EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/4.I:4.I Introduction

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/4.I

4.I Introduction

Documentgegevens:

mr. J.E.C. Gulyás, datum 01-02-2021

Datum: 01-02-2021
Auteur: mr. J.E.C. Gulyás
JCDI: JCDI:ADS266639:1
Vakgebied(en): Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht

MiFID I succeeded the ISD. MiFID I applied from November 2007 and was in place until the start of MiFID II (3 January 2018). MiFID I consisted out of the MiFID I Directive (framework directive) and two implementing measures, being the MiFID I Implementing Directive and the MiFID I Implementing Regulation.1 One of the MiFID I objectives was to open up competition among different types of order execution platforms.2 MiFID I intended to achieve this result, among other things, by abolishing the optional ISD concentration-rule. Under MiFID I investment firms could choose where to trade, provided that best execution-obligations were met.3 To ensure a high quality of order execution in financial instruments, regardless where the order was executed in the new trading environment, MiFID I established a comprehensive regulatory regime.4 A main element of the comprehensive MiFID I regime was the introduction of new trading venues alongside RMs, namely so-called Multilateral Trading Facilities (MTFs) and SIs (SIs).5 Another element were the MiFID I equity pre-trade transparency rules. Compared to the ISD, MiFID I introduced the following changes with respect to equity pre-trade transparency regulation:

1.: MiFID I covered three distinct pre-trade transparency regimes. The MiFID I pre-trade transparency regimes were for: (1) RMs and MTFs, (2) SIs, and (3) investment firms executing client limit orders outside an RM or MTF under certain conditions (including, but not limited to, SIs).
2.: MiFID I limited the scope of the pre-trade transparency regime to shares admitted to trading on an RM. Under MiFID I the term ‘equity’ referred to shares.6 Member States were permitted (not: required) to expand the MiFID I equity pre-trade transparency regime to other financial instruments than shares.7
3.: MiFID I did not require maximum equity pre-trade transparency. RMs, MTFs, and investment firms operating outside such venues were permitted to publish more equity pre-trade data than MiFID I required. Furthermore, MiFID I permitted dark liquidity (i.e. trading without pre-trade transparency). MiFID I permitted different types of dark liquidity depending on the distinct equity pre-trade transparency regime. MiFID I covered so-called waivers for RMs and MTFs. The waivers enabled RMs and MTFs not to publish pre-trade data under certain conditions. SIs were permitted not to publish the MiFID I equity pre-trade data where conditions of the MiFID I exceptions (i.e. not waivers) were met. Specific exceptions to MiFID I equity pre-trade data publication were available for investment firms executing client limit orders in shares outside an RM or MTF. Although the ISD also permitted exceptions to pre-trade transparency provisions, MIFID I introduced more detail and new provisions (harmonization) for exceptions (e.g. the RM and MTF waivers) to the equity pre-trade transparency obligations.
4.: MiFID I provided more harmonization in terms of the overall equity pre-trade transparency regime. MiFID I required a higher degree of equity pre-trade data to be published compared to the ISD. The MiFID I equity pre-trade transparency obligations for RMs and MTFs were minimum harmonised, whereas the waivers were maximum harmonised. The MiFID I equity pre-trade transparency obligations and exceptions for SIs and investment firms executing client limit orders outside an RM or MTF were maximum harmonised.
5.: MiFID I introduced details on when the MiFID I equity pre-trade data needed to be published (timing). MiFID I required equity pre-trade data to be ‘made available as close to real time as possible’.8No specific time-limit for pre-trade publication was in place.9
6.: MiFID I covered rules on calculations and the operation of databases in order to ensure the MiFID I equity pre-trade transparency regime worked in practice.

The six key changes from the ISD to MiFID I are the focus of this chapter. Below, the MiFID I equity pre-trade transparency regime for RMs and MTFs is discussed first (section II). Thereafter, the MiFID I equity pre-trade transparency rules for SIs are discussed (section III). Then, the regime for investment firms with respect to client limit orders outside an RM and MTF will follow (section IV). The MiFID I regime for calculations and databases follow (section V). Finally, concluding remarks are drawn (section VI).

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Directive 2004/39/EC, OJ L 145, 30 April 2004, pp. 1-47 (MiFID I Directive); Directive 2006/73/EC, OJ L 241, 2 September 2006, pp. 26-58 (MiFID I Implementing Directive); Regulation (EC) No 1287/2006, OJ L 241, 2 September 2006, pp. 1-25 (MiFID I Implementing Regulation).

Recital 5 MiFID I Implementing Regulation.

The MiFID I best execution-obligation was laid down in art. 21 MiFID I.

Recital 5 MiFID I Directive.

Under MiFID I ‘trading venues’ were RMs, MTFs, and SIs (art. 2(8) MiFID I Implementing Regulation). The MiFID I-definitions of an RM, MTF, and SI can be found in art. 4(1)(14-15), respectively art. 4(1)(7) MiFID I Directive. For a detailed examination of the MiFID I-definitions, reference is made to chapter 1 and chapter 4.

Reference is made to recital 44 MiFID I Directive. A broader interpretation of ‘equity’ is in place under MiFID II, namely shares, depositary receipts, ETFs, certificates and other similar financial instruments (see articles 3-7 and art. 20 MiFIR). For an examination of the term ‘equity’, reference is made to chapter 1 (Section IV).

Recital 46 MiFID I.

Art. 29(2) MiFID I Implementing Regulation.

Art. 29(2) MiFID I Implementing Regulation. The situation contrasted with the MiFID I equity post-trade transparency provision stating a specific maximum of three minutes (ibid). For an examination of the MiFID I equity post-trade transparency regime, reference is made to chapter 8.