5.V.2.1.1 MiFID II provision and ESMA views

MiFID II states that the share trading-obligation does not apply where trades have characteristics that are ‘non-systematic, ad-hoc, irregular and infrequent’.1MiFID II does not specify the meaning of these terms. This has resulted in legal unclarity whether the exception was similar to the exceptions of the MiFID II SI-definition. The MiFID II SI-definition covers a somewhat similar wording.2MiFID II does not clarify whether there is any relation between the MiFID II share trading obligation and the MiFID II SI-definition.3

ESMA made some remarks on the exception during the MiFID II drafting process. ESMA referred to the similarities of the MiFID II-definition for SIs.4 ESMA indicated that MiFIR notes that trading activity that is ‘occasional, ad hoc and irregular’ is the only wholly OTC activity permitted that is not subject to a number of requirements, including pre-trade transparency.5 ESMA therefore considered that in defining this exception to the MiFID II share trading-obligation, that is - ‘non-systematic, ad-hoc, irregular and infrequent’, a reasonable interpretation of what is ‘infrequent’ to be an activity that does not meet the frequency and systematic thresholds set for SIs.6 ESMA added that the factors ‘ad-hoc’ and ‘irregular’ also need to be taken into account.7 Whatever the case may be, the ESMA guidance has not been translated in the final MiFID II text. The ESMA guidance is formally non-binding under MiFID II. In other words, the exception of ‘non-systematic, ad-hoc, irregular and infrequent’ has not been specified in the MiFID II text.8 For this reason, and for the particular complexity in relation to third countries (see paragraphs below), the exception is part of the MiFID II Review (see section VII below).