EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/9.III.1.2.3:9.III.1.2.3 Excluded transactions

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/9.III.1.2.3

9.III.1.2.3 Excluded transactions

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A main difference between the scope for RMs/MTFs versus investment operating outside RMs and MTFs is that MiFID II covers an additional exception for the latter (investment firms operating outside RMs/MTFs). The exception concerns the applicability with respect to transactions involving the use of equity instruments by investment firms for (a) collateral, (b) lending or (c) other purposes where the exchange of financial instruments is determined by factors other than the current market valuation of the financial instrument.1 A similar provision was in place under MiFID I, also only for investment firms operating outside RMs and MTFs (not: RMs and MTFs).2 The main difference from MiFID I to MiFID II is that MiFID II expands the exceptions compared to MiFID I. A MiFIR Delegated Regulation notes that investment firms operating outside an RM or MTF do not have to publish equity post-trade data for:

1.

Excluded transactions listed under art. 2(5) MiFIR Delegated Regulation 2017/590 (e.g. a securities financing transaction or a contract arising exclusively for clearing or settlement purposes);

2.

Transactions executed by a management company as defined in art. 2(1)(b) of Directive 2009/65/EC or an alternative investment fund manager as defined in art. 4(1)(b) of Directive 2011/61/EU which transfer the beneficial ownership of financial instruments from one collective investment undertaking to another and where no investment firm is a party to the transaction;

3.

Give-up transactions and give-in transactions;3 and

4.

Transfers of financial instruments as collateral in bilateral transactions or in the context of a CCP margin or collateral requirements or as part of the default management process of a CCP.4

MiFID II specifies the aim of the exception. MiFID II notes that investors need to have reliable and timely information about the level of trading interest in financial instruments.5 The rationale behind the exceptions is to exclude certain types of transactions that do not provide meaningful information as to the level of genuine trading interest, for example, the transfer of financial instruments as collateral or securities financing transactions.6 In addition, requiring investment firms operating outside RMs and MTFs to make public those transactions would cause operational challenges and costs without improving the price formation process. Publishing such transactions would risk leading to investor confusion and hinder best execution.7 RMs and MTFs are required to publish the transactions set out under points (1-4), whilst flagging (i.e. marking) the transactions.8 Hence, MiFID II does not deem it necessary to exempt RMs and MTFs from publishing such trades. A main reason for the difference is the operational scale of RMs and MTFs compared to (smaller) investment firms operating outside RMs/MTFs.9

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