EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/7.II.4:7.II.4 Exceptions to the ISD, FESCO, and national post-trade transparency obligations

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/7.II.4

7.II.4 Exceptions to the ISD, FESCO, and national post-trade transparency obligations

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The ISD permitted NCAs to delay or suspend the ISD post-trade transparency obligations for RM under certain conditions. The ISD noted that NCAs could (‘may)’ delay or suspend the obligations in case of:

a)

‘exceptional market conditions’;

b)

‘in the case of small markets, to preserve the anonymity of firms and investors’;

c)

‘very large in scale transactions compared with average transactions in the security in question on the market’; and

d)

‘in the case of highly illiquid securities, as defined by objective criteria and made public’.1

The ISD exceptions reflected the aim to protect market participants trading on RMs against post-trade transparency risks. Examples of such protection include the deferral/suspension possibilities in case of ‘exceptional market conditions’ and the ability to reduce inventory risk (e.g. ‘in the case of small markets, to preserve the anonymity of firms and investors’).2 The wording ‘may’ indicates that NCAs were permitted (not: required) to give a delay or suspension where any of the circumstances under points (a-d) were met.3

The ISD did not define any of the abovementioned exceptions.4 This made the ISD exceptions principle-based in nature. FESCO provided broad guidance in the context of the ISD post-trade transparency exceptions. FESCO noted that the publication of prices and volumes ‘should be delayed or suspended only in circumstances laid permitted in article 21, paragraph 2 of the ISD’.5 FESCO added that the use of these kind of derogations needed to be periodically reviewed. The RM also needed to ‘be able justify their use in the public interest (…)’.6 The combination of (a) a possibility (not: requirement), (b) principle-based provisions, and (c) broad FESCO guidance gave substantial discretion to the individual EEA jurisdictions in interpreting the deferral/suspension possibilities. Not only was the ISD provision minimum harmonised, the ISD also gave flexibility in interpretation. As a consequence, the amount of harmonization available in the ISD post-trade transparency exceptions was very limited in practice.7 In other words, national law remained dominant.

CESR provided an observation of the national post-trade transparency exceptions across the individual EEA jurisdictions. CESR observed that in most Member States large block trades were entitled to be published with delays, subject to certain conditions being fulfilled.8 Despite the broad acceptance of large trades as an exception to post-trade data publication, the meaning of ‘large trades’ differed across the EEA jurisdictions.9 Along similar lines, the Commission observed ‘enormous discrepancies’ in the level of transparency across RMs.10

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