5.VII.3.2.2 Interim conclusion

The ESMA proposal on the MiFID II share trading-obligation in relation to third countries is relatively mild compared the ESMA proposals on the MiFID II RM/MTF equity pre-trade waivers and SI-regime. The difference is understandable in light of a broader goal, namely to ensure an efficient allocation of capital in the EU. ESMA aims to enhance equity pre-trade transparency under MiFID II, but not all costs. A strict MiFID II share trading-obligation could harm the competiveness of EU investment firms, as well as limit access of EU investors to a broad range of capital (i.e. in the EU or third country). ESMA acknowledges this in the ESMA MiFID II Review Report, as well as in earlier ESMA opinions.1 ESMA tries to find a balance between the goals of the MiFID II share-trading obligation – including concentrating trading on highly transparent venues – and the relation with third countries, more specifically where the main pool of liquidity is in the third country. ESMA wants to exclude third-country shares (i.e. with an third-country ISIN) from the MiFID II share trading-obligation.

The MiFID II Review of ESMA shows that ESMA wants more equity pre-trade transparency under MiFID II, but only for EU situations. Recent history of EU equity pre-trade transparency regulation shows a similar spirit in the Commission. The Commission issued an opinion that states third country trading venues not (yet) been deemed equivalent by the Commission are ‘non-systematic, ad-hoc, irregular, and infrequent’ (and hence, do not fall under the MiFID II share trading-obligation). In effect, the Commission and ESMA take similar views, namely that only EU situations should fall under the MiFID II share trading-obligation.2 The main question then is: what is an ‘EU situation’? Based on the complexity of addressing all concerns, ESMA proposes a simple ISIN-approach. The ISIN approach is not perfect (i.e. non-EU ISINs traded primarily in the EU fall outside the scope), but works in most cases. The ESMA view is contentious, because the ISIN approach means that dual-listed shares would fall within the scope of the MiFID II share trading-obligation. Last, but not least, ESMA emphasizes the importance of trading in third country-venues by permitting to trade in the domestic currency of the third-country. The ESMA proposal seems to complement the ISIN approach. The proposal of ESMA alleviates some of the concerns of a too strict ISIN-approach, such as an inclusion of dual-listed shares within the MiFID II share trading-obligation. All in all, the ESMA MiFID II Review for the share trading-obligation is relatively lenient compared to the ESMA proposal for the MiFID II equity pre-trade transparency regime for RMs, MTFs, and SIs. ESMA shows a position that emphasizes the possibility for EU investors to trade on a global level, while improving the competitiveness of EU RMs, MTFs, and SIs.