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ESMA’s draft RTS establishes a methodology for determining those package orders for which there is a liquid market in the European Union as a whole, and which consequently may not benefit from most waivers from pre-trade transparency specified in MiFIR. The methodology assesses whether a package order is standardised and frequently traded based on a set of general criteria that it has to meet and which are complemented by asset-class specific criteria. Furthermore, the draft RTS determines that package orders where all components are subject to the trading obligation for derivatives, and which meet a number of additional criteria e.g. the package order has no more than four components, have a liquid market as a whole.
Package transactions are interlinked financial transactions comprising various instruments which firms execute jointly in order to reduce transaction costs and for risk management purposes. MiFIR’s pre-trade transparency regime requires the disclosure of trading interest in all non-equity instruments. However, national competent authorities will be able to waive this requirement if certain conditions are met. Package orders may be waived from pre-trade transparency where at least one of its components is large in scale or does not have a liquid market, unless there is a liquid market for the package order as a whole.
ESMA has sent its final draft RTS to the European Commission which has now three months to decide whether or not it wishes to endorse the standards.