17.II.4.2 Level 2: specifying the tighter rules for data disaggregation

In the final MiFID II-text, ESMA was assigned to provide draft regulatory technical standards for the Commission (level 2-rules).1 The starting point of ESMA’s drafting exercise was the 2014 Discussion Paper on MiFID II/MiFIR.2 ESMA noted in the discussion paper that the ultimate level of disaggregation would be at the level of the individual instrument. Through disaggregation at the level of individual instruments customers would be able to pay for just the data about any individual instrument, instead of for the more general asset class.3 That being said, ESMA observed that disaggregation at the level of an individual instrument would impose costs for RMs and MTFs that may not be justified by the benefits. Accordingly, ESMA proposed that RMs and MTFs would not be required to disaggregate pre- and post-trade data at the level of an individual instrument. Instead, ESMA proposed to require disaggregation at the level of the asset class.4

Building on its proposal for disaggregation at the level of asset classes, ESMA proposed that each RM or MTF also needed to disaggregate by further criteria. ESMA initially proposed: (a) more criteria for disaggregation (e.g. also disaggregation at the level of the ‘membership of a major index’); but (b) where an RM or MTF decided that there was ‘insufficient demand’ to disaggregate by a particular criterion, it could state this alongside its data pricing list. The meaning of ‘insufficient demand’ and ‘major index’, were not defined in further detail.5

The responses to ESMA’s proposal were divided roughly equally into those who thought that the proposals went too far and those who supported them or thought they should go further. The opponents (mostly RMs and MTFs) argued that there should be no disaggregation, or that it should be limited to asset classes only. In their view, disaggregation would increase costs and complexity and create confusion.6 The RMs and MTFs argued that the lack of regulation of data vendors meant that disaggregation might not be carried through to end-users. Contrarily, some of those who supported the proposals thought that they required the right amount of disaggregation. Others thought the requirements needed to go further, such as by making more or all criteria mandatory or providing disaggregation to the instrument level.7 All respondent categories considered the phrase ‘insufficient demand’ as too vague and asked for a definition. Similar remarks were made in respect of the criteria for disaggregation, since they were considered to be too unspecific (i.e. ‘major index’ was left undefined).8

ESMA’s response was both admitting as compromising in nature. In terms of scope, ESMA acknowledged the concerns of RMs and MTFs, noting that data vendors were not subject to the disaggregation rules. This meant that there would be a risk that disaggregation at the level of RMs and MTFs would not be fully passed on to end-users. ESMA observed that data vendors are not within the scope of MiFID II/MiFIR. Accordingly, ESMA was not in a position to apply unbundling-rules to data vendors.9

ESMA proposed a compromise solution with regard to the amount of disaggregation. Instead of requiring disaggregation at the level of the instrument, ESMA suggested disaggregation at a broader level, such as by asset class and currency.10 The reason for doing so relates to the compliance costs for RMs and MTFs (see above).11 Finally, ESMA also proposed dispensing the criterium of ‘insufficient demand’ and some other criteria (e.g. ‘major index’) and to make all disaggregation mandatory.12

The final MiFID II-text reflects many elements of ESMA’s views. Disaggregation-rules only apply to RMs and MTFs. The splitting (disaggregation) of equity pre- and post-trade data occurs at a broad level (not: instrument-level). The principle-based elements (e.g. ‘insufficient demand’) have been removed. All requirements are mandatory.13