EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.IV.1.2:5.IV.1.2 Exceptions

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.IV.1.2

5.IV.1.2 Exceptions

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The MiFID II obligation to immediately publish unexecuted client limit order is not absolute. Similar to MiFID I, MiFID II covers two exceptions to the rule, namely where:

1.

the client expressly instructs the investment firm not to display unexecuted limit orders; or

2.

the unexecuted client limit order is large in scale compared with the normal market size. NCAs are permitted to waive the obligation in this situation.1

The first exception, being where the client expressly instructs not to display unexecuted limit orders, permits investment firms not to comply with the rule. The exception is in place to protect the client. Revealing unexecuted client limit orders can cause markets to take positions at the detriment of the client. Would an unexecuted client limit order always be displayed, this could prevent clients from sending orders to investment firms, and hence liquidity could be reduced.2

The second exception permits NCAs to waive the publication requirement in case of ‘large in scale’ limit orders. The rationale behind the waiver is similar to the large in scale waiver for RMs and MTFs.3 Publication of a large client limit order could result in intense price movements due to revealing price sensitive information. This would not only make the execution of the client order harder (more costly), but could also affect the market for the share in question as a whole (i.e. increase volatility).4

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