5.VII.1.3.1.2 ESMA MiFID II Review of 2020

The ESMA opinion took, besides the notification requirements and the ‘in principle’ use of waivers for non-price forming frequent batch auctions, a wait-and-see approach. ESMA goes further in the ESMA MiFID II Review. First of all, ESMA proposed to introduce a distinct definition for frequent batch auctions. A majority of respondents favoured ESMA’s proposal. The argument here is being able to differentiate frequent batch auctions from conventional periodic auctions in order to better reflect the specifities of the former.1 By contrast, others (mainly buy- and sell-side and RMs and MTFs operating frequent batch acutions) viewed frequent batch auctions as a well-established, valued and widely used trading mechanism.

Opponents argue that the amount of frequent batch auctions is low, frequent batch auctions do display pre-trade data, respond to a market need (e.g. protect against fast traders), and the ESMA view is too strict compared to conventional periodic auctions.2 The opponents do not see the need to have a separate definition for frequent batch auctions.3 The final ESMA MiFID II Review favours the initial ESMA proposal and therewith distinct definitions. ESMA maintains its proposal to separate the descriptions of conventional periodic auctions and frequent batch auctions.4

Second, and in line with a distinct definition for frequent batch auctions, ESMA proposed in the consultation paper to apply distinct pre-trade transparency requirements for frequent batch auctions. A slight majority of respondents to the ESMA consultation favoured different pre-trade transparency requirements for frequent batch auctions and conventional periodic auctions. Taking the concerns into account, ESMA states in the MiFID II Review that, in any case, the proposals would be subject to public consultation. In effect, the views from market participants on the applicable pre-trade transparency requirements for frequent batch auctions and conventional periodic auctions can be taken into account.5

Third, and more generally for all non-price forming systems (i.e. not only periodic auctions, but also order-driven, quote-driven, and so forth), ESMA proposed in the consultation paper that non-price forming trading systems always need to operate under an RM/MTF equity pre-trade transparency waiver.6 The aim here is to assist and ensure a meaningful price formation process (i.e. non-price forming orders are waived and hence not made pre-trade transparent).7 Based on the feedback received, ESMA agrees that the concept of ‘non-price forming systems/transactions’ needs to be further elaborated on, as well as made consistent with other MiFID II references to ‘non-price forming’ (e.g. negotiated trade waiver). For these reasons, ESMA recommends adding a Level 2 mandate empowering ESMA to specify the types of non-price forming transactions.8