Transparency (MiFID)
European Union Electricity Market Glossary

 


 

 

The transparency in the MiFID context can be understood as the disclosure of information related to quotes (pre-trade transparency) or transactions (post-trade transparency) relevant to market participants for identifying trading opportunities and checking best execution and to regulators for monitoring the behaviour of market participants (Commission Staff Working Document Impact Assessment Accompanying the document Commission Delegated Regulation supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions {C(2016) 2860 final} {SWD(2016) 156 final}, 18.5.2016, SWD(2016) 157 final, p. 66).

 

MiFID I imposed transparency requirements only for shares.

 

Post trade transparency refers to the obligation to publish a trade report every time a transaction in a share has been concluded.

 

This provides information that enables users to compare trading results across trading venues and check for best execution.

 

Pre-trade transparency refers to the obligation to publish (in real-time) current orders and quotes (i.e. prices and amounts for selling and buying interest) relating to shares.

 

This provides users with information about current trading opportunities. It thereby facilitates price formation and assists firms in providing best execution to their clients.

 

It is also intended to address the potential adverse effect of fragmentation of markets and liquidity.

 

MiFID II/MiFIR extend transparency requirements to all other financial market instruments (other equity instruments and non-equity instruments), hence, the process of crafting the transparency regime under MiFID II involved the challenging tasks of:

 

- setting thresholds for assessing the liquidity of all non-equity financial instruments captured by MiFID II, as well as

 

- calibrating the different waivers for pre-trade transparency and deferrals to post-trade transparency which are of particular relevance to protect large size transactions in liquid instruments from predatory trading and, hence, avoid unintended consequences of the new transparency regime on liquidity (ESMA Annual Report 2015 of 15 June 2016, ESMA/2016/960, p. 39). 

  

The full transparency regime under MiFID II/MiFIR however only applies to liquid instruments, for illiquid instruments there are a number of exemptions.

 

(i) Equity and equity-like instruments (articles 3, 4, 6 & 7 MiFIR)

 

MiFID has requirements for pre‑ and post‑trade transparency for the trading of shares admitted to trading on regulated markets. MiFID II extends these requirements to shares admitted to trading on MTFs, and to equity‑like financial instruments trading on regulated markets and MTFs. To strengthen transparency, MiFID II also revises the existing framework for shares.

 

(ii) Bonds and derivatives (articles 8 to 11 MiFIR)

 

MIFID II introduces a calibrated pre‑ and post‑trade transparency regime for bonds and derivatives that have liquid markets and are admitted to trading on trading venues.

 

The transparency obligations are not applicable to primary market transactions such as issuance, allotment or subscription for securities and the creation and redemption of units in ETFs (Questions and Answers on MiFID II and MiFIR transparency topics, ESMA70-872942901-35).

 

 

 

Commission Delegated Regulation (EU) 2017/583 of 14 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments with regard to regulatory technical standards on transparency requirements for trading venues and investment firms in respect of bonds, structured finance products, emission allowances and derivatives

 

Article 7

Post-trade transparency obligations

(Article 10(1) and Article 21(1) and (5) of Regulation (EU) No 600/2014)

 

1. Investment firms trading outside the rules of a trading venue and market operators and investment firms operating a trading venue shall make public by reference to each transaction the details set out in Tables 1 and 2 of Annex II and use each applicable flag listed in Table 3 of Annex II.


2. Where a previously published trade report is cancelled, investment firms trading outside a trading venue and market operators and investment firms operating a trading venue shall make public a new trade report which contains all the details of the original trade report and the cancellation flag specified in Table 3 of Annex II.


3. Where a previously published trade report is amended, investment firms trading outside a trading venue and market operators and investment firms operating a trading venue shall make the following information public:


(a) a new trade report that contains all the details of the original trade report and the cancellation flag specified in Table 3 of Annex II;


(b) a new trade report that contains all the details of the original trade report with all necessary details corrected and the amendment flag as specified in Table 3 of Annex II.


4. Post-trade information shall be made available as close to real time as is technically possible and in any case:


(a) for the first three years of application of Regulation (EU) No 600/2014, within 15 minutes after the execution of the relevant transaction;


(b) thereafter, within 5 minutes after the execution of the relevant transaction.


5. Where a transaction between two investment firms is concluded outside the rules of a trading venue, either on own account or on behalf of clients, only the investment firm that sells the financial instrument concerned shall make the transaction public through an APA.


6. By way of derogation from paragraph 5, where only one of the investment firms party to the transaction is a systematic internaliser in the given financial instrument and it is acting as the buying firm, only that firm shall make the transaction public through an APA, informing the seller of the action taken.


7. Investment firms shall take all reasonable steps to ensure that the transaction is made public as a single transaction. For that purpose, two matching trades entered at the same time and for the same price with a single party interposed shall be considered to be a single transaction.


8. Information relating to a package transaction shall be made available with respect to each component as close to real-time as is technically possible, having regard to the need to allocate prices to particular financial instruments and shall include the package transaction flag or the exchange for physicals transaction flag as specified in Table 3 of Annex II. Where the package transaction is eligible for deferred publication pursuant to Article 8, information on all components shall be made available after the deferral period for the transaction has lapsed.

 

 

 

 

Questions and Answers on MiFID II and MiFIR transparency topics, ESMA70-872942901-35

 

Question 7 [Last update: 03/10/2017]

 

When should the operator of an RFQ system provide pre-trade transparency?

 

Answer 7

 

Trading venues are responsible for designing their RFQ systems in compliance with the pre-trade transparency requirements defined in MiFIR and specified in Annex I of RTS 1 and RTS 2.

 

The arrangements used may differ depending on the approach chosen by individual trading venues.

 

Such approaches might include arrangements where trading interests become executable after a pre-defined period of time but would, in any circumstances, require the indications of interest to be disclosed no later than when they become actionable and in any case before the conclusion of a transaction.

 

The disclosure of the pre-trade quotes or actionable indications of interest only at the time of execution would not be consistent with the obligations set in Annex I of RTS 1 and 2.

 

Question 8 [Last update: 03/10/2017]

 

Do real time post-trade transparency requirements apply equally to trading venues and systematic internalisers?

 

Answer 8

 

Yes, the requirements in Articles 6 and 10 of MiFIR as further specified in Article 14 of RTS 1 and Article 7 of RTS 2 apply to both trading venues and investment firms. ESMA expects that trading venues and investment firms, in particular systematic internalisers, that use expedient systems publish transactions as close to real time as technically possible. In particular, since systematic internalisers are competing with trading venues over customers’ order flow, it is important to provide for a level playing field. Therefore, trading venues and systematic internalisers using similar technology and systems should process transactions for post-trade publication at the same speed.

 

 

Non-equity transparency

 

 

Question 5 [Last update: 03/10/2017]

 

What are normal trading hours for non-equity instruments? Are investment firms allowed to postpone publication of transactions until the opening of the next trading day in respect of trades in non-equity instruments taking place outside of normal trading hours?

 

Answer 5

 

Normal trading hours for non-equity instruments should be set on basis of the daily trading hours of trading venues trading non-equity instruments. Normal trading hours may therefore be different for different (classes of) non-equity instruments.

 

Transactions that take place on a given trading venue should be made public as close to real-time as possible. Transactions in a non-equity instrument that take place outside a trading venue during the normal trading hours of the trading venues trading that instrument should be published as close to real-time as possible. Where more than one trading venue trades that instrument, investment firms/APAs are expected to check whether the transaction took place within the daily trading hours of any of those trading venues. Transactions that take place outside the daily trading hours of trading venues trading that instrument should be made public before the opening of trading on those trading venues on the next trading day.

 

 

 

 

 

 



Last Updated on Thursday, 19 October 2017 22:40
 

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