The European Securities and Markets Authority published a discussion paper regarding the trading obligation under the Markets in Financial Instruments Regulation. MiFIR, which implements parts of the MiFID II framework, outlines the process for determining which derivatives should be traded on-venue. The current consultation is therefore seeking stakeholder’s feedback on the options put forward by ESMA on how to calibrate the trading obligation.
The trading obligation under MiFIR is closely linked to the clearing obligation under the European Market Infrastructure Regulation. Once a class of derivatives needs to be centrally cleared under EMIR, ESMA must determine whether these derivatives (or a subset of them) should be traded on-venue, meaning on a regulated market, multilateral trading facility, organised trading facility or an equivalent third-country trading venue. MiFIR foresees two tests to determine the trading obligation:
The venue test: a class of derivatives must be admitted to trading or traded on at least one admissible trading venue; and
The liquidity test: whether a derivative is ‘sufficiently liquid’ and there is sufficient third-party buying and selling interest.
The discussion paper includes options on how to determine the trading obligation by applying both tests, including an initial liquidity assessment on the basis of trading data for the six month to end-2015. The consultation is open for comments until 21 November 2016. ESMA will use the feedback received to continue working on implementing MiFIR’s trading obligation and, if deemed appropriate, draft technical standards specifying which derivatives should be subject to the trading obligation.
Full Discussion paper
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