5.II.2.5.2.2 Level 1: drafting the MiFID II waivers

Given their controversial background, it is not surprising that some Member States wanted to abolish – or at least minimize – the use of the reference price and negotiated trade waiver under MiFID II. Controversy arose during the Council negotiations in drafting MiFID II. Several Member States indicated they only wanted to maintain the MiFID I large in scale-waiver under MiFID II, whereas other Member States wanted to keep also the other MiFID I waivers, in particular the reference price waiver and the negotiated trade waiver.1 No reference was made to the relatively uncontroversial order management facility waiver, which perhaps was a negotiation tactic. This is speculation, but it could be that by emphasizing the large in scale-waiver only, the Member States wanting to remove, or at least minimize, the negotiated trade and reference price waiver had something to give in return if the negotiations would get stuck (i.e. the order management waiver would function as a ‘bargaining chip’).2

Whatever the case may be, the Presidency of the Council proposed to maintain all four waivers, but to narrow down their scope in order to achieve consensus.3 The double volume cap mechanism seen as a mechanism to do so (i.e. narrow the scope of the MiFID I negotiated trade and reference price waiver). The Council proposed the double volume cap mechanism in the MiFIR-proposal in June 2013.4 The Council’s proposal for the double volume cap mechanism reflected a compromise between those Member States more supportive of improving investor positions (market-led) and those Member States concerned to introduce more transparency and favouring only waivers that protect investors (market-shaping).5 The reference price waiver and negotiated trade waiver would be retained (favouring those facilitative of market preferences), but restricted through thresholds on their use (favouring those concerned to extend transparency requirements/waivers protecting investor only). At odds with the rest of the MiFID II transparency thresholds, the Council did not cover level 2-mandates for the Commission and/or ESMA concerning the double volume cap.

The position of the Council’s Presidency is evident in the final MiFID II-text. MiFID II covers a double volume cap that restricts the use of the reference price waiver, as well as the negotiated trade waiver for liquid equity instruments.6 The limitation to liquid shares reflects the aim to ensure sufficient trading by permitting an unlimited use of the negotiated trade waiver in illiquid markets. The double volume cap also does not apply to the negotiated trade waiver concerning non-price forming trades (e.g. portfolio trades), which has traditionally been uncontroversial (see paragraph above). MiFID II covers no level 2-measures for the double volume cap mechanism, which represents the means through which compromise was achieved on level 1.7 As a result, the Level 1 text of MiFIR (instead of Level 2 delegations) cover the thresholds of respectively four and eight percent.8