EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/8.II.2.3:8.II.2.3 Differences with the MiFID I equity pre-trade transparency regime

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/8.II.2.3

8.II.2.3 Differences with the MiFID I equity pre-trade transparency regime

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

The concept of ‘large in scale’ was not only relevant for equity post-trade transparency deferral. As examined in chapter 3, the ‘large in scale’ concept was also used in the MiFID I equity pre-trade transparency regime, namely: (1) the RM and MTF large in scale-waiver and (2) the large in scale-exception for the client limit order display-rule (the meaning of ‘large in scale’ was the same for both MiFID I equity pre-trade provisions).1 The post-trade transparency deferral regime had three main differences with the MiFID I equity pre-trade transparency regime exceptions:

1.

The MiFID I-table for post-trade transparency deferral consisted out of different categories of average daily turnover and minimum order sizes. Four categories of average daily turnover were in place and multiple minimum order sizes were available within the average daily turnover category. This contrasted with the MiFID I large in scale concept for pre-trade transparency. The MiFID I pre-trade transparency regime large in scale concept had (a) five share categories of average daily turnover and (b) only one minimum order size per average daily turnover category.2

2.

Related was that the MiFID I-table for deferred post-trade transparency publication was based on a so-called ‘ladder-model’.3 The four categories of average daily turnover consisted out of different minimum qualifying sizes, in which the higher the minimum qualifying size, the longer the length of deferral.4 The possibilities for delay differed from delays of 60 minutes until the end of the third trading day after the trade.5 The ladder-model for post-trade deferral contrasted with the MiFID I large in scale-waivers for pre-trade transparency in the sense that the latter was binary. The pre-trade information was disclosed or not depending on the average daily turnover/minimum order size, instead of providing different time lengths for non-disclosure (i.e. dark liquidity).

3.

Third, and finally, under MiFID I for the lower average daily turnover classes (which comprises the less liquid shares), it was easier to get deferred post-trade transparency publication compared to a pre-trade transparency waiver based on average daily turnover.6 The minimum size of large in scale size was lower for post-trade transparency deferral. The difference between the two stems from the MiFID I objectives concerning pre-trade and post-trade transparency exceptions. The rationale behind deferral of post-trade transparency publication was to ensure so-called inventory risk could be reduced. Exceptions for pre-trade transparency publication were the reduction of market impact and volatility. MiFID I deemed the risks of (a) inventory rebalancing to apply at a lower transaction size (i.e. post-trade transparency deferral) compared to (b) pre-trade transparency risks of market impact and volatility.

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