3.II.1 A single and modest ISD equity pre-trade transparency obligation

The ISD encompassed a minimum harmonised pre-trade transparency obligation for RMs.1 The ISD pre-trade transparency obligation applied to each financial instrument covered by the ISD, among others, shares, depositary receipts, and certificates, but also to bonds and derivatives.2 RMs were subject to the following ISD pre-trade transparency obligation:

The meaning of the ISD-obligation is not entirely clear. The ISD gave no further guidance.4 Even more confusingly, FESCO noted that the ISD only required ‘the disclosure of post-trade information’5 Some authors gave somewhat similar statements, arguing that the ISD was only concerned with post-trade transparency.6 That being said, other authors argued that the ISDdid cover a pre-trade transparency obligation, referring to the ISD provision mentioned above.7

The latter view, arguing that the ISD did cover a pre-trade transparency obligation, is in my view the most convincing interpretation. The ISD provision referred explicitly to transactions that ‘may be undertaken’ (not: are undertaken), as well as ‘terms on which it is possible for an investor to carry out a transaction’ (not: transactions that are already carried out). In other words, the ISD referred to information before a trade, that is – pre-trade information.

Then why did FESCO state that the ISD only required the ‘disclosure of post-trade information’? An explanation is that the ISD provision did not require pre-trade data to be published. Instead, the ISD covered a minimum pre-trade transparency obligation where prices and quantities on potential trades would be published. An example can clarify the difference. Consider the situation where under the ISD a market maker8 on an RM published quotes, including the price and quantity, for which the market maker was willing to buy and/or sell a share. The ISD did, in my opinion, not require the market maker to publish the quotes, but where the market maker did so (under national law, an RM rulebook, or voluntarily), the ISD required the RM to ensure the market maker quotes were: (1) available at all times during the market hours of the RM; and (2) firm, instead of indicative. In my view, the ISD pre-trade transparency obligation was in place to secure a fixed price for potential transactions during the market hours of the RM.9 This reading is still aligned with the FESCO statement (‘disclosure of post-trade information’). The ISD did not require the disclosure of pre-trade information. Instead, the ISD required a fixed price (firm) where pre-trade information was published (‘disclosed’) on an RM.

Although this discussion is interesting, I should note it is also a quite theoretical one. As will be shown in the following paragraph, in practice many RMs across the EEA were subject to stricter pre-trade transparency obligations, whether under national law or RM rulebooks as approved by national law. Therefore, instead of focusing on the meaning of the ISD-provision, it is more useful to make the following observation: the ISD provision with respect to pre-trade transparency was unclear. The discussion presented above illustrates that the ISD covered limited legal certainty with respect to pre-trade transparency obligations.