Systematic internalisers thresholds for emission allowances and emission derivatives determined in the MiFID II delegated Regulation
Sunday, 08 May 2016 23:06

 

As you certainly know emission allowances and emission derivatives are the asset classes for which - as from the MiFID II entry into force (3 January 2018) - the systematic internalisers' thresholds must be counted.

 

Numerical values of these thresholds became clear on 25 April 2016.

 

 


 

Single-dealer platforms, where trading in emission allowances or derivatives thereof takes place on a bilateral basis as principals, are now able to measure their activities against systematic internalisers' metrics.

 

Subject to to the European Parliament's and the Council's approvals, the Commission Delegated Regulation (EU) of 25.4.2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive, 25.4.2016 C(2016) 2398 final brings the desired certainty to investment firms which, on an organised, frequent, systematic and substantial basis, deal on own account by executing client orders outside a regulated marketMTF or OTF without operating a multilateral system.

 

The said thresholds are to ensure an objective application of the definition of systematic internaliser since under the qualitative definition applied by MiFID I a smaller number of firms became systematic internalisers than expected.

 

Quantitative criteria, hence, were determined to capture "OTC trading of such a size that it had a material effect on price formation" (Recital 18 of the Commission Delegated Regulation of 25.4.2016):

 

- the frequent and systematic basis - measured by the number of OTC trades in the financial instrument carried out by the investment firm on own account by executing client orders,

 

- the substantial basis - measured either by the size of the OTC trading carried out by the investment firm in relation to the total trading of the investment firm in a specific financial instrument or by the size of the OTC trading carried out by the investment firm in relation to the total trading in the European Union in a specific financial instrument.

 

Both pre-set limits, first for the frequent and systematic basis and the second for substantial basis, should be crossed in order to be defined as a systematic internaliser.

 

The conditions set out in the Table below are to be assessed on a quarterly basis on the basis of data from the past 6 months.

 

The assessment period shall start on the first working day of the months of January, April, July and October.

 

Newly issued instruments shall only be considered in the assessment when historical data covers a period of at least six weeks in the case of derivatives (Article 17 of the Regulation of 25 April 2016).

 

Criterion  Description 

Derivatives

 (Article 15)

Emission allowances

(Article 16)

Frequent and systematic

basis threshold

(liquid instruments)

- Number of OTC transactions executed during the past 6 months by the investment firm on own account when executing client orders / total number of transactions in the same financial instrument in the EU on any trading venue or OTC 

 

- Minimum trading frequency during the past 6 months for transactions on own account when executing client orders (on average)

2.5 % 

in the relevant class

and

at least once a week  

4 %

of the relevant type of emission allowances

and

at least once a week

Frequent and systematic
basis threshold

(illiquid instruments)

Minimum trading frequency during the past 6 months for transactions on own account when executing client orders (on average)

at least once a week  

at least once a week

Substantial basis threshold

Criterion 1 

 

Number of OTC trading by investment firm in a financial instrument on own account when executing client orders during the past 6 months / total volume in the same financial instrument executed by the investment firm on own account or on behalf of clients and executed on a trading venue or OTC (in nominal amount)

 

25%

of the relevant class

 30%

of the relevant type

 

Substantial basis threshold

Criterion 2

Number of OTC trading by investment firm in a financial instrument on own account when executing client orders during the past 6 months / total volume in the same financial instrument in the European Union, on a trading venue or OTC (in nominal amount)

1 %

of the relevant class

 2.25 % 

of the relevant type

 

 


 

 

 

Systematic internalisation in respect of emission allowances

 

Pursuant to Article 16 of the Regulation of 25 April 2016 an investment firm is considered a systematic internaliser in respect of emission allowances where, in relation to any such instrument, it internalises according to the following criteria:

 

(a) on a frequent and systematic basis in an emission allowance for which there is a liquid market in accordance with Article 2(1)(17)(b) of Regulation (EU) No 600/2014 where during the past 6 months:

 

(i) the number of OTC transactions carried out by it on own account when executing client orders is equal to or larger than 4% of the total number of transactions in the relevant type of emission allowances executed in the Union on any trading venue or OTC during the same period;

 

(ii) the OTC transactions carried out by it on own account when executing client orders in this type of emission allowances take place on average once a week;

 

(b) on a frequent and systematic basis in an emission allowance for which there is not a liquid market in accordance with Article 2(1)(17)(b) of Regulation (EU) No 600/2014 where during the past 6 months the OTC transactions carried out by it on own account in the relevant type of emission allowances when executing client orders takes place on average once a week;

 

(c) an investment firm internalises on a substantial basis in an emission allowance where the number of OTC trades carried out by it on own account when executing client orders is, during the past 6 months, equal to or larger than either of the following:

 

(i) 30% of the total nominal amount traded in that type of emission allowances executed by the investment firm on own account or on behalf of clients and executed on a trading venue or OTC;

 

(ii) 2.25% of the total nominal amount traded in that type of emission allowances executed in the Union on a trading venue or OTC.

 

 

 

Systematic internalisation in respect of emission allowances derivatives 

 

Pursuant to Article 15 of the Regulation of 25 April 2016 an investment firm is considered a systematic internaliser in respect of emission derivatives where, in relation to any such derivative, it internalises according to the following criteria:

 

(a) on a frequent and systematic basis in a derivative for which there is a liquid market in accordance with Article 2(1)(17)(b) of Regulation (EU) No 600/2014 where during the past 6 months:

 

(i) the number of OTC transactions carried out by it on own account when executing client orders is equal to or larger than 2.5% of the total number of transactions in the relevant class of derivatives executed in the Union on any trading venue or OTC during the same period;

 

(ii) the OTC transactions carried out by it on own account when executing client orders in this class of derivatives take place on average once a week;

 

(b) on a frequent and systematic basis in a derivative for which there is not a liquid market in accordance with Article 2(1)(17)(b) of Regulation (EU) No 600/2014 where during the past 6 months the OTC transactions carried out by it on own account in the relevant class of derivatives when executing client orders takes place on average once a week;

 

(c) on a substantial basis in a derivative where the number of OTC trades carried out by it on own account when executing client orders is, during the past 6 months, equal to or larger than either:

 

(i) 25% of the total nominal amount traded in that class of derivatives executed by the investment firm on own account or on behalf of clients and executed on a trading venue or OTC; or

 

(ii) 1% of the total nominal amount traded in that class of derivatives executed in the Union on a trading venue or OTC.

 

 

 

 

 

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