13.IV.7.2 Reasons to introduce some top-down elements

Despite the overall bottom-up approach, MiFID II is more top-down compared to MiFID I. A new top-down element from MiFID I to MiFID II is that MiFID II provides several standards to support the reliability and comparability of the SI quotes. The main drivers here stem from the ESMA drafting process concerning the Level 2-rules. ESMA believed that MiFID II requires consolidation only in relation to equity post-trade transparency, but added that, having the broader MiFID II policy to foster transparency in mind, publication through centralised arrangements needed to be encouraged.1 ESMA initiated several of the MiFID II level 2-measures, such as rules on comparable and reliable pre-trade data, its availability (e.g. machine-readable), and timing (e.g. time-stamping).2 ESMA complemented the rules by its level 3 Q&A. The level 2-measures and ESMA Q&A are in place to provide the preconditions for equity pre-trade data consolidation (i.e. high-quality equity pre-trade data).

Along a similar line of thought, MiFID II permits APAs to publish SI quotes. MiFID II stricter compared to MiFID I that permitted SIs to publish through ‘third parties’. Third parties were not a regulated entity under MiFID I. The changes from MiFID I to MiFID II stem from the Commission’s proposal to permit SIs to publish SI quotes through, among other things, an APA. APAs would – in addition to the core service related to equity post-trade data – also be permitted to provide additional publication services for equity pre-trade data. The result could be easier consolidation of equity pre-trade data under MiFID II (high quality equity pre-trade data is a prerequisite for consolidation), although high quality publication and consolidation of equity post-trade data is the main driver of MiFID II.

The same is true for the publication of limit orders outside RMs and MTFs. MiFID II no longer permits investment firms operating outside RMs and MTFs to publish the client limit orders themselves (MiFID I situation, unless the Member State option applied), but only through a ‘data reporting service provider’ (i.e. APA, CTP, or ARM) (unless the Member State option applies). While permitting ARMs is somewhat difficult to understand (ARMs are introduced for transaction reporting), the possibility of APAs and CTPs in providing publication services for client limit orders suits with the ESMA statement to encourage equity pre-trade data consolidation (although not a main driver of MiFID II).