EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/12.II.6:12.II.6 Disclosure of client limit orders

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/12.II.6

12.II.6 Disclosure of client limit orders

Documentgegevens:

mr. J.E.C. Gulyás, datum 01-02-2021

Datum: 01-02-2021
Auteur: mr. J.E.C. Gulyás
JCDI: JCDI:ADS266766:1
Vakgebied(en): Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht

MiFID I required investment firms to disclose (publish) unexecuted client limit orders under certain conditions. The MiFID I disclosure requirement applied for (a) client limit orders (b) in respect of shares admitted to trading on an RM that (c) were not immediately executed under prevailing market conditions, (d) unless the client expressly instructed otherwise.1 If the MiFID I requirement applied, the investment firm in principle needed to ‘take measures to facilitate the earliest possible execution of that order by making public immediately that client limit order in a manner which is easily accessible to other market participants’. ‘In principle’, because NCAs were permitted to waive the MiFID I requirement for unexecuted client limit orders that were large in scale.2

The MiFID I Implementing Regulation provided details for the publication requirement. The MiFID I Implementing Regulation stated an investment firm was considered to publish client limit orders that are not immediately executable, if the investment firm (1) transmits the order to an RM or MTF that operates an order book trading system or (2) ensures that the order is made public and can be easily executed as soon as market conditions allow.3 MiFID I did not specify the latter possibility. MiFID I in effect also permitted investment firms to comply with the requirement by publishing the client limit order through other arrangements (e.g. an RM operating a quote-driven system, an investment firm’ website or a third party, such as a data vendor), provided the arrangement was ‘easily accessible’.4 MiFID I did not specify the meaning of ‘easily accessible’. CESR provided statements in this area in drafting MiFID I. CESR noted that ‘easily accessible’ required (i) the unexecuted client limit order to be displayed in order to reach the large audience of market participants (‘visibility test’) and (ii) be supplemented by the ease and speed with which the order is accessible and executable (‘accessibility test’).5 CESR added that the arrangements needed to publish the information in a way that does not impede consolidation in accordance with MiFID I.6

Toon alle voetnoten

Voetnoten

Voetnoten

Art. 22(2) MiFID I Directive.

Art. 31 MiFID I Implementing Regulation. MiFID I permitted Member States to require investment firms to comply with the disclosure requirement by sending the unexecuted client limit order to an RM or MTF (i.e. Member State option). Where the Member State option applied, investment firms were not allowed, among other things, to disclose the unexecuted limit order themselves (art. 22(2) MiFID I Directive). For an examination of the client limit order display rule, including the Member State option, reference is made to chapter 4.

Art. 22(2) MiFID I Directive and art. 31 MiFID I Implementing Regulation.

CESR, Technical Advice on Possible Implementing Measures of MIFID I, April 2005 (CESR/05-290b), p. 72.

CESR, Technical Advice on Possible Implementing Measures of MIFID I, April 2005 (CESR/05-290b), p. 72-73. The MiFID I rules CESR proposed for consolidation were apparent in the final MiFID I text (art. 32 MiFID I Implementing Regulation).