5.V.2.1.3 Background

The MiFID II text gave ESMA the mandate to specify the characteristics of transactions that do not contribute to the price discovery process.1 ESMA’s mandate did not include a specification of the MiFID II share trading-obligation exception concerning ‘non-systematic, ad hoc, irregular and infrequent’ trades. During the MiFID II drafting process, ESMA noted the lack of a legal mandate could raise the risk of lack of legal certainty in terms of interpretation and result in different interpretations across NCAs.2 Whatever the case may be, MiFID II covered no legal mandate for ESMA.

As noted above, ESMA made remarks on the exception during the MiFID II drafting process, including the reference to the MiFID II-definition of SIs. ESMA also noted that the regulatory interpretation of what comprises the exception of the MiFID II share trading-obligation would be even narrower than the SI thresholds.3 Respondents to the ESMA consulation agreed with ESMA’s view in one respect. The respondents agreed that the determination of what is non-systematic, ad-hoc, irregular and infrequent should be defined with the same parameters applicable to the definition of a SI.4 Less support was apparent for a more restrictive interpretation of the exception on the basis that ‘ad-hoc’ and ‘irregular’ of the trading obligation are not in the definition of a SI.5

ESMA believed it would be useful for the Commission to clarify the potential interlinkages that might exist between the two regimes (i.e. trading obligation for shares and SI regime). ESMA believed that otherwise legal uncertainty would arise. 6 Nonetheless, in reflecting the lack of a formal mandate on Level 1 (MiFIR), the Commission did not provide a clarification in this context. This is also evident in the final MiFID II text. The MiFID II Level 2 text does not specify the meaning of the exception ‘non-systematic, ad-hoc, irregular and infrequent’. The result is informal guidance of the Commission and ESMA. The Commission and ESMA provided guidance as to what constitutes ‘non-systematic, ad-hoc, irregular and infrequent’ (see paragraph above).