and equity-like instruments themselves.

Minimum trade information requirements

The trade information to be published must at least include:

  • the identifier of the financial instrument,
  • the price at which the transaction was concluded,
  • the volume and the time of the transaction,
  • the time the transaction was reported,
  • the price notation of the transaction and
  • the code for the trading venue.

Deferred publication

NCAs may allow trading venues the deferred publication of a transaction's details depending on its type or size. In particular, they may authorise the deferred publication for transactions that are large in scale compared with the normal market size for that (or a similar) equity or equity-like instrument.

Transparency for non-equity instruments

Pre-trade transparency requirements

Regulated Markets (RMs), Multilateral Trading Facilities (MTFs) and Organised Trading Facilities (OTFs) are obliged to continuously publish current bid and offer prices for bonds, structured finance products, emission allowances and derivatives (“non-equity instruments”) advertised through their systems. It also has to be reported what portion of the market would be willing to trade at each of these quotes.

While equally applicable to actionable indication of interests, these requirements shall be calibrated for different types of trading systems, including order-book, quote-driven, hybrid, periodic auction trading and voice trading systems. The obligation to publish these details does not apply to derivative transactions of non-financial counterparties entered into for hedging purposes.

Waivers

National competent authorities (NCAs) may allow trading venues the deferred publication of a transaction's details for

(a) orders that are large in scale compared with normal market size 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 financial instrument, which would expose liquidity providers to undue risk, taking into account whether the relevant market participants are retail or wholesale investors, and

(c) derivatives which are not subject to the trading obligation specified in Article 28 and other financial instruments for which there is not a liquid market.

Post-trade transparency requirements

Trading venues are obliged to publish the price, volume and time of the transactions executed in non-equity instruments traded on that trading venue as close to real time as is technically possible.

By comparison with the post-trade transparency obligations for equities and equity-like instruments it is also mandatory for them to provide access, on reasonable commercial terms and on a non-discriminatory basis, for the arrangements made for publishing the above information to investment firms which are obliged to publish those details of their transactions in non-equity instruments themselves.

Deferred publication

NCAs may allow trading venues the deferred publication of a transaction's details depending on its type or size. In particular, they may authorise the deferred publication for transactions that are

(a) large in scale compared with the normal market size for that (or a similar) non-equity instrument,

(b) related to a non-equity instrument for which there is no liquid market,

(c) above a size specific to that non-equity instrument which would expose liquidity providers to undue risk, taking into account whether the relevant market participants are retail or wholesale investors.

Separate publication of pre-trade and post-trade data on a reasonable commercial basis

Trading venues are obliged to publish the information according to the requirements above described for the different instruments separated by pre-trade and post-trade information. In addition, trading venues must publish the information on a reasonable commercial basis and ensure non-discriminatory access while, 15 minutes after publication, such information must be made available free of charge.

Market Data

Billions of pieces of information are generated every day and are forming the basis for a transparent and informed decision-making process. Market data and its generation are subject to the legal framework under MiFID II/MiFIR aimed at promoting transparency at the financial markets and competition.

 
 

DBG responds to ESMA’s consultation on the transparency regime for equity and equity-like instruments

In this consultation, the ESMA asked relevant stakeholders for their opinions on proposed changes to the transparency regime aiming at simplifying it while increasing the overall transparency of the market.

DBG responds to ESMA’s consultation on the transparency regime for non-equity instruments

The response given by DBG can be accessed here, outlining how transparency in the non-equity space can be increased through targeted changes that allow for a natural migration of volumes to the regulated environment. The response given by DBG can be accessed here, outlining how transparency in the non-equity space can be increased through targeted changes that allow for a natural migration of volumes to the regulated environment.

DBG responds to ESMA’s consultation on the transparency regime for Systemic Internalisers

The response given by DBG can be accessed here in which DBG agrees with ESMA’s findings that no increase in transparency has been triggered by MiFID II for SIs and that an unlevel playing field exists between SIs and MTFs.

DBG response to ESMA consultation on market data guidelines

More here on our views on the draft market data guidelines proposed in terms of a follow up to the ESMA final review report on market data from December 2019 with a view to ensure more convergence.