CESR positions and ESMA opinion: Waivers from pre-trade transparency

18 December 2013

The CESR/ESMA position paper is intended to help firms by providing clarity on the content of the MiFID requirements without creating an extra layer of requirements, and to assist them when they intend to develop new trading functionalities.

Under the Markets in Financial Instruments Directive (MiFID), operators of Regulated Markets (RMs) and Multilateral Trading Facilities (MTFs) must make public the current bid and offer prices and the depth of trading interests in respect of shares admitted to trading on a regulated market unless exemptions apply. However, MiFID allows competent authorities to waive the obligation for operators of RMs and MTFs regarding pre-trade transparency requirements for shares based on the market model or the type and size of orders.

MiFID allows competent authorities to grant four types of waivers which are contained in Articles 18 and 20 of MiFID Implementing Regulation. Possible waivers apply to:

• Reference price systems: Systems where the price is determined by reference to a price generated by another system and the reference price is widely published and regarded generally by market participants as a reliable reference price.

• Negotiated trade systems: Systems that formalise negotiated transactions, provided the trans-action takes place at or within the current volume-weighted spread reflected on the order book or the quotes of market makers in that share or, where the share is not traded continuously, within a percentage of a suitable reference price set in advance by the operator of the RM or MTF or is subject to conditions other than the current market price of the share (e.g. a volume weighted average price transaction).

• Order management facilities: Orders that are held in an order management facility maintained by a RMor MTF pending those orders being disclosed to the market.
• Large-in-scale transactions: An order shall be considered to be large in scale compared with normal market size if it is equal to or larger than the minimum size of order specified in Table 2 in Annex II of the MiFID Implementing Regulation.

The specification of a system or an order type as being MiFID compliant/non-compliant does not imply that only a system/order type having exactly the same characteristics is considered to be MiFID com-pliant/non-compliant. Reference to a specific product, process or service does not constitute or imply that it is recommended or favoured by ESMA or any of the national competent authorities.

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