Technical discussions aimed at consolidating the provisional political agreement reached by the Council of the EU and Parliament on 29 June on the revision of the MiFID and MiFIR texts (see EUROPE 13212/14), which govern the EU’s markets in financial instruments, continue to take place. EUROPE has obtained a copy of a document showing that, although the dossier is close to being fully completed, the co-legislators will still have to agree on certain points at their next meeting on 28 September.
Technical discussions will focus in particular on dark trading, which involves trading without pre-trade transparency. On this point, the co-legislators have tried to simplify the supervision of a complex system.
The Commission proposed that the amount of ‘dark trading’ in an equity instrument on an individual venue may not exceed 4% of total trading in that instrument in the Union. If the threshold is exceeded, dark trading in this instrument on this venue would be suspended.
The amount of dark trading in an equity instrument in the Union may not exceed 8% of total trading in that instrument in the Union, according to the Commission. All dark trading in this instrument would be suspended if the threshold were exceeded.
The co-legislators will therefore attempt to agree on a compromise proposing to set an overall threshold of 7% at EU level in order to “simplify the double volume ceiling while retaining its effectiveness”. The Council, for its part, would have liked this threshold to be set at 10%.
The compromise to be discussed on 28 September also provides for the price and volume of transactions in bonds, structured finance products and emission allowances to be published “as close to real time as possible” in order to ensure an adequate level of transparency.
It would be possible to defer the publication of certain transaction details depending on the size of the transaction and the liquidity of the category of financial instrument to not “expose liquidity providers in bonds, structured finance products and emission allowances to undue risk”, the document states.
More transparency for systematic internalisers
Other discussions will focus on strengthening the price formation process and maintaining a level playing field between trading venues and systematic internalisers, which execute certain client orders outside a regulated market or multilateral trading facility by acting directly as counterparties to their clients’ orders.
Systematic internalisers would be free to decide on the sizes they quote, as long as they do so at a minimum size of 10% of the standard market size. However, says the document, this has “led to very low levels of pre-trade transparency provided by systematic internalisers in equity instruments, and has hampered the achievement of a level playing field”.
To remedy this, requirements would be introduced for systematic internalisers to publish firm prices corresponding to a minimum size determined by the European Securities and Markets Authority (ESMA). In determining the minimum size, ESMA should use as a basis the objectives of increasing pre-trade transparency, maintaining a level playing field between trading platforms and systematic internalisers, and offering end investors an adequate choice of trading options.
Standards defined by ESMA for market data
In addition, part of the forthcoming negotiations will be devoted to the difficulties market players have in comparing market data, due to their “disparate” quality. On this point, the compromise that will be discussed puts forward the fact that ESMA will specify the data quality requirements in draft regulatory technical standards and will take account of current practices in the industry, international developments and standards adopted within the EU.
Lastly, discussions will also focus on the exemptions that allow competent authorities to waive pre-trade transparency requirements for market operators - and investment firms operating a trading platform - that determine their prices by reference to the median price of the primary market or the most relevant market in terms of liquidity.
On this point, Parliament proposes that this derogation should apply only to orders of a size equal to or greater than a threshold to be determined by ESMA. In setting the threshold, the Commission should take into account the impact of this measure on market quality, on the overall liquidity of EU trading venues, on end-investor returns and on the national and international attractiveness and competitiveness of EU capital markets and businesses.
To see the document, go to https://aeur.eu/f/8pe (Original version in French by Thomas Mangin)