EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.III.2.4.1:5.III.2.4.1 General

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.III.2.4.1

5.III.2.4.1 General

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As noted above, MiFID II requires SIs to publish firm quotes only up to the ‘standard market size’ (for liquid shares). The requirement stems from MiFID I. Similar to MiFID I, MiFID II covers the standard market size concept to balance (a) the MiFID II objective of enhancing transparency compared to MiFID I with (b) positions risks of SIs due to trading on own account (in executing client orders).1 The latter objective, that is – protect SIs against position risks, is apparent in the MiFID II obligations. MiFID II uses the standard market size-concept to protect the provision of liquidity, that is - for trades above a certain size, SIs are not required to publish binding quotes. MiFID II only requires SIs to publish binding quotes up to the standard market size (in case the equity instrument has a liquid market).2

MiFID II also covers two differences compared to MiFID I. The two changes are the following:

1.

MiFID II has introduced a minimum quotation requirement in the form of 10 percent ofthe standard market size for the particular equity instrument. MiFID I covered no minimum quotation requirement in relation to the standard market size;3

2.

SIs are under MiFID II required to make available two-way quotes (i.e. bid and an offer price) in relation to the standard market size. Such a requirement was not in place under MiFID I. MiFID II requires SIs to make available two-way quotes for each equity instrument for which the firm is an SI ‘up to the standard market size for the class of the equity instrument to which the instrument belongs’.4

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