18.III.3.4 More calculations and databases

From the ISD to MiFID II technology has gained importance in making the EU equity pre- and post-trade transparency rules work. From the ISD to MiFID II more equity pre- and post-trade transparency calculations are necessary (e.g. the calculation of a ‘liquid market’) and highly operational databases are in place. As demonstrated in the previous chapters, more data needs to be collected, stored, calculated and published in order to ensure the adequate functioning of EU equity pre- and post-trade transparency regimes. Technological innovation plays an important role here.

Under the ISD, the starting point of EU (equity) transparency thresholds, a limited regime was in place. Examples of (equity) transparency thresholds included ‘exceptional transactions that are very large in scale’ and ‘highly illiquid securities defined by means of objective criteria (…)’.1 The ISD covered no explicit rules on how data needed to be collected, calculations needed to occur, and/or published. No EU database was in place. The reason here was that the ISD equity pre- and post-trade transparency thresholds were defined at the national level.2

Under MiFID I equity pre- and post-trade transparency calculations and databases became more important. MiFID I required several calculations to take place, for example what constituted a ‘liquid market’, for which the EU laid down harmonised calculation rules (although permitting some national deviations).3 The collection, storage, and publication of calculation results took place in accordance with harmonised MiFID I rules, which resulted in a new European technological infrastructure. NCAs were responsible for the collection, calculation, and publication, while CESR/ESMA consolidated the published data by means of European databases. Technological issues arose, in particular with respect to the collection of data necessary for the equity pre- and post-trade data calculations.4

Under MiFID II the technological infrastructure plays an even greater role for the equity pre- and post-trade transparency regime. This is the result of two factors: (1) the increase in equity transparency thresholds under MiFID II, such as the double volume cap; and (2) the expanded scope of financial instruments falling under the scope of MiFID II (from shares admitted to trading on an RM (MiFID I) to equity (and non-equity) instruments traded on a trading venue (MiFID II)). In fact, the entering into force of MiFID II was delayed with one year (3 January 2017 to 3 January 2018) due to the complex technical infrastructure that needs to be in place for the MiFID II regime.5 ESMA needs to collect data from about 100 trading venues (and another 200 through NCAs) on about 15 million financial instruments. To achieve this result, ESMA must work closely with NCAs and reporting entities, such as RMs, MTFs, APAs, and SIs. ESMA informed the Commission that neither NCAs nor market participants would have the necessary systems ready by 3 January 2017. Considering these unique market circumstances and in order to avoid legal uncertainty and potential market disruption, the EU deemed an extension of the MiFID II regime necessary.6 Other data-related issues have been identified with the double volume cap, quantitative elements of the SI-definition, and a lack of an EU ‘golden source’ for so-called reference data.7

In sum, the increased use of EU technological infrastructures – and related EU rules on data collection, calculation, and publication – is necessary in view of the EU to ensure data is collected, calculated, stored, and published in a more efficient and harmonised way (in particular by ESMA). A main aim here is consistency across the EU Member States in terms of calculations of the MiFID II equity pre- and post-trade transparency thresholds. Another aim is to ensure the availability of data on the EU level. The result is that ESMA and NCAs are better able to monitor and adjust equity pre- and post-trade transparency thresholds.8 The EU intention is also to achieve economies of scale and lowering costs for the industry and market participants. This is because the EU believes that all transparency parameters and reference data for equity instruments (and non-equity) should be in an EU database available in a ‘one-stop shop’.9 That being said, there is debate whether ESMA’s powers should be extended. At the moment, several – but not all – NCAs have delegated data collection, calculation, and publication duties to ESMA.10 ESMA could be mandated to perform all these tasks under EU regulation, which would result in even more economies of scale and lower industry and market participant costs. For example, an argument not to delegate to ESMA could be national investments already made in databases and training personnel, as well as limited resources at the ESMA level. Last, but not least, several market participants request ESMA to do more in the area of reference data in order to ensure a ‘golden source’ of EU reference data. ESMA has, at least until this point in time, been reluctant to intervene further in the area of reference data.11 Time alone will tell what the final outcome will be.