5.VII.1.2.2 Combination of waivers

ESMA proposes in the MiFID II Review to continue market participants to combine RM/MTF equity pre-trade transparency waivers. Examples of combined waivers include multiple negotiated trade waivers (e.g. the negotiated trade waiver in liquid and the negotiated trade waiver in illiquid equity instruments) and a combination of the reference price and large in scale waiver.1 During the consultation process, ESMA observed that combining waivers can be practical for the negotiated trade waiver (i.e. send on request for two or three different types of waivers).2 ESMA stated that other combinations benefit from a preferential regulatory treatment. For example, a combination of the reference price and large in scale-waiver is considered executed under the large in scale-waiver, and hence not subject to the double volume cap. Furthermore, many RMs and MTFs have setup complex systems for the waivers. To enhance transparency and simplicity of the waiver regime, ESMA proposed in the consultation paper to only allow RMs and MTFs to use pre-trade transparency waivers in isolation.3

The majority of respondents did not agree with the ESMA proposal. It was argued that the use of combinations of waivers is important to the market. The reason here is that combining waivers allows members or participants of RMs and MTFs the ability to simplify order management and execution strategies.4 In addition, not permitting combinations of waivers could increase liquidity fragmentation. This is because not allowing waiver combinations would result in RMs and MTFs setting up different and separated order books (one per waiver type). The result would be that members or participants of RMs and MTFs would need to choose between two different pools of liquidity.5 Taking the feedback into account, ESMA does not propose to prevent RMs and MTFs from using combination of waivers.6 In other words, the ESMA proposal suggests to retain the possibility of combining the MiFID II waivers.