4.IV.1.1 Obligation to publish client limit orders

MiFID I covered a distinct pre-trade transparency requirement for all investment firms operating outside RMs and MTF in relation to client limit orders. MiFID I required investment firms executing client orders (including SIs) to immediately publish, that is – make pre-trade transparent, (a) client limit orders in (b) shares admitted to trading on an RM (c) in case the client limit order was not immediately executed under prevailing market conditions.1 The MiFID I rule still enabled investment firms to internally execute a limit order received from a client, whether through (systematic) internalisation or agency crossing, provided this was: (1) done immediately, (2) in another financial instrument than a share admitted to trading on an RM, or (3) where the client limit order was not subject to prevailing market conditions.2 By contrast, where the client limit order in a share admitted to trading on an RM was not immediately executed, under prevailing market conditions, the investment firm was required to make the unexecuted limit order immediately public.3 MiFID I provided no definition of prevailing market conditions.4

The rationale of the client limit order display-rule was two-fold. First, immediate publication intended to guarantee that limit orders would be executed as intended by the client. The display of the non-executed limit order would provide additional opportunities for the order to be executed at that price or even to receive price improvement.5 Secondly, the display of the client limit orders was meant to inform the market. Limit orders were considered to contain useful price information, which would contribute to the price formation process.6 The publication of unexecuted client limit orders would increase the level of pre-trade data available.7

To perform the requirement, MiFID I covered two tests that needed to be met, namely (1) a visibility and (2) an accessibility test. MiFID I required investment firms to make unexecuted client limit orders pre-trade transparent (visibility test) in a manner that was easily accessible to other market participants (accessibility test).8 MiFID I provided guidance when these requirements (tests) were satisfied. A client limit order was considered to be visible (and available) when: (i) the order was transmitted to an RM or MTF that operated an order book trading system, or (ii) the order was made public and could be easily executed as soon as market conditions allowed.9 The latter option could include publication on the website of the investment firm or through any third party system the investment firm used for advertising information.10