5.VI.2.3.7.3 Level 1 text: details of the calculation provisions

The calculation provisions of the double volume cap for ESMA stem from the negotiation process of MiFIR (Level 1 text). In drafting MiFID II, the Member States clashed on the reference price and negotiated trade waiver, which ultimately resulted in a shift of discussion from Level 2 to Level 1. The Council was in the end able to reach a compromise by narrowing down the scope of the waivers.1 The compromise resulted in the introduction of the double volume cap mechanism.2 Only at a fairly late stage in the drafting process were the requirements for ESMA (i.e. to perform the periodic double volume calculations once a month and ad hoc calculations twice a month if the thresholds of 3.75, respectively 7.75 percent would be breached) introduced.3

The final MiFID II text assigning ESMA (not: the NCAs) as the calculation entity reflects the European nature of the double volume cap, in particular suspension of the reference price and the negotiated trade waiver for liquid equity instruments for all RMs and MTFs in the EU (cap of eight percent). Despite the EU character of the double volume cap, the EU does not assign ESMA, but instead the NCA/NCAs as the suspending authority/authorities where the caps would be breached.4 Although understandable for the cap for the individual RMs and MTFs, the coordination among NCAs for the potential suspension of the waivers across all individual RMs and MTFs across the EU raised questions during the MiFID II drafting process. Some market participants asked ESMA for further clarification on how the suspension and resumption of the waiver would operate in practice and in particular on how to achieve sufficient coordination across the EU.5 ESMA appreciated the concerns and agreed that some clarification could be provided, but that these questions concerned more specifically the Level 1 text and accordingly were considered to be outside the ESMA mandate.6

What ESMA did clarify was that in case of suspension of the use of the waiver for six months, the aggregated volumes of the two waivers was not reset automatically to zero. Instead, ESMA considered that the last 12 months of data should always be taken into consideration, as prescribed by the Level 1 text.7 The view of ESMA corresponds with the literal text of MiFIR. MiFIR always requires the data of the last 12 months to be taken into account for the double volume cap calculations, regardless of whether a suspension already occurred or not.8 The result is that under MiFID II the same trade can result in two separate suspensions in case the volumes of trading under the waiver(s) for the last 12 months is still above the double volume cap thresholds. However, ESMA stressed that a suspension would prevent the use of waivers for six months. Accordingly, the volume of trading under the waivers would be lower in relative terms after the end of the suspension period (i.e. lower the chances of two separate suspensions), considering that lit trading continues in the meanwhile.9