EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.II.2.2.3:5.II.2.2.3 Negotiated trades with and without pricing conditions

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.II.2.2.3

5.II.2.2.3 Negotiated trades with and without pricing conditions

Documentgegevens:

mr. J.E.C. Gulyás, datum 01-02-2021

Datum: 01-02-2021
Auteur: mr. J.E.C. Gulyás
JCDI: JCDI:ADS266794:1
Vakgebied(en): Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht

MiFID II makes a distinction between negotiated trades (a) subject to; or (b) not subject to pricing conditions.1 MiFID I made a similar distinction, but MiFID II introduces more rule-based provisions. Under MiFID II negotiated trades that are subject to conditions other than the current market price can be executed at any price where otherwise permitted by the rules of the trading venue (point b).2MiFID II introduces several additional clarifications of ‘other than the current market price’, such as so-called ‘give-up’ or ‘give-in’ transactions.3 The double volume cap mechanism does not apply to negotiated trades that are subject to conditions other than the current market price.4

Negotiated transactions that are subject to the current market price must instead comply with pricing conditions (point a), which was the same under MiFID I. New under MiFID II is that a distinction is made between price conditions that apply depending on whether there is: (i) a ‘liquid’ market; or (ii) an illiquid market.5 For liquid equity instruments (point i) negotiated trades must be executed within the spread.6 These negotiated trades are subject to the double volume cap mechanism.7 For illiquid equity instruments (point ii) negotiated trades can be executed at any price falling within a certain percentage of a suitable reference price. Both the reference price and percentage need to be set in advance by the system operator.8 The double volume cap mechanism does not apply to illiquid negotiated trades. ESMA has provided guidance, among other things, in order to clarify a suitable ‘reference price’ and ‘conditions other than the current market price’, as relevant for the negotiated trade waiver.9

Toon alle voetnoten

Voetnoten

Voetnoten

Art. 4(1)(b) MiFIR.

Art. 4(1)(b)(iii) MiFIR; and ESMA, ESMA, Discussion Paper: MiFID II/MiFIR, 22 May 2014(ESMA/2014/548), p. 66

A ‘give-up transaction’ or ‘give-in transaction’ refers to a transaction where an investment firm passes a client trade to, or receives a client trade from, another investment firm for the purpose of post-trade processing (art. 1(3) MiFIR Delegated Regulation 2017/587). The full MiFID II list of negotiated trades ‘subject to conditions other than the current market price’ are where: (a) the transaction is executed in reference to a price that is calculated over multiple time instances according to a given benchmark, including transactions executed by reference to a volume-weighted average price or a time-weighted average price; (b) the transaction is part of a portfolio trade; (c) the transaction is contingent on the purchase, sale, creation or redemption of a derivative contract (…); (d) the transaction involves the transfer of the beneficial ownership of financial instruments from one collective investment undertaking to another and where no investment firm is a party to the transaction; (e) the transaction is a give-up or give-in transaction; (f) the transaction has the purpose of transferring financial instrument as collateral in bilateral transactions or in the context of a CCP margin or collateral requirements or as part of the default management process of a CCP; (g) the transaction results in the delivery of financial instruments in the context of the exercise of convertible bonds, options, covered warrants or other similar financial derivative; (h) the transaction is a securities financing transaction; (i) the transaction is carried out under the rules or procedures of a trading venue, a CCP, or a central securities depository to effect buy-in of unsettled transactions; (j) any other transaction equivalent to those described in points (a) to (i) (…) (art. 6 MiFIR Delegated Regulation 2017/587).

For an examination of the scope of the MiFID II double volume cap, reference is made to paragraph 2.5 below.

Art. 4(1)(b)(i-ii) MiFIR.

MiFID II provides a definition of ‘liquid market’ in art. 4(1)(17)(b) MiFIR and art. 1-4 MiFIR Delegated Regulation 2017/567. For an examination, see paragraph 2.2.4 below.

Art. 4(1)(b)(i) and art. 5 MiFIR. Similar ESMA, Discussion Paper: MiFID II/MiFIR, 22 May 2014(ESMA/2014/548), p. 67.

Art. 4(1)(b)(ii) MiFIR. For the sake of clarity, the ‘reference price’ for the negotiated trade waiver is different than the concept of a ‘reference price’ used for the reference price waiver. For an examination of the reference price in the context of the reference price waiver, see paragraph 2.1 above.

ESMA, Opinion on the assessment of pre-trade transparency waivers for equity and non-equity instruments, 16 December 2020(ESMA70-155-6641), p. 10-12.