Einde inhoudsopgave
EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/3.II.2
3.II.2 FESCO guidance on equity pre-trade transparency obligations
mr. J.E.C. Gulyás, datum 01-02-2021
- Datum
01-02-2021
- Auteur
mr. J.E.C. Gulyás
- JCDI
JCDI:ADS266807:1
- Vakgebied(en)
Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht
Voetnoten
Voetnoten
For example, in open outcry markets some traders cry out their bids and offers (pre-trade information) to attract other traders, whilst other traders listen for bids and offers (pre-trade information) that they are willing to accept. Most traders in open outcry markets do both. The dynamics of pre-trade information change completely in a so-called continuous order-driven market, in which traders negotiate with each other only by submitting and cancelling orders in an electronic manner (L. Harris, Trading & Exchanges: Market Microstructure for Practitioners, Oxford University Press, 2003, p. 112 and p. 116). Likewise, the pre-trade publication dynamics change in other trading systems, such as so-called quote-driven trading systems, periodic auction trading systems, and so forth. These trading systems (except for open outcry) are defined under MiFID I and MiFID II. Reference is made to chapters 4-5 below.
FESCO was not entirely satisfied with the official text of the ISD. On the one hand, FESCO acknowledged that ‘appropriate transparency arrangements may need to differ according to the nature of RMs’ (i.e. the ISD set minimum standards, thereby leaving flexibility for different trading systems operated by RMs).1 On the other hand, FESCO believed that the limited ISD pre-trade transparency obligation required additional guidance. FESCO noted it was one of the most important functions of RMs to have a price formation process that ‘produces prices that reflect the free balance of supply and demand in a particular security’.2 To achieve such a result, FESCO recommended RMs to do the following:
enable market users to obtain the best price available for a trade, taking into account (1) the nature of the trading system (e.g. open outcry, continuous order-driven, quote-driven, and so forth) and (2) the size of the transaction.3
FESCO in particular recommended to ensure (a) real-time disclosure of (b) the best bid and ask prices and (c) the size (volume) of possible transactions at those prices (depth).4
In other words, FESCO recommended RMs to publish pre-trade data, whilst specifying what type of pre-trade data this needed to be. FESCO recommended calibration to the underlying trading system of the RM (e.g. order-driven versus quote-driven),5 as well as the size of the potential transaction (protect against potential market impact).