Questions and Answers on MiFID II and MiFIR transparency topics, ESMA70-872942901-35
Question 4 [Last update: 03/10/2017]
a) How is the requirement for a package order/transaction that ‘Each component of the transactions bears meaningful economic or financial risk related to all the other components’ to be interpreted?
b) Can package orders/transactions also include equity instruments? If yes, how is pre- and post-trade transparency applied?
c) When does an investment firm apply the systematic internaliser obligations on a package order level?
a) The requirement of meaningful economic and financial risk related to all the other components (mefrroc) aims at ensuring that only components that are economically and financially related can constitute a package order/transaction, and to avoid that components that are not economically or financially related in a meaningful manner are declared as a package order/transaction with the main objective of benefitting from the transparency regime for package orders/transactions.
ESMA expects trading venues and market participants trading packages to document how the meffroc requirement is met, either in the contract specifications for packages traded on trading venues or on a package-by-package basis in case of OTC-transactions.
b) No they cannot. Package orders/transactions have to be exclusively composed of non-equity instruments. The waivers/deferrals for packages are available under Articles 9 and 11 of MiFIR, which cover only non-equity instruments.
c) For pre-trade transparency obligations to apply at package order level, including for an exchange for physical, an investment firm must be a systematic internaliser in all financial instrument components of the order. Where an investment firm is prompted for a quote for a package order for which it is a systematic internaliser only for some components, the investment firm can decide either to provide a firm quote for the whole package or only for the components for which it is a systematic internaliser.