EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/9.IV.4:9.IV.4 Hard Brexit scenario

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/9.IV.4

9.IV.4 Hard Brexit scenario

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The United Kingdom (UK) left the EU on 31 January 2020. A transition period is in place until 31 December 2020. During this period, MiFID II continues to apply to the UK.1 The EU and the UK currently negotiate the details of their future relationship. In case of a so-called hard Brexit (i.e. the UK leaves without a withdrawal agreement), data issues arise for the MiFID II equity (pre- and) post-trade transparency regime. The Financial Conduct Authority (FCA), being the NCA of the UK, will stop sending reference data and calculation/estimation results to ESMA in case of a hard Brexit. In effect, ESMA will not receive UK-data.2 ESMA indicates that this situation will affect the functioning of FIRDS and FITRS (and other MiFID II databases).3 To address the situation, ESMA has issued a public statement on a hard Brexit in relation to the ESMA databases. The ESMA recommendations for the MiFID II equity post-trade transparency regime can summarised as follows:

1.

With respect to reference data, ESMA will re-determine the NCA in case the current NCA is the FCA. ESMA will for all financial instruments that remain available for trading in the EU ensure that the NCA is within the EU. UK RMs, MTFs, and SIs will terminate sending equity reference data to an EU NCA.4

2.

ESMA indicates that a hard Brexit requires amendments to the most relevant market in terms of liquidity. The most relevant market in terms of liquidity is important for the responsible NCA in performing, among other things, the MiFID II equity post-trade transparency calculations. ESMA intends to adjust the most relevant market for those instruments for which (a) the annual calculations determined a UK RM or MTF as the most relevant market in terms of liquidity by (b) selecting the EU RMs and MTFs with the highest turnover in the EU as the most relevant market.5

ESMA acknowledges that the solutions proposed are not perfect, in particular the phasing out of UK-related data (point 2). Nonetheless, ESMA believes the solution at hand is the least disruptive and most certain for ‘a situation which does not allow for perfect solutions’.6

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