5.II.1.6.7 ESMA opinion on frequent batch auctions

After MiFID II entered into force, ESMA published a call for evidence on periodic auctions with a particular focus on frequent batch auctions. ESMA noted that the rapid rise in frequent batch auctions is potentially driven by the limited pre-trade transparency that needs to be made public under certain types of frequent batch auctions (e.g. only pre-trade information when a potential match is identified). Frequent batch auctions could in effect be used to circumvent the MiFID II equity pre-trade transparency requirements. ESMA noted in the call for evidence that the trend for frequent batch auction trading seems to be in a large extent driven by instruments that have been suspended under the new double volume cap mechanism (see paragraph 2.5 below).1 At the same time, ESMA said that the success of frequent batch auctions may be driven by other factors, such as, investors trying to reduce the impact of factors, such as speed. In particular, frequent batch auctions permit a certain ‘speed bump’ against high frequency traders. This is because trading in the frequent batch auction is not immediately matched, as is the case in (faster matching) continuous order-driven trading systems.2

Based on the feedback on the call for evidence, ESMA published an opinion. The ESMA opinion is somewhat of a compromise. On the one hand, ESMA requires RMs and MTFs using frequent batch auctions based on potential matches to inform market participants about the fact that the frequent batch auction has started. ESMA requires the publication of pre-trade data under the MiFID II equity pre-trade transparency obligations only where a potential match has been identified.3 That being said, ESMA does not require this type of frequent batch auctions to make public pre-trade information once an order has been received. The latter reflects the aim of ESMA to support initiatives developing new trading protocols and providing technological innovations (e.g. a ‘speed bump’ against high frequency traders).4 ESMA provides a new – and stricter – view of frequent batch auctions in the MiFID II Review (section VII).