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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 referred to the obligation to publish a trade report every time a transaction in a share has been concluded (to enable users to compare trading results across trading venues and check for best execution);

 

- pre-trade transparency referred 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 (to provide users with information about current trading opportunities, facilitate price formation and assist firms in providing best execution to their clients).

 

Transparency 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

 

 

quote

Steven Maijoor, the Chair of European Securities and Markets Authority, The state of implementation of MIFID II and preparing for Brexit, WFE Annual Meeting 2018, 3 October 2018, ESMA70-156-427

 

MiFID II introduces an ambitious pre- and post-trade transparency regime applicable to all equity and non-equity instruments.

 

This is a major change compared to MiFID I which only applied pre- and post-trade transparency to equities.

 

Concerning pre-trade transparency, MiFID II requires trading venues and so-called systematic internalisers – i.e. firms that trade on their own account with clients on a systematic and substantial basis – to make public quotes in instruments they are trading.

 

On post-trade transparency, transactions, regardless of whether they are executed on trading venues or OTC, have to be published in real-time.

 

- 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).

 

 

Post-trade transparency

 

 

Under MiFID II, all trades must be immediately included in a trade report. Such trade report, containing the volume and price must be published to the market.

 

Post-trade transparency requires the timely publication of trade data to an Approved Publication Arrangement (APA).

 

The said data duplicate some of the fields and flags necessary to meet the MiFID II regulatory transaction reporting requirements.

 

Entities responsible for these post-trade transparency obligations as regards bonds, structured finance products, emission allowances and derivatives are prescribed by Article 7 of the 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 (see box below).

 

There is a single-sided disclosure, which means that only one counterparty has the obligation to disclose the details of trade.

 

The said rules differentiate the responsibility depending on the execution venue.

 

To be brief, the entity responsible for publishing the report is:

 

- for trades on an regulated market or an MTF - the said venue,

 

- for trades with a systematic internalisers (SI) - the SI,

 

- for OTC trades - the seller.

 

Such reporting structure has its implications. In particular, considering the above seller’s responsibility for OTC trades’ transparency reporting, some unprepared for these new onerous obligations may be incentivised to move trading only on-venue or with SIs.

 

Data must be made public within one minute of execution for equity and equity like products, the deadline for non-equity is fifteen minutes of execution (five minutes as from 2020).

 

 

 

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 (RTS 2)

 

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.

 

Third country issues

 

Question 2 [Last update: 15/11/2017]

 

How are transactions with a third country dimension treated for the purpose of the transparency requirements (Articles 3,4, 6-11, 20, 21 of MiFIR and as further specified in RTS 1 and 2), and for the systematic internaliser regime (Article 4(1)(20) of MiFID II and Articles 12-16 of Commission Delegated Regulation (EU) No 2017/565)?

 

Answer 2

 

MiFID II and MiFIR do not provide specific guidance on the treatment of transactions with a third country dimension, i.e. trades executed by EU investment firms outside the EU and trades by branches or subsidiaries of non-EU firms within the EU, for the purposes of the MiFIR transparency regime and the determination of systematic internalisers. ESMA considers it important to clarify how those MiFID II / MiFIR requirements should apply to transactions with a third country dimension.


Transactions with a third country dimension in this context include transactions where at least one counterparty is an investment firm (IF) authorised in the EU or where the trade is executed on an EU trading venue by a non-EU firm. Transactions where both counterparties are not authorised EU investment firms and that are executed outside the EU are in any case not subject to the MiFIR transparency requirements and do not count for the systematic internaliser determination.


The following general principles should apply:


1. Transactions concluded on EU trading venues


The transparency requirements always apply to transactions concluded on EU trading venues, irrespective of the origin of counterparties trading on the trading venue and regardless whether the counterparties to the transaction are authorised as EU investment firm or not.


2. Transactions executed on non-EU venues


ESMA already published an Opinion (ESMA70-154-165, here) providing guidance in particular with respect to transactions concluded on third-country venues by EU investment firms. The opinion clarifies that only transactions concluded on third-country venues meeting the criteria established in the ESMA’s opinion and listed in the Annex of the opinion (“comparable third country trading venues” thereafter) should not be subject to the MiFIR transparency regime. Transactions concluded on other third-country trading venues should be treated as OTC transactions and reported through an APA.


3. OTC transactions involving an EU investment firm


If one of the parties of an OTC-transaction is an IF authorised in the EU, the transaction is considered as executed within the EU: the MiFIR transparency requirements apply and the transaction will be included for the systematic internaliser determination.


4. Transactions of non-EU subsidiaries of EU IFs


Subsidiaries are independent legal entities and subject to the regulatory regime of the third country in which they are established. Therefore, the MiFIR transparency requirements do not apply, unless the transaction is concluded on an EU trading venue. The transactions undertaken by such subsidiaries do not count for the Systematic internaliser determination.

 

5. Transactions involving a non-EU branch of an EU IF

 

Contrary to subsidiaries, branches do not have legal personality. Therefore, transactions by non-EU branches of EU IFs are treated as transactions of the EU parent company and, therefore, have to be made transparent under the MiFIR rules.

 

The table below provides more details on the treatment of transactions with a third country dimension for the purpose of the MiFID transparency requirements and the determination of whether an investment firm is a systematic internaliser (SI):

 

Case   Investment Firm (IF)

 Counterparty/

Client

Execution place Mifir transparency

Count for SI

determination

(numerator)

Count for total trading within the EU

(denominator or SI calculations)

 1  EU IF EU/non-EU Comparable third country TV  No  No  No
 2  EU IF non-EU  OTC  Yes  Yes  Yes
 3 non-EU Branch of the EU IF EU/non-EU Comparable third country TV   No  No  No
 4 non-EU Branch of the EU IF non-EU  OTC  Yes  Yes  Yes
 5  non-EU Subsidiary of the EU IF  EU/non-EU  non-EU TV/OTC  No  No  No
 6  non-EU Subsidiary of the EU IF EU/non-EU  EU TV  Yes  No  Yes
 7 non-EU firm EU/non-EU  EU TV   Yes  No  Yes
 8 EU branch of the non-EU firm EU/non-EU  EU TV   Yes  No  Yes
 9 EU branch of the non-EU firm EU/non-EU  Comparable third country TV   No  No  No
 10  EU branch of the non-EU firm non-EU  OTC  Yes  Yes  Yes
 11 EU subsidiary of the non-EU firm EU/non-EU  EU TV   Yes  No  Yes
 12  EU subsidiary of the non-EU firm EU/non-EU  Comparable third country TV   No  No  No
 13 EU subsidiary of the non-EU firm non-EU  OTC  Yes  Yes  Yes

 

 

Detailed explanation of the table

 

- Case 1 – EU investment firm (IF) trading on a comparable third country trading venue (TV): The transaction is treated as executed “on venue”. Therefore, the MiFIR transparency requirements do not apply (to avoid double reporting) and the transaction is not counted for the SI-determination. For transactions concluded on non-compliant third country TVs, case 2 applies.

 

- Case 2 – EU IF trading with a non-EU counterparty/client OTC: An OTC- transaction, i.e. either a transaction concluded on a non-comparable third country TV or a pure OTC-transaction, that involves an EU IF is subject to the transparency requirements and has to be published through an APA. The transaction counts for the SI-determination (both for the numerator and the denominator).

 

- Case 3 – non-EU branch of an EU IF trading on a comparable third country TV: The trade is treated as executed “on venue”. Therefore, the same treatment as under case 1 applies, i.e. MiFIR transparency requirements do not apply and the trade is not counted for the SI-determination. For transactions concluded on non-compliant third country TVs, case 4 applies.

 

- Case 4 - non-EU branch of an EU IF trading with a non-EU counterparty/client OTC: Non-EU branches of EU IF are treated like their EU parent company. Therefore, the same treatment as under case 2 applies. An OTC-transaction, i.e. either a transaction concluded on a non-comparable third country TV or a pure OTC- transaction, is subject to the transparency requirements and has to be published through an APA. The transaction counts for the SI-determination of the parent company (both the numerator and the denominator).

 

- Case 5 – non-EU subsidiary of an EU IF trading on a non-EU TV or OTC: Subsidiaries are independent legal entities and subject to the regulatory regime of the third country in which they are established. Therefore, the MiFIR transparency requirements do not apply. The transaction does not count for the SI determination.

 

- Case 6 – non-EU subsidiary of an EU IF trading on an EU TV: The transparency requirements apply at the level of the trading venue. Therefore, the MiFIR transparency requirements will apply and the transaction will be included in the denominator (total trading in the EU) for determining the SI activity. Since subsidiaries are independent legal entities they are subject to the regulatory regime of the third country in which the subsidiary is established and do not have to perform the SI test. The transaction does hence not count for the numerator for the SI-determination.

 

- Case 7 – non-EU firm trading on an EU TV: The transparency requirements apply at the level of the trading venue. Therefore, the transparency requirements will apply and the transaction will be included in the denominator (total trading in the EU) for determining the SI activity. However, it does not count for the numerator.

 

- Case 8 – EU branch of a non-EU firm trading on an EU TV: The transparency requirements apply at the level of the trading venue. Therefore, the transparency requirements will apply. Transactions on trading venues do not count for the numerator for the SI-determination, but are counted in the denominator (total trading within the EU).

 

- Case 9 – EU branch of a non-EU firm trading on a comparable third country TV: The trade is treated as executed “on venue”. Therefore, the same treatment as under case 1 applies. MiFIR transparency requirements do not apply (to avoid double reporting) and the transaction is not counted for the SI-determination (since they are executed “on venue”). For transactions concluded on a non-comparable third country TVs, case 10 applies.

 

- Case 10 – EU branch of a non-EU firm trading with a non-EU counterpart/client OTC: Where a non EU-firm is required to establish a branch in accordance with Article 39 of MiFID II, this branch has to apply, in accordance with Article 41(2) of MiFID II, with the requirements of Articles 16-20, 23-25 and 27, Article 28(1) and Articles 30-32 of MiFID II and Articles 3 to 26 of MiFIR and the measures adopted pursuant thereto. Therefore, EU branches of non-EU firms are subject to the transparency requirements and have to report their trades to APAs. Furthermore, the transactions count for the SI determination (numerator and denominator).

 

- Case 11 – EU subsidiary of a non-EU firm trading on an EU TV: The transparency requirements apply at the level of the trading venue. Therefore, the transparency requirements will apply. Transactions on trading venues do not count for the numerator for the SI-determination, but are counted in the denominator (total trading within the EU).

 

- Case 12 – EU subsidiary of a non-EU firm trading on a comparable third country TV: The transaction is considered as executed “on venue” i. Therefore, the same treatment as under case 1 applies; MiFIR transparency requirements do not apply and the trade is not counted for the SI-determination. For transactions concluded on non-comparable third country TVs, case 13 applies.

 

- Case 13 – EU subsidiary of a non-EU firm trading with a non-EU counterparty/client OTC: Subsidiaries are independent legal entities and subject to the regulatory regime of the country where they are established. Therefore, EU- subsidiaries of non-EU firms are subject to the full MiFID II/MiFIR requirements. The transaction is subject to MiFIR transparency and counts for the SI-determination (both numerator and denominator).

 

 

 

 

 

quote

Briefing Note, ESMA data systems for MiFID II/MiFIR and MAR, 6 December 2017, ESMA71-99-669

 

FITRS - ESMA system to provide data on transparency calculations

 

MiFIR introduces transparency obligations that require the publication of transparency thresholds applicable to each financial instrument.

 

ESMA will receive, either directly from trading venues, Approved Publication Arrangements (APAs) and Consolidated Tape Providers or from NCAs, reference data and/or quantitative data for both equity and non-equity instruments.

 

FITRS will support the MiFIR transparency regime by publishing, the applicable transparency calculations for each instrument subject to transparency requirements.

 

 

 

 

 

 

IMG 0744

    Documentation    

 



 

 

 

30 January 2018 - ESMA has updated transitional transparency calculations (TTC) under MiFID II

 

19 January 2018 - ESMA has published an extended version of the MiFID II/MiFIR transitional transparency calculations (TTC) for equity and bond instruments, adding further instruments

 

Consultation Paper, Amendments to Commission Delegated Regulation (EU) 2017/587 (RTS 1), 09 November 2017, ESMA70-156-275

 

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 (RTS 2)

 

Commission Delegated Regulation (EU) 2017/587 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 shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments and on transaction execution obligations in respect of certain shares on a trading venue or by a systematic internaliser (RTS 1)

 

Determining third-country trading venues for the purpose of transparency under MiFID II / MiFIR, 15 December 2017, ESMA70-154-467

 

ESMA publishes key transparency calculations for MiFIDII/MiFIR implementation, 06 December 2017, ESMA50-164-1173

 

Briefing Note, ESMA data systems for MiFID II/MiFIR and MAR, 6 December 2017, ESMA71-99-669

 

FAQs on MiFID II - Interim Transparency Calculations, ESMA50-164-677

 

Public Statement, Joint work plan of ESMA and NCAs for opinions on MiFID II pre-trade transparency waivers and position limits, 28 September 2017, ESMA70-154-356

 

Transitional Transparency Calculations for MiFID II

 

ESMA Opinion, Determining third-country trading venues for the purpose of transparency under MiFID II / MiFIR, 31 May 2017, ESMA70-154-165

 

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

 

Commission Delegated Regulation (EU) 2017/577 of 13 June 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 the volume cap mechanism and the provision of information for the purposes of transparency and other calculations, OJ L 87, 31.3.2017, p. 174–182 (RTS 3)

 

Commission Delegated Regulation (EU) 2017/575 of 8 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments with regard to regulatory technical standards concerning the data to be published by execution venues on the quality of execution of transactions, OJ L 87, 31.3.2017, p. 152–165

 

Commission Delegated Regulation (EU) 2017/576 of 8 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the annual publication by investment firms of information on the identity of execution venues and on the quality of execution, OJ L 87, 31.3.2017, p. 166–173

 

Commission Delegated Regulation (EU) 2017/567 of 18 May 2016 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, OJ L 87, 31.3.2017, p. 90–116

 

ESMA letter to the European Commission of 21 March 2016 (ESMA/2016 404) on non-equity transparency

 

Opinion Amended draft Regulatory Technical Standards on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives under MiFIR, 2 May 2016, ESMA/2016/666

 

Opinion (Annex) Amended draft Regulatory Technical Standards on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives under MiFIR, 2 May 2016, ESMA/2016/666

 

ESMA Annual Report 2015 of 15 June 2016, ESMA/2016/960

 

Regulatory technical and implementing standards – Annex I, 28 September 2015 (ESMA/2015/1464) 

 

MiFID II / MiFIR post-trade reporting requirements Understanding bank and investor obligations, AFME, September 2017September 2017

 

 

 

 

 

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    Links    

 

 

 

 

 

 

ESMA website on transparency calculations

 

MiFID II/MiFIR - ESMA’s deferred publication table

 

Euronext details plans to meet new transparency rules in commodities

 

 

 

 

 

 

 

 

 

 

 

 

 

Last Updated on Friday, 12 October 2018 09:47
 

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