EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/4.III.2.1:4.III.2.1 General

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/4.III.2.1

4.III.2.1 General

Documentgegevens:

mr. J.E.C. Gulyás, datum 01-02-2021

Datum: 01-02-2021
Auteur: mr. J.E.C. Gulyás
JCDI: JCDI:ADS266876:1
Vakgebied(en): Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht

MiFID I required SIs, alongside RMs and MTFs, to publish certain equity pre-trade information. The aim of the pre-trade transparency obligations for SIs was to achieve a high degree of transparency. MiFID I considered a high degree of pre-trade transparency as essential to ensure investors were adequately informed as to the actual level of transactions in shares admitted to trading on an RM, irrespective whether those transactions took place on an RM, MTF, or outside those trading venues.1 The rationale behind the pre-trade transparency obligations was to ensure that the price discovery process in respect of such shares would not be impaired by the fragmentation of liquidity, and investors were thereby not penalised.2 Another aim was to ensure a level playing field between RMs/MTFs and SIs.3

MiFID I required SIs to publish pre-trade data, so-called ‘quotes’, in relation to (a) shares (b) admitted to trading on an RM.4 MiFID I interpreted the term ‘equity’ as being similar to shares.5 The MiFID I pre-trade transparency requirements for SIs only applied for shares for which: (1) the investment firm was a SI; (2) there was a liquid market; and (3) when dealing in sizes above the standard market size.6 Where an investment firm was a SI both in shares and other financial instruments, the obligation to quote in principle only applied in respect of shares.7 ‘In principle’, since Member States were free to expand the quoting obligations of SIs to financial instruments other than shares.8 The terms ‘liquid market’ and ‘above standard market size’ were specified through delegated regulations.9 In the case of shares for which there was not a liquid market, SIs needed to disclose quotes to their clients on request.10

MiFID I obliged SIs to publish firm quotes (not: indicative). SIs were free to decide the size or sizes (volume/volumes) at which they placed their quotes. For a particular share each quote needed to include a firm bid and/or offer price or prices for a size or sizes which could be up standard market size.11 SIs were therewith (a) not subject to a minimum quoting size; (b) could publish both one-way (bid or offer) and two-way (bid and offer) quotes; and (c) up to a certain size only (i.e. up to the standard market size).

MiFID I required the price or prices quoted by a SIs to reflect the ‘prevailing market conditions’ for that share.12 The term ‘prevailing market conditions’ referred to a quote or quotes that was (were) close in price to comparable quotes for the same share in other trading venues, being RMs, MTFs, and SIs.13 SIs were entitled to update their quotes at any time. SIs were also allowed, under exceptional market conditions, to withdraw their quotes.14 The term ‘exceptional market conditions’ was not defined and accordingly left flexibility in its interpretation. NCAs needed to check whether SIs regularly updated their quotes and maintained prices that reflected prevailing market conditions.15

In terms of timing, MiFID I required SIs to publish their quotes on a regular and continuous basis during normal trading hours.16 The requirement was satisfied where the information was published as soon as possible as it became available during the normal trading hours and remained available until it was updated.17 The quotes needed to be made available as close to real-time as possible.18 MiFID I obliged SIs to publish the quotes on a reasonable commercial basis.19 The publication requirement applied to all investors interested in the pre-trade data of the SIs.20

Toon alle voetnoten

Voetnoten

Voetnoten

Recital 5 MiFID I Implementing Regulation.

Art. 27(1) MiFID I.

Reference is made to recital 44 MiFID I Directive.

Art. 27 (1) MiFID I Directive.

Recital 52 MiFID I Directive.

Recital 52 and 46 MiFID I Directive.

See art. 22(1) and art. 23 MiFID I Implementing Regulation. For an examination of the term ‘liquid market’, reference is made to paragraph 2.2 below. The term ‘standard market size’ is examined in paragraph 2.3 below.

10.

Art. 27(1) MiFID I Directive.

11.

Art. 27(1) MiFID I Directive.

12.

Art. 27(1) MiFID I.

13.

Art. 24(a) MiFID I Implementing Regulation. SIs were required to maintain a record of its quoted price, which it needed to retain for a period of 12 months or such longer period as it considered appropriate (art. 24(b) MiFID I Implementing Regulation).

14.

Art. 27(3) MiFID I.

15.

Art. 27(4) MiFID I.

16.

Art. 27(3) MiFID I. The ‘normal trading hours’ for a SI where those hours which the SI established in advance and made public as its trading hours (art. 2(5) MiFID I Implementing Regulation).

17.

Art. 29(1) MiFID I Implementing Regulation.

18.

Art. 29(2) MiFID I Implementing Regulation. Similar timing rules applied to RMs and MTFs (ibid).

19.

Art. 27(3) MiFID I.

20.

Art. 29 MiFID I and art. 30 MiFID I Implementing Regulation. Similar R.A. Pattiselanno, ‘De meldplicht en transparantievoorschriften voor en na de handel’, in F.M.A. ’t Hart (Ed.), MiFID ‘Vanuit praktijk en theorie bezien’, Bankjuridische reeks, 2007, p. 158. MiFID I specified the means by which a SI could make its quotes public. Under MiFID I SIs could publish their quotes through: (a) the facilities of an RM or an MTF; (b) the facilities of a third party (e.g. a data supplier); or (c) proprietary arrangements (e.g. the website of the SI) (art. 30 MiFID I Implementing Regulation). For an examination of the MiFID I publication arrangements for SIs, reference is made to chapter 12.