5.III.2.4.2 Definition: determining the standard market size

MiFID II uses a similar methodology to determine the standard market compared to MiFID I. The MiFID II methodology starts in MiFIR (Level 1 text). Similar to MiFID I, the concept of a liquid market is a precondition for determining the standard market size. No liquid market, means no determination of the standard market size. This follows from MiFIR only requiring the standard market size to be determined for liquid equity instruments.1MiFIR only requires SIs to publish firm quotes (binding pre-trade data) for sizes up to transactions above the ‘standard market size’ (for liquid equity instruments). Once the subset of equity instruments for a liquid market is determined (step 1), the equity instruments need to be divided into classes for which the standard market size needs to be determined (step 2).2MiFIR requires equity instruments to be grouped in classes on the basis of the arithmetic average value of the orders executed in the market for that equity instrument. The standard market size must be (a) a size representative of the arithmetic average value of the orders executed (b) in the market for the equity instrument included in each class.3 The market for each equity instrument needs to be comprised of all orders executed in the EU concerning that instrument, excluding those that are ‘large in scale compared to normal market size’.4

A MiFIR Delegated Regulation specifies the meaning of the standard market size, including the related average value of transaction-classes. The MiFIR Delegated Regulation provides a specification through a standard market size-table.5 The table is the same regardless of the equity instrument involved, be it shares, depositary receipts, ETFs, certificates or other similar financial instruments.6 A main change compared to MiFID I is that MiFID II: (i) groups the two smallest MiFID I classes for shares into a single class and (ii) increases the standard market size. The smallest class under MiFID II has an average value of trading between EUR 0-20.000 and a standard market size of EUR 10.000 (instead of EUR7.500 under MiFID I).7 This means that under MiFID II SIs need to publish a higher level of pre-trade data with respect to shares. In other words, the MiFID II requirements for SIs have become more demanding compared to MiFID I.8