Einde inhoudsopgave
EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/4.II.2.1.1
4.II.2.1.1 General
mr. J.E.C. Gulyás, datum 01-02-2021
- Datum
01-02-2021
- Auteur
mr. J.E.C. Gulyás
- JCDI
JCDI:ADS266477:1
- Vakgebied(en)
Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht
Voetnoten
Voetnoten
CESR, Technical Advice on Possible Implementing Measures of the Directive 2004/39/EC on Markets in Financial Instruments: 1st Set of Mandates where the deadline was extended and 2nd Set of Mandates, April 2005(CESR/05-290b)(hereafter: CESR, Technical Advice on MiFID I, April 2005(CESR/05-290b), p. 53.
CEPS, MiFID 2.0: Casting New Light on Europe’s Capital Markets, 2011, p. 61.
The foregoing is best clarified through an example: consider that the bid for a share is EUR 99. The offer for the share is EUR 101. The spread is in effect EUR 2 (101-99). The midpoint is EUR 100 (middle of the spread). The midpoint of EUR 100 is imported to reference price system as a reference price. The reference price system already contains an offer to buy 100 shares at the price of EUR 101. The reference price system also already contains an offer to sell 100 shares at the price of EUR 99. Execution at the midpoint will give both the buyer and seller a price improvement (buyer buys at EUR 100, instead of EUR 101 and the seller sells at EUR 100, instead of EUR 99). In other words, both the buyer and seller are not required to ‘cross the spread’, but instead meet in the middle (i.e. at the midpoint). For a more thorough analysis of price improvements in reference price systems, reference is made to P. Gomber and I. Gvozdevskiy, ‘Dark Trading Under MiFID II’, in D. Busch and G. Ferrarini (Eds.), Regulation of the EU Financial Markets: MiFID II & MiFIR, Oxford University Press, 2017, p. 377.
CEPS, MiFID 2.0: Casting New Light on Europe’s Capital Markets, 2011, p. 61.
One waiver available under MiFID I was the reference price waiver. The waiver was designed for so-called reference price systems. Reference price systems permit the execution price of a transaction to be determined in accordance with a reference price generated by another system.1 Reference price systems under MiFID I facilitated two needs. The original rationale behind the MiFID I waiver was to reduce the incentive to manipulate the price of the referenced system before the reference price was fixed. This was in particular the case for less liquid shares for which the systems were most frequently used.2 However, during the MiFID I timeframe, the reference price waiver was no longer primarily used to mitigate manipulation of the reference price in illiquid markets. Under MiFID I the reference price waiver was also used to obtain potential price improvements.3 Most reference price systems executed orders at the midpoint, that is – the average between the best bid and offer, of the reference market. Execution at the midpoint permits investors to obtain an improvement of the price.4
An NCA was only permitted to grant the reference price waiver where the reference price system operated by an RM or MTF satisfied certain conditions. The system needed to be: (a) based on a trading methodology by which the price was determined in accordance with a reference price generated by another system; (b) where that price was widely published; and (c) was regarded generally by market participants as a reliable reference price.5 Examples of prices available as references included the so-called primary best bid and offer (PBBO) and the European best bid and offer (EBBO).6