EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/4.V.1.2.1:4.V.1.2.1 CESR guidance of 2007

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/4.V.1.2.1

4.V.1.2.1 CESR guidance of 2007

Documentgegevens:

mr. J.E.C. Gulyás, datum 01-02-2021

Datum: 01-02-2021
Auteur: mr. J.E.C. Gulyás
JCDI: JCDI:ADS267281:1
Vakgebied(en): Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht

In the first stage, CESR provided guidance on (a) the relevant NCA to make the calculations (or estimates), (b) the methodology in making the calculations/estimates, and (c) the collection of the data required to make the calculations/estimates. CESR noted that the relevant NCA (i.e. responsible authority) to make the calculations/estimates was the NCA of the ‘most relevant market in terms of liquidity’. In short, this was the NCA of the Member State where the share was first admitted to trading on an RM.1 CESR noted that the responsible NCA could delegate the taks of performing the calculations/estimates to a third party, such as an RM.2 CESR then laid down the methodology in making the calculations/estimates.3 The CESR guidance reflected the aim to help NCAs in making the calculations/estimates, as well as ensuring similar methodologies across the EEA.

CESR also provided guidance to ensure data was available to make the calculations (estimates were based on any previous trading history, in practice on an MTF).4 CESR noted that the data required for the average daily turnover and the average daily number of transactions would be available based on the transaction reporting requirements of MiFID I (i.e. requirements to report certain post-trade data directly to the NCA, instead of making the data available to the market).5 The free float could be calculated by using the information available on the basis of the Transparency Obligations Directive.6 CESR noted that the free float calculation – as necessary to determine liquid shares – was only necessary where the other liquidity criteria (i.e. 500 transactions or 2 million euro turnover and being traded daily) were met.7 Furthermore, MiFID I required the average value of orders (relevant for the standard market size) to be calculated only regarding liquid shares. At an earlier stage, certain (not: all) CESR Members (i.e. NCAs) stated that the average value of orders could be calculated based on MiFID I equity post-trade data transparency data or transaction reporting data (i.e. ‘transactions’, instead of ‘orders executed’).8

A similar position was apparent in the CESR internal guidebook. The CESR internal guidebook referred to ‘transactions’ (post-trade) being used for the average value of orders calculation (without specifying MiFID I equity post-trade transparency data or transaction reporting data).9 CESR observed that, a few years after MiFID I entered into force, the data required for the calculations/estimates mainly came from the primary RM (most relevant market in terms of liquidity) and in some instances also from MTFs.10

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CESR, Guidebook on MiFID market transparency calculations, May 2007 (CESR/07-322), p. 1. For an examination of the MiFID I-definition of the ‘most relevant market in terms of liquidity’, reference is made to art. 9 MiFID I Implementing Regulation. See in this context also CESR, Protocol on the Operation of CESR MiFID I Database, December 2010 (CESR/09-172d), p. 3.

CESR, Guidebook on MiFID market transparency calculations, May 2007 (CESR/07-322), p. 1.

For example, CESR stated that the average daily turnover needed to be calculated by dividing the total yearly turnover by the number of trading days. The total yearly turnover needed to include all trading within the EU, meaning trading on and outside RMs and MTFs (CESR, Guidebook on MiFID market transparency calculations, May 2007 (CESR/07-322), p. 1). For a detailed examination, including also the methodology suggested for the calculation of (i) the average daily number of transactions, (ii) the free float, (iii) the average value of orders executed, and the estimates of (iv) shares before admitted to trading on an RM, reference is made to CESR, Guidebook on MiFID market transparency calculations, May 2007 (CESR/07-322), p. 1-3.

CESR, Guidebook on MiFID market transparency calculations, May 2007 (CESR/07-322), p. 3.

CESR, Guidebook on MiFID market transparency calculations, May 2007 (CESR/07-322), p. 1-3. The MiFID I transaction reporting requirements were laid down in art. 25 MiFID I, in particular art. 25(5) MiFID I.

CESR, Technical Advice on Possible Implementing Measures of MIFID I, April 2005 (CESR/05-290b), p. 62. CESR added that where the data of the Transparency Obligations Directive was not available, the free float could be calculated by using a widely accepted/used EU-wide index calculation as a proxy (ibid).

CESR, Guidebook on MiFID market transparency calculations, May 2007 (CESR/07-322), p. 2. The MiFID I definition of a liquid market was not entirely harmonised. For an examination of the applicable liquid market criteria, reference is made to section III, paragraph 2.2 above.

CESR, Technical Advice on MiFID I, April 2005(CESR/05-290b), p. 64-65. CESR gave the following example to clarify the difference: let’s assume a buy order of 1.000 shares is matched with 10 orders of 100 shares each. In this case will be generated 10 contracts of 100 shares each. Using trades as a measure will give an estimate of 100, since there are ten trades of 100 shares. But if we take into account all the information available we have a total of 11 orders (1 on the buy and 10 on the sell side) for a total of 2000 shares. Computing the average size of the order, the total is 2000/11 (which gives a little bit less than 182 shares (181,82)) (ibid).

CESR, Guidebook on MiFID market transparency calculations, May 2007 (CESR/07-322), p. 2-3.

10.

CESR, MiFID I Equity Review, April 2010(CESR/10-394), p. 24.