5.II.2.1.2 ESMA opinion on frequent batch auctions and the reference price waiver

ESMA published an opinion concerning the functionalities of frequent batch auctions and the relation with the MiFID II reference price waiver. One of the functionalities used by frequent batch auctions include so-called price band limitations. Frequent batch auctions sometimes used price band limitations with the objective of ensuring the reference price is always within the so-called European Best Bid and Offer (EBBO) and/or Primary Best Bid and Offer (PBBO).1 ESMA is of the view that frequent batch auctions that use price band limitations referring to the EBBO or PBBO do not meet the MiFID II conditions for granting a reference price waiver.2 ESMA notes, among other things, that this is because MiFID II requires the reference price to be derived from a single trading venue. ESMA notes that the current price band limitations of frequent batch auctions rely on reference prices from various trading venues to determine the EBBO/PBBO.3 The ESMA opinion is in place to ensure that practices that may under the price formation process – including frequent batch auctions using price band limitations - are properly regulated.4 ESMA has issued a new – and stricter view – on frequent batch auctions in the MiFID II Review. For an examination, reference is made to section VII below.