MiFIR: Esma consults on transparency regime review for equity instruments
Esma's consultation paper will analyse the effects of MiFIR's current transparency regime implemented in January 2018 and that, in the option of further amending it. Since the entry into force of the regime, the EU securities markets regulator has stressed three main developments. First, Esma has not seen a significant change in the share of trading volume executed on-venue, on systematic internalisers (SIs) and over the counter (OTC). Secondly, a large share of the volume executed on-venue is not subject to pre-trade transparency. Thirdly, the use of waivers from pre-trade transparency has changed due to the application of the double volume cap mechanism (DVC).
The consultation paper contains a few proposals on the MiFIR transparency for equities. That includes:
- Pre-trade transparency and waivers – to address the ongoing high volume of dark trading ESMA proposes to either reduce the number of waivers available to market participants or to make the use of waivers subject to stricter requirements;
- The DVC mechanism – if maintained, ESMA is proposing to simplify the DVC regime and to apply it in a wider and stricter way to further curb dark trading;
- The SI regime – with a view to addressing concerns about the SI regime, including the volume of trading and perceived lower transparency requirements, ESMA proposes an increase of minimum quoting obligations subject to pre-trade transparency, a revised methodology for determining quoting sizes and/or an extension of the SI obligations to illiquid instruments; and
- The trading obligation for shares – ESMA is proposing to clarify the scope of the trading obligation specifically in relation to third-country shares.
All players involved in the EU securities markets can answer the consultation until 17 March 2020 while the regulator's report will be submitted to the European commission by July 2020. Esma added that a second consultation paper focusing on obligations applicable to bonds, derivatives and other instruments will be published shortly.
Commenting on the consultation paper, Esma's chair Steven Maijoor said: “Market transparency is a key objective of MiFIR and, two years on from its inception, it is time to assess how transparency in equity and equity-like instruments has evolved. While we consider that MiFIR has been partially successful, we also see some significant remaining challenges which should be tackled by a targeted review of the legislation.
“One clear benefit of MiFIR is that national competent authorities and ESMA have more data at their disposal to monitor market developments and assess how the regulation is working in practice. We believe that the proposals presented today will allow for a recalibration of MiFIR, reducing its complexity, while improving transparency to the benefit of investor protection and orderly and stable markets in the European Union.”