In order to ensure the exemption is applied in a uniform manner, it is important to achieve a common understanding of the exempted activities. More precisely, in order to qualify for the exemption, market making activities have to be undertaken, by dealing as principal in a financial instrument in any of the two capacities and related hedging activities specified in Article 2(1)(k), whether on or outside a trading venue, by the following entities:
a. An investment firm which is a member of a trading venue; or
b. A credit institution which is a member of a trading venue; or
c. A third-country entity which is a member of a market in a third country, the legal and supervisory framework of which has been declared equivalent by the Commission pursuant to Article 17(2); or
d. A third country entity which is member of a trading venue in the European Union; or
e. A firm as referred to in point (l) of Article 2(1) of Directive 2004/39/EC, which is a member of a trading venue.
Concluding on the above, there are three preconditions for particular activities of an entity to be exempted from the Regulation’s provisions:
a. being a member of the market on which it
b. deals as principal in one of the capacities defined in paragraph 11 above
c. in the financial instrument for which it notifies the exemption.
However, the person is not required to conduct its market making activities solely on that venue or market or to be recognised as market maker or liquidity provider under the rules of that trading venue or market. Neither is there a requirement to have a separate contractual obligation to carry out market making activities. For example, a person could benefit from the exemption by trading on the trading venue or market to hedge the positions, resulting from its activities under Article 2(1)(k)(i) or Article 2(1)(k)(ii) of the Regulation, conducted outside this trading venue or market.
ESMA records that the European Commission services have expressed in writing their legal analysis of the market making definition in Article 2(1) k of the Regulation, which makes clear that the as-assessment of each and every of the above conditions for the qualification of market making activities has to be done with respect to each individual financial instrument. According to this analysis by the European Commission , market making activities on instruments that are not admitted to trading or traded on any trading venue, like is currently the case for many sovereign CDS, some sovereign bonds or non-listed derivatives, could not qualify for the exemption under Article 17(1) of the Regulation, since the membership requirement cannot be met.
The table indicates which national competent authorities have declared that they comply or intend to comply with the Guidelines and which do not comply. ESMA has also published the explanations provided by those national competent authorities who have indicated their non-compliance.
Guidelines on Exemption
Guidelines Compliance Table
© ESMA
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