EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.VII.1.2.4.2:5.VII.1.2.4.2 Confine the double volume cap to liquid instruments (proposal 2)

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.VII.1.2.4.2

5.VII.1.2.4.2 Confine the double volume cap to liquid instruments (proposal 2)

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ESMA proposed in the consultation paper as an option to extend the double volume cap mechanism to illiquid instruments. The rationale here would be enhance transparency for trading under the waivers of the reference price and negotiated trade waiver. Respondents to the ESMA consultation believed that extending the double volume cap to illiquid equity instruments might be detrimental to trading in shares of smaller issuers. ESMA acknowledges these concerns in the final ESMA proposal. ESMA has decided not to propose an extension of the double volume cap to illiquid equity instruments. The aim here is to safeguard smaller issuers and protect liquidity in illiquid shares and other equity instruments.1 Relevant here is also another ESMA proposal to introduce a stricter definition of a liquid market (see paragraph 2 below). If accepted, the stricter liquid market-definition would reduce the concern that a large number of equity instruments currently fall outside the scope of the double volume cap.2

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