EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/4.V.1.1:4.V.1.1 MiFID I text

EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/4.V.1.1

4.V.1.1 MiFID I text

Documentgegevens:

mr. J.E.C. Gulyás, datum 01-02-2021

Datum: 01-02-2021
Auteur: mr. J.E.C. Gulyás
JCDI: JCDI:ADS267033:1
Vakgebied(en): Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht

MiFID I required NCAs to make calculations for each share admitted to trading on an RM. In a nutshell, the relevant NCA needed to calculate at the end of each calendar year: (a) the average daily turnover, (b) the average daily number of transactions, (c) the free float,1 and (d) the average value of the orders executed (if the share was liquid).2

Besides calculations, MiFID I required NCAs to make estimates concerning shares before the first admission to trading on an RM. Somewhat similar to the calculation requirements, MiFID I required the relevant NCA to estimate: (1) the average daily turnover, (2) the market capitalisation as it will stand at the start of the first day of trading, and, where the estimate of the market capitalisation was EUR 500 million or more, (3) the average daily number of transactions, (4) the free float, and (5) the average value of orders (if the share was estimated to be a liquid share).3 ‘Somewhat similar’, since the market capitalisation was not a requirement for the calculation provisions, but only for the estimations.4

MiFID I required the estimates to relate to the six-week period following admission to trading or the end of that period. The estimates needed to take into account any previous trading history of the share, as well as that of shares that were considered to have similar characteristics.5 After the admission, MiFID I obliged the relevant NCA to calculate – using the first four weeks of trading data – the average daily turnover, the average daily number of transactions, the free float, and the average value of orders (if the share was liquid).6 The rationale for including shares before admission to trading in the calculations was to permit such shares from benefitting from the MiFID I pre-trade transparency exceptions, such as the RM/MTF large in scale-waiver. Without the estimates, the MiFID I pre-trade transparency exceptions would only be available after a few months of trading (i.e. after the calculations could be made).7

MiFID I also covered review and recalculation requirements. MiFID I obliged the relevant NCA to review the numbers the NCA was required to calculate. MiFID I required the NCA make recalculations (‘ad hoc’ calculations) whenever there was a change related to the share or the issuer that ‘significantly affect(ed) the previous calculations on an ongoing basis’ (e.g. following a new issue of shares, a merger, and so forth).8 The aim of the ad hoc calculations was to ensure the calculations would be representative despite significant changes.9

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MiFID I defined the free float of a share by excluding holdings exceeding five percent of the total voting rights of the issuer, unless such a holding was held by a collective investment undertaking or a pension fund (art. 22(4) MiFID I Implementing Regulation).

Art. 33(1) MiFID I Implementing Regulation. As examined above, the average daily turnover (point a) was relevant for large in scale orders and – where implemented by a Member State – liquid shares (art. 20 and 22 MiFID I Implementing Regulation). The determination of a liquid share also required a minimum free float (point c) – and where implemented by a Member State – a minimum average daily number of transactions (point b) (art. 22 MiFID I Implementing Regulation). MiFID I only required SIs to publish firm quotes for liquid shares up to the ‘standard market size’. The average value of the orders executed (point d) was used to determine the standard market size (art. 27(2) MiFID I and art. 23 MiFID I Implementing Regulation). For the specifics of the calculations, such as the exclusion of non-trading days, reference is made to art. 33(1-2) MiFID I Implementing Regulation.

Art. 33(3) MiFID I Implementing Regulation.

Art. 33(1-3) MiFID I Implementing Regulation. The link between the estimates required under points (3-5) and an estimated market capitalisation of EUR 500 million (or more) related to the MiFID I definition of a liquid market. MiFID I only deemed a share to be liquid with a minimum free float of EUR 500 million. Hence, the market capitalisation would only be relevant for liquid shares were estimated to be EUR 500 million or more (art. 22 and 33(3) MiFID I Implementing Regulation).

Art. 33(3) MiFID I Implementing Regulation.

Art. 33(4) MiFID I Implementing Regulation. The relevant NCA needed to do so as soon as practicable after those data were available, and in any case before the end of the six-week period referred to in art. 22(5) MiFID I Implementing Regulation (ibid).

CESR, Technical Advice on MiFID I, April 2005(CESR/05-290b), p. 54.

Art. 33(5) MiFID I Implementing Regulation and CESR, Technical Advice on MiFID I, April 2005(CESR/05-290b) (CESR/05-290b), p. 54.

CESR, Technical Advice on MiFID I, April 2005(CESR/05-290b), p. 54. While MiFID I did not define the term ‘significant changes’, it follows from the MiFID I drafting history that NCAs were not required to perform recalculations for every change. Examples of ‘significant changes’ included the examples as noted above, such as mergers and a new issue of shares (ibid).