EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.VI.2.2.6:5.VI.2.2.6 Performing the main calculations and estimates

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/5.VI.2.2.6

5.VI.2.2.6 Performing the main calculations and estimates

Documentgegevens:

mr. J.E.C. Gulyás, datum 01-02-2021

Datum: 01-02-2021
Auteur: mr. J.E.C. Gulyás
JCDI: JCDI:ADS267264:1
Vakgebied(en): Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht

Similar to MiFID I, MiFID II requires NCAs to carry out calculations and estimates. The calculations and estimates are in place to determine the MiFID II equity pre-trade transparency requirements (e.g. whether or not a depositary receipt has a liquid market).1MiFID II requires the the calculations and estimates to be based on the data collected in accordance with the MiFID II data collection provisions (see paragraphs 2.2.1-5 above).2 Similar to MiFID I, the NCA responsible for making the calculations and estimates is the NCA of the ‘most relevant market in terms of liquidity’ (i.e. under MiFID II the RM/MTF with the highest turnover for that financial instrument).3 New under MiFID II is that the MiFID II calculation and estimation tasks have on a large scale been delegated from the NCAs to ESMA.4

MiFID II requires the NCA (or ESMA in case of delegation) to calculate for each equity instrument traded on an RM/MTF on an annual basis: (1) the most relevant market in terms of liquidity,5 (2) the average daily turnover,6 (3) the average daily number of transactions,7 (4) the free float,8 and (5) the average value of orders executed (if the equity instrument is liquid).9 The MiFID II text covers detailed methodologies in calculating the thresholds. For example, MiFID II notes that the average daily turnover relevant for determining ‘liquid’ shares needs to be calculated by ‘aggregating the results of multiplying, for each transaction executed during a trading day, the number of shares exchanged between the buyer and the seller by the price per share’.10 Along similar lines, MiFID II covers detailed calculation methodologies for the performance of the other calculations as well.11

Besides calculations, the NCA (or ESMA in case of delegation) needs to perform estimates (e.g. for equity instruments that have not yet been traded on an RM/MTF) and recalculations (in case of changes that ‘significantly affect’ previous calculations, such as a new issue of shares or a merger). Similar to the calculation provisions, MiFID II covers detailed rules on how and when such estimates and recalculations need to be performed.12 The rationale of the detailed MiFID II provisions for the estimates and recalculations, as well as the main calculations, is to ensure a consistent and uniform application across the EU.13 In reflecting this rationale, ESMA has supplemented the MiFID II text with formally non-binding guidance aiming to ensure clarity and consistency (e.g. how to calculate the current volume weighted spread).14

Toon alle voetnoten

Voetnoten

Voetnoten

Art. 17(1) MiFIR Delegated Regulation 2017/577.

Recital 10 MiFIR Delegated Regulation 2017/577.

Art. 18 and art. 4(1) MiFIR Delegated Regulation 2017/577 and art. 5 MiFIR Delegated Regulation 2017/567.

ESMA (Verena Ross), Regulatory and supervisory developments, the challenges ahead – a European perspective, 20 October 2016 (ESMA/2016/1497), p. 6-7 and recital 39 and art. 28 ESMA Regulation 2010.

Art. 4(1) and art. 17(4) MiFIR Delegated Regulation 2017/587. The most relevant market in terms of liquidity is relevant for (a) the responsible NCA (including in terms of data collection, calculation, and publication) art. 22(1) MiFIR and art. 17(1) MiFIR Delegated Regulation 2017/587) and (b) the reference prices permitted under the reference price waiver (art. 4(1)(a) MiFIR and art. 4MiFIR Delegated Regulation 2017/587).

Art. 7(3) MiFIR Delegated Regulation 2017/587 (large in scale orders as relevant for the RM/MTF large in scale-waiver/large in scale-waiver for client limit orders) and art. 1-4 MiFIR Delegated Regulation 2017/567 (liquid market-definition as relevant for the SI publication obligations and negotiated trade waiver). For an examination of the large in scale- and liquid market-definition, reference is made to sections II and III above.

Art. 1-4 MiFIR Delegated Regulation 2017/567 (liquid market-definition).

Art. 11 MiFIR Delegated Regulation 2017/587 (standard market size-definition).

10.

Art. 1(4) MiFIR Delegated Regulation 2017/567.

11.

See art. 1-4 MiFIR Delegated Regulation 2017/567 (liquid market-definition), art. 4 (most relevant market in terms of liquidity), art. 7 (large in scale) and art. 11 (standard market size), and art. 17 (general calculation methodology) MiFIR Delegated Regulation 2017/587.

12.

For the estimates, see art. 1(5), art. 2(4), art. 3(4), and art. 4(4) MiFIR Delegated Regulation 2017/567 (liquid market), and art. 7(6-7) (large in scale), art. 11(4-5) (standard market size). The recalculation provision can be found in art. 17(3) MiFIR Delegated Regulation 2017/587. The examples of a new issue of shares and a merger are based on CESR, Technical Advice on Possible Implementing Measures for MiFID I, April 2005 (CESR/05-290b), p. 54.

13.

See, for example, recital 1 MiFIR Delegated Regulation 2017/567.

14.

The ESMA guidance provides answers to practical questions, such as how to calculate the ‘current volume weighed average spread’ (relevant for the RM/MTF negotiated trade waiver) or the determination of the turnover to be used for the average value of transactions (relevant for the SI standard market size). Reference is made to ESMA, Questions and Answers on MiFID II and MiFIR transparency topics, 5 December 2019 (ESMA70-872942901-35).