EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.VI.4:5.VI.4 Hard Brexit scenario

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.VI.4

5.VI.4 Hard Brexit scenario

Documentgegevens:

mr. J.E.C. Gulyás, datum 01-02-2021

Datum: 01-02-2021
Auteur: mr. J.E.C. Gulyás
JCDI: JCDI:ADS266818:1
Vakgebied(en): Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht

The United Kingdom (UK) left the EU on 31 January 2020. A transition period is in place until 31 December 2020. During this period, MiFID II continues to apply to the UK.1 The EU and the UK currently negotiate the details of their future relationship. In case of a so-called hard Brexit (i.e. the UK leaves without a withdrawal agreement), data issues arise for the MiFID II equity pre-trade transparency regime. The Financial Conduct Authority (FCA), being the NCA of the UK, will stop sending reference data and calculation/estimation results to ESMA in case of a hard Brexit. In effect, ESMA will not receive UK-data.2 ESMA indicates that this situation will affect the functioning of FIRDS, FITRS, the DVC Database, as well as the data for the SI calculations.3 To address the situation, ESMA has issued a public statement on a hard Brexit in relation to the ESMA databases. The ESMA recommendations for the MiFID II equity pre-trade transparency regime can summarised as follows:

1.: With respect to reference data, ESMA will re-determine the NCA in case the current NCA is the FCA. ESMA will for all financial instruments that remain available for trading in the EU ensure that the NCA is within the EU. UK RMs, MTFs, and SIs will terminate sending equity reference data to an EU NCA.4
2.: A hard Brexit also requires amendments to the most relevant market in terms of liquidity. The most relevant market in terms of liquidity is important for the responsible NCA in performing, among other things, the MiFID II equity pre-trade transparency calculations. ESMA intends to adjust the most relevant market for those instruments for which (a) the annual calculations determined a UK RM or MTF as the most relevant market in terms of liquidity by (b) selecting the EU RMs and MTFs with the highest turnover in the EU as the most relevant market.5
3.: ESMA notes that, in case of a hard Brexit, ESMA will freeze the quarterly calculations for the SI-assessment, as well as the monthly double volume cap publications for a period of two months after Brexit. UK-data will be gradually phased out from the ancillary activity calculations.

ESMA acknowledges that the proposed solutions are not perfect, in particular the phasing out of UK-related data (point 3). Nonetheless, ESMA believes the solution at hand is the least disruptive and most certain for ‘a situation which does not allow for perfect solutions’.6

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See, for example, the website of the Dutch government noting that ‘(d)uring this period (transition period) all EU rules and laws will continue to apply to the UK. Dutch government, Brexit: where do we stand? (available at: https://www.government.nl/topics/brexit/brexit-where-do-we-stand).

ESMA, Public Statement: Use of UK data in ESMA databases and performance of MiFID II calculations in case of a no-deal Brexit, 5 February 2019(ESMA70-155-7026), p. 1. See also ESMA, Public Statement: Use of UK data in ESMA databes and performance of MiFID II calculations following the end of the UK transition period on 31 December 2020, 10 November 2020 (ESMA70-155-10958).

ESMA, Public Statement: Use of UK data in ESMA databases and performance of MiFID II calculations in case of a no-deal Brexit, 5 February 2019(ESMA70-155-7026), p. 4. See also ESMA, Public Statement: Use of UK data in ESMA databes and performance of MiFID II calculations following the end of the UK transition period on 31 December 2020, 10 November 2020 (ESMA70-155-10958).

ESMA, Public Statement: Use of UK data in ESMA databases and performance of MiFID II calculations in case of a no-deal Brexit, 5 February 2019(ESMA70-155-7026), p. 1-2. See also ESMA, Public Statement: Use of UK data in ESMA databes and performance of MiFID II calculations following the end of the UK transition period on 31 December 2020, 10 November 2020 (ESMA70-155-10958).