4.V.1.3.2 Level 2 text and the CESR guidance of 2007: performing the calculation of the standard market size

CESR assisted the Commission in drafting the implementing measures for the standard market size calculation. CESR struggled with the text laid down in the MiFID I Directive. The MiFID I Directive mentioned both ‘orders executed’ (not: transactions) and the NCA of ‘the most relevant market in terms of liquidity as defined Article 25’. Some CESR Members argued that the standard market size needed to be calculated based the ‘orders executed’, instead of ‘transactions’. In view of these CESR Members, an interpretation of using ‘orders executed’ for the standard market size would be closest aligned to the text of the MiFID I Directive (literal interpretation), which referred to ‘orders executed’. Furthermore, the ‘order executed’ approach would more accurately reflect the role of large orders in the trading mix (the MiFID I Directive required large orders to be removed from the standard market size calculation).1

The other CESR Members disagreed. The counterargument was that the MiFID I Directive also referred to the NCA of ‘the most relevant market in terms liquidity as defined in Article 25’ (i.e. transaction reporting). The MiFID I transaction reporting data was only available for transactions, meaning a completed trade (post-trade), instead of an order executed (pre-trade). A related argument was that enabling NCAs to use transaction reporting data would not only suit with the MiFID I reference to ‘Article 25’, but it would also be practical, since NCAs would already have the data to perform the calculations.2 The final CESR view was to interpret the MiFID I Directive text of ‘orders executed’ as ‘transactions’.3 The final MiFID I Implementing Regulation, as adopted by the Commission, also referred to ‘orders executed’.4 In light of the final CESR view the term ‘orders executed’ needed to be understood as ‘transactions’. Such an interpretation was also aligned with the CESR internal guidebook. The CESR internal guidebook referred to ‘transactions’ only in calculating the standard market size.5 The CESR internal guidebook did not specifically refer to transaction reporting data. This suggested that the calculation of the average value of orders could also be based on other post-trade data (e.g. MiFID I equity post-trade transparency data).6