07 February 2018

ESMA（欧州証券市場機構）、 MiFID 2（第2次金融商品市場指令）に基づくRTS（規制上の技術的基準）修正案に関する市中協議へのコメントを公表

Nasdaq

Nasdaq fully supports the analysis put forward by ESMA in the consultation paper and agrees with proposed amendments to Article 10.

With MIFID II the intention of the co-legislators was to remedy some of the shortcomings that contributed to the recent financial crisis and in particular promote more transparent and orderly markets with strong price formation capabilities. This can only be achieved if transparent multilateral trading venues can offer trade execution services on a level playing field with execution offered on a bilateral basis by investment firms i.e. systematic internalisers.

One important element for ensuring a level playing is that both multilateral and bilateral trade execution services use the same price increment when offering execution prices. This is key to avoid that systematic internalisers use different tick-size, allowing for non-significant price improvement, to artificially direct order flow for execution on systematic internalizers with detrimental consequences on interaction of orders on multilateral venues and as a result worse price formation.

The modification proposed by ESMA is all the more important, given that statistics on trading since 3 January, under the new MIFID II framework, show a very significant increase of the share of orders executed by systematic internalisers. In some markets, this share of order execution has increased by more than 10%, making the issue at stake a significant one.

Moreover, whereas the proposed change is both useful and justified, and should be implemented, it will only apply to orders up to the SMS. Nasdaq believes that arguments justifying the application of the same tick-size regime to trading venues and systematic internalisers up to the SMS are also relevant for sizes above the SMS.

Full Nasdaq response

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London Stock Exchange Group

LSEG welcome the intervention from ESMA and the European Commission on the issue, the recent ESMA Q&A, as well as the Commission’s amendment to the specification of the definition of systematic internalisers, which we believe go a long way towards clarifying the rules.

LSEG supports the MiFID II/R vision of more open and transparent markets, and recognise that each type of trading venue can make a contribution towards this, provided that the rules of operation and conduct are clearly understood. By undertaking risk-facing transactions, SIs are a valuable source of liquidity to market participants. LSEG supports a regulatory landscape that promotes competition and the right of market practitioners to innovate and apply technological solutions to regulatory challenges in the interests of efficiency and customer choice (so long as these can be demonstrated to be regulatory compliant). It believes there should be no undue restrictions on market practitioners who seek to innovate – in particular as in many cases these are the same players that are essential partners in the financial ecosystem to deliver other innovations such as efficient large in scale trading in the interest of the buyside in particular.

LSEG  supports the scrutiny placed on the potential for any firms to misinterpret the MiFID/R transparency rules. It will continue to engage actively with all market participants and regulators as the discussion on this topic evolves.

Full LSEG response

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FESE

FESE strongly supports ESMA’s proposal to clarify that Systematic Internalisers’ (SIs) quotes would only reflect prevailing market conditions where the price levels could be traded on a trading venue at the time of publication. FESE considers that this is a very welcome recognition by ESMA and a necessary development in order to deliver on the objectives of MiFID II/MiFIR.

Recent measures taken by regulators to address loopholes in the SI regime should be assessed against the backdrop of the original intentions of the legislator.

The SI was introduced under MiFID I to allow investment firms to execute client transactions against their own proprietary capital. Given the bilateral and risk-taking nature of the regime, SIs were only mandated to publish buy and sell quotes up to standard market size (SMS) (this being EUR 10 000 for most shares) for a minimum size of 10% SMS. The Commission’s original proposal and the final legislation, in recognising that SIs serve a legitimate and distinct purpose, are clear that they should not bring together third party buying and selling interests in functionally the same ways as a Regulated Market, MTF or OTF (the latter in respect of non-equities). The framework therefore explicitly excludes SIs from the definition of trading venues. SIs were thus conceived as a means to execute block trades bilaterally. They were subject to less transparency requirement to avoid the risk of markets moving against the seller that would be exposed to risk. However, what was intended as a service to a specific segment of the market could very well become the main type of European trading platform should the current regulatory framework remain unchanged since SIs are given considerable advantages compared to trading venues.

Ahead of application of MiFID II/MiFIR, market participants and policy makers raised concerns that a series of loopholes in the Level 1 framework would allow SIs to become the path of least resistance for activity that has up until now been executed on dark pools or broker crossing networks. Left unaddressed, these loopholes would have resulted in a fundamental change of market structure away from public, transparent, and multilateral markets to private, opaque, and bilateral liquidity pools, which would have been completely at odds with MiFID II’s objectives. FESE therefore strongly supports initiatives by the Commission and ESMA to close these loopholes, including the Commission Delegated Regulation on Article 16a which deals with ‘external’ riskless trading, and ESMA’s Q&As on tick size and post-trade transparency requirements

Full FESE response

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European Savings and Retail Banking Group

As general comments, the European Savings and Retail Banking Group (ESBG) agrees with ESMA's view and welcomes a clarification that the quotations of the Systematic Internalisers reflect only the prevailing market conditions in which the price level could be traded at the time of publication at a trading venue.

ESBG believes that the tick size regime is necessary to prevent the negative effects of high frequency trading as a special form of algorithmic trading and to ensure the stability and functioning of financial markets. Furthermore, ESBG believes that the activities of trading venue operators and SIs are comparable in such a way that, in principle, identical rules should apply to these market players (or "level playing field"). The current legal situation leads to Systematic Internalisers having a competitive advantage over the pricing of trading venue operators. As a result, trade tends to shift from trading venues to Systematic Internalisers. As ESBG understands it, the spirit of MiFIR / MiFID II is to steer the trading of financial instruments towards the transparent and liquid trading venues. The unequal treatment undermines the spirit of MiFIR / MiFID II. Furthermore, ESBG notes that banks are facing expenses in connection with the implementation, validation and further development of best execution/smart order routing. These costs are passed on to end customers as part of the pricing for value-added services. A tick size regime inconsistent or not applied to all market participants increases the complexity for the validation and further development of the IT infrastructures. Consequently, costs for investment services, which are borne by the end-customers, increase.

Furthermore, ESBG would like to draw your attention to the experiences of the MiFID I application. A “race to the bottom” took place concerning the tick size and did not lead to improved price quality, higher liquidity, efficient valuation or more efficient pricing. A competition of this kind among the Systematic Internalisers does not make economic sense. To prevent this foreseeable malfunction, ESBG would also welcome an extension of the tick size regime to Systematic Internalisers.

In addition, ESBG would like to point out further aspects in this context: Systematic Internalisers and EU trading venues also compete with third-countries trading venues. Legislators and regulators need to find solutions to prevent leakage of liquidity to these external trading venues. ESBG sees this risk particularly in a post-Brexit global market.

Full ESBG response

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Full consultation paper

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