5.IV.1.1 Obligation to publish client limit orders

MiFID II requires investment firms executing client orders (including SIs) to take measures for unexecuted client limit orders in shares. Where a limit order in shares is not immediately executed under prevailing market conditions, MiFID II obliges the investment firm to take measures to facilitate the earliest possible execution by immediately making public, that is – make pre-trade transparent, the order.1 The unexecuted limit order needs to be made public to other market participants in an easily accessible manner.2 The rule does not permit an investment firm to execute the client limit order against its own account (internalisation), as long as the order is immediately executed. MiFID II – in short – no longer permits investment firms to execute limit orders in-house through a multilateral internal matching system, unless the investment firm is authorised as an MTF (see section V below).3

Similar to the previous regime (MiFID I), the rationale of the MiFID II client limit order display rule is two-fold. First, immediate publication aims to increase the likeliness of execution as intended by the client. The visibility of the non-executed limit order provides additional opportunities for execution at that price or even to receive price improvement.4 Second, the publication of unexecuted client limit orders is meant to inform the market. In other words, the aim of the publication of unexecuted client limit orders is to increase likeliness of execution and the amount of pre-trade data in the market.5

MiFID II requires investment firms (a) to take measures to facilitate that unexecuted client limit orders under prevailing market conditions are made pre-trade transparent in a way that is (b) easily accessible to other market participants. MiFID II does not define prevailing market conditions in the context of the display rule (point a), which leaves flexibility to the investment firm in question.6MiFID IIdoes provide guidance when the unexecuted client limit order is made pre-trade transparent (point b). Under MiFID II an unexecuted client limit order is considered available to the public when (1) the investment firm submitted the order for execution to an RM or MTF; or (2) the order has been published by a so-called data reporting services provider located in one Member State and can be easily executed as soon as market conditions allow.7

Option 1 was also available under MiFID I, that is - compliance with the client limit order display rule by submitting the order to an RM or MTF.8 New under MiFID II is the possibility of publication by a data reporting services provider (i.e. option 2). The concept of a ‘data reporting services provider’ is new under MiFID II. MiFID I was bottom-up, in the sense that it also permitted publication by the investment firm itself or through ‘third party systems’ (the latter were not subject to a distinct regulatory regime).9MiFID II introduces top-down requirements by only permitting publication through a data reporting services provider (in addition to submitting the order to an RM or MTF).