5.III.2.6.4 Level 1 and Level 2 text: rule-based provisions

The final change from MiFID I to MiFID II is that the MiFID II pre-trade transparency requirements are more rule-based. Whereas MiFID I often provided broad undefined concepts, MiFID II introduces several definitions. For example, MiFID II introduces a definition of ‘exceptional market circumstances’, being a concept that permits SIs to temporarily withdraw their quotes. In drafting MiFID II, ESMA was of the view that a non-exhaustive list of circumstances that are deemed exceptional would enhance legal certainty. In effect, ESMA proposed several non-limitative circumstances it deemed as exceptional.1

Another example of rule-based provisions are the MiFID II conditions that permit SIs to update their quotes. In drafting MiFID II, ESMA noted that MiFID II already permitted SIs to update their quotes at any time. ESMA recommended that an SI would be allowed to update its quotes as soon as market-wide or instrument-specific circumstances change or following any transaction executed with client.2 Although ESMA’s recommendation was fairly broad, it was more explicit compared to MiFID I, which provided no clarification at all.

The Commission adopted ESMA’s recommendations. This is evident in the final MiFID II text. MiFID II covers a non-exhaustive list of exceptional circumstances. Conditions for permitting an SI to update its quotes are also in place.