5.III.1.4.5 Rule-based provisions to distinguish SIs from RMs/MTFs

MiFID II is more rule-based in terms of the SI-definition. MiFID II introduces additional provisions to clarify several aspects of the MiFID I definition. For example, MiFID II makes explicit that so-called multi-dealer platforms (MDPs), that is – multiple investment firms trading against their own account for the same financial instrument (multiple market makers), should not be considered an SI. Although RMs and MTFs can in theory also have a quote-driven trading model with only one market maker, the difference is that on a SI (single dealer platform) the system operator and the investment firm dealing on own account are the same person.1 Another new rule-based element of MiFID II is the explicit provision that where SIs engage in regular matched principal trading, the system qualifies as an internal matching system and accordingly needs to be authorised as an MTF (see section V below). In this context, ESMA indicated that it considered a system that provides quote streaming and order execution for multiple SIs to be a multilateral system.

The MiFID II rule-based provisions, as well as ESMA’s guidance, intend to establish a level playing field between SIs and RMs/MTFs. In drafting MiFID II, the EU intended to reduce potential arbitrage opportunities under MiFID II. ESMA shows a similar perspective in the ESMA guidance.2 To achieve the level playing field and to reduce regulatory arbitrage, the EU (including ESMA) rely on a top-down approach in the shape of rule-based provisions.