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"MiFID II will result in a new regime for pre- and post-trade transparency for a variety of asset classes and ESMA is a strong supporter of this as it will make opaque segments of the financial markets more transparent. But MiFID II intends to improve transparency without harming liquidity by introducing a complex set of waivers and deferred publication options. One of the major tasks for ESMA in this context is to specify the notion of liquidity per asset class or sub-asset class", said Maijoor, speaking at the annual meeting of the International Capital Market Association (ICMA) in Berlin.
For non-equity instruments, three different waivers are available - for all illiquid instruments, for indications of interest on request-for-quote and voice trading platforms if they are above a specific size, and for all large-in-scale transactions. The latter is MiFID II's equivalent of the block trade, but the other two have no direct comparison in US regulation, which has raised concerns that the European rules may not be deemed equivalent to those in the US. Trades meeting one of these conditions can escape the pre-trade disclosure regime, and post-trade disclosure can be delayed, so the size levels will be crucial, as will the liquidity determination.
Maijoor told the conference that liquidity is easier to recognise than to define and said ESMA has been through many discussions - which were "often difficult" - on how to define liquidity in the context of other new rules, notably the European Market Infrastructure Regulation and International Financial Reporting Standards. So far, Maijoor said, no single definition has emerged.
ESMA now needs to buck that trend. In order to determine the liquidity of each asset class, Maijoor said the authority will set specific quantitative parameters based on the average frequency and size of transactions, taking into account the life-cycle of products, the number and type of market participants and the average size of spreads. This will not be easy, he conceded, as he called for market participants to pitch in. "Apart from the challenge of finding the right balance for an extremely large group of instruments, ESMA also faces the operational challenge of getting hold of high-quality data per asset class which allows for a precise calibration of thresholds. In that context we need your help and receiving these data from market participants during the consultation will really support our work", he said.
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