EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.VI.2.2.8.3:5.VI.2.2.8.3 Level 2 text: methodology of the calculation and estimation rules

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.VI.2.2.8.3

5.VI.2.2.8.3 Level 2 text: methodology of the calculation and estimation rules

Documentgegevens:

mr. J.E.C. Gulyás, datum 01-02-2021

Datum: 01-02-2021
Auteur: mr. J.E.C. Gulyás
JCDI: JCDI:ADS266546:1
Vakgebied(en): Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht

The methodology of the MiFID II calculation and estimation rules are mainly a legacy from the MiFID I regime. Already under MiFID I rules were in place, for example, on how to calculate the free float as necessary for determining a liquid market for shares admitted to an RM.1 CESR provided additional clarity where deemed necessary.2MiFID II adopts a similar approach, whilst introducing two main differences compared to MiFID I. First, MiFID II covers more equity pre-trade transparency thresholds compared to MiFID I. An example is the MiFID II definition of an SI. MiFID II has added quantitative elements to the SI-definition.3 The increase in equity pre-trade transparency thresholds is apparent in the MiFID II text. MiFID II covers more calculations and estimation provisions compared to MiFID I.

Second, the MiFID II equity pre-trade transparency regime has a broader scope compared to MiFID I. The MiFID II equity pre-trade transparency regime not only applies to shares admitted to trading on an RM, but to shares, depositary receipts, ETFs, certificates, and other similar financial instruments traded on an RM/MTF.4 The result is a greater amount of calculations and estimations methodologies compared to MiFID I. Returning to the example of the free float, MiFID II covers a free float calculation methodology for shares and depositary receipts, ETFs, certificates, and other similar financial instruments.5 Based on ESMA advice, which is based on feedback from the ESMA consultees,6 the Commission calibrated the calculation and estimation methodologies to the equity instrument in question. This is apparent in the final MiFID II text. For example, MiFID II covers a different methodology for determining the free float for shares than it does for ETFs.7 The result is similar to the finding above, namely more calculation and provisions under MiFID II compared to MiFID I.

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MiFID I required the calculation of the free float to exclude holdings exceeding five percent of the total voting rights of the issuer, unless such a holding was held by a collective investment undertaking or a pension fund (art. 22(4) MiFID I Implementing Regulation).

CESR, Guidebook on MiFID market transparency calculations, May 2007 (CESR/07-322), p. 1-2.

Art. 12 MiFIR Delegated Regulation 2017/565. For an examination of the quantitative elements of the SI-definition under MiFID II, reference is made to section III above.

Art. 3 and art. 14 MiFIR.

Art. 1-5 MiFIR Delegated Regulation 2017/565.

ESMA, Final Report: MiFID II/MiFIR, 19 December 2014(ESMA/2014/1569), p. 198-214.

For this example, ESMA, as well as respondents to the ESMA consultation, argued that the free float concept is not suitable for ETFs as it is for shares, given the so-called redemption/creation process typical of the ETF market (simply put, ETF units being constantly withdrawn and issued). Accordingly, ESMA advised the Commission to use a methodology of a minimum number of units issued for trading as a proxy for the free float of ETFs, instead of looking at the outstanding number of shares minus an exclusive holding (for example, ten percent held of the shares being held by the board) (ESMA, Final Report: MiFID II/MiFIR, 19 December 2014(ESMA/2014/1569), p. 205). The latter is evident in the final MiFID II text. In a nutshell, MiFID II requires the free float of ETFs to be based on a minimum number of units issued in the ETF (art. 3(3) MiFIR Delegated Regulation), whilst the free float of shares is based on an outstanding number of shares minus an exclusive holding of a given percentage (art. 1(2) MiFIR Delegated Regulation 2017/567).