12.IV.3 Level 2: specific provisions for client limit order disclosure

CESR played an important role in drafting the MiFID I disclosure requirements for unexecuted client limit orders. CESR noted that the publication of standard client limit orders was straightforward where an existing RM and/or MTF offered a public order book. CESR noted that here the client limit order would become ‘visible’ under the MiFID I pre-trade transparency requirements for RMs and MTFs and potentially ‘easily executable’, once it becomes executable in terms of market price.1

CESR believed that the situation is somewhat the same for RMs and MTFs that operated a periodic auction. CESR stated that where the client limit order is transmitted to an RM or MTF running a periodic auction where (a) the limit order is not immediately displayed, but (b) reflected in the indicative price and volume or indicative price range as (c) displayed by the RM or MTF in the pre-negotiation phase, the order was ‘visible’. CESR added that where (i) the information was provided with a large audience and (ii) made it potentially easily and rapidly executable in terms of market price, the transmission of the client limit order also met the ‘accessibility test’.2

CESR too provided statements for when an unexecuted client limit order was sent to a quote-driven system of an RM/MTF. CESR said that where a client order was not immediately executed in the quote-driven market, the unexecuted client limit order would not be visible and accessible to other market participants (as required by MiFID I), unless the RM/MTF provided such a facility. CESR indicated that quote-driven markets may under MiFID I provide an additional facility for publishing unexecuted client limit orders to ensure the MiFID I conditions for unexecuted client limit orders were met (in quote-driven markets).3

CESR stated that MiFID I does not exclude other possible arrangements for investment firms to meet their obligation to publish unexecuted client limit orders. An investment firm could use alternative arrangements, such as publishing the limit order on its website or through any third party system it used for advertising information (e.g. data vendors).4 CESR added that alternative arrangements would also need to be considered in respect of non-standard orders (such as so-called non-standard settlement arrangements)5 where the existing RMs or MTFs are unable to accommodate the specific conditions attached to the order or the financial instrument.6

CESR’s view is largely reflected in the final MiFID I text. MiFID I permits investment firms to comply unexecuted client limit orders through (1) RMs and MTFs operating an order-book or (2) other arrangements (e.g. quote-driven markets of RMs/MTFs, investment firm websites, and so forth), provided the order is made public and can easily be executed as soon as market conditions allow. MiFID I also covers some changes to CESR’s view. MiFID I is stricter with regard to RMs and MTFs operating periodic auctions. The final text of MiFID I requires that client limit orders in periodic auctions (in addition to all other arrangements than RMs/MTFs operating an order book) can ‘easily be executed’.7