EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/17.V.3.2:17.V.3.2 ESMA proposals on legislative changes

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/17.V.3.2

17.V.3.2 ESMA proposals on legislative changes

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ESMA also provides recommendations in changing the MiFID II text (legislative changes). The ESMA recommendations are the following:

1.

add a mandate in the Level 1 text empowering ESMA to draft Level 2 standards specifying the content, format and terminology of the reasonable commercial basis information that RMs, MTFs, APAs, CTPs, and SIs have to provide in accordance with MiFID II (such an empowerment would transform the supervisory guidance above into law). The aim here is to strengthen the consistent application of the reasonable commercial basis provisions via a rule-based approach.1

2.

move the provision ‘to provide market data costs on the basis of costs’ (Level 2 text)2 to the Level 1 text. The aim here is to allow further specifications of this general principle (principle-based) via Level 2 measures (rule-based).3

3.

add a requirement in the Level 1 text for RMs, MTFs, APAs, CTPs, and SIs to share information on (b) the actual costs for producing and disseminating market data, as well as (b) the margins included with NCAs and ESMA. ESMA adds the recommendation to develop level 2 measures specifying the frequency, content, and format of such information.4 ESMA notes that the aim here is not to introduce price controls, but enabling NCAs (including ESMA in its potential future role as authority for APAs and CTPs)5 to (i) better understand the pricing of market data and (ii) assess whether market data is provided on a reasonable commercial basis.6

4.

delete the MiFID II provisions allowing RMs, MTFs, APAs, CTPs, and SIs to ‘charge market data proportionate to the value the market data represents to users’.7 ESMA notes that these provisions undermine the main principle that market data prices should be based on the costs for data production and dissemination. ESMA adds that this is without prejudice to firms setting prices depending on the type of clients (different prices for different data customer categories) (as long as this complies with the general principle of providing data based on production and dissemination costs).8

The four ESMA proposals show an ESMA preference for more transparency on the price of equity pre- and post-trade data, rather than intervention through price controls (e.g. a revenue cap) (point 3). ESMA also emphasizes the importance of rule-based provisions to ensure legal clarity on the reasonable commercial basis provisions (points 1-3). Last, but not least, ESMA wants to emphasize production and dissemination costs in the price of equity pre- and post-trade data, rather than the value the equity pre- and post-trade data represents to a data user. In other words, ESMA wants to remove the possibility of price discrimination enabling to charge on the basis of the value the data represents (point 4).9

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