On 10 July 2024, the European Securities and Markets Authority (ESMA) published its third package of consultation papers on the Level 2 measures mandated by the European Commission under the Regulation amending MiFIR (MiFIR Review) and the Directive amending MiFID II (MiFID II Review), which entered into force on 28 March 2024.

ESMA is consulting on the following six technical standards:

1. *Amended* Regulatory Technical Standard (RTS) 1 and Technical Advice on the liquidity assessment for equity instruments and on equity transparency

Background

• The MiFIR Review amends the definition of the concept of a ‘liquid market’ and empowers the European Commission to adopt delegated acts specifying technical elements of the definition.
• The MiFIR Review requires ESMA to develop draft RTS specifying the details of pre-trade data to be made public for classes of financial instruments.

Key proposals

• Liquid determination:

• Determine the start date of application of the transparency calculations as that of the trading venue of the initial public offering.
• Determine that a daily traded share is deemed to have a liquid market if it has a market capitalisation equal to or greater than EUR 100,000,000, recorded an ADT equal to or greater than EUR 1,000,000 and has recorded an ADNTE equal to or greater than EUR 250.

• Pre-trade transparency for trading venues:

• Create a new table 1b that complements Table 1 of Annex 1 RTS 1 and is based on Table 3 of Annex 1 which provides for the details of post-trade reports and is adjusted to cater for the specificities of pre-trade transparency information. [ESMA presents a comprehensive list of fields and acknowledges the potential need for further refinement to ensure the list provides meaningful pre-trade transparency information without creating unnecessary burdens.]
• Refine the methodology to determine the most relevant market in terms of liquidity (MRMTL) when trading data is not yet available for the instrument: (i) among regulated markets, select the venue where the instrument is first admitted to trading or first traded until the MRMTL for a specific financial instrument is determined in accordance with the turnover; (ii) if the instrument is not admitted to trading or traded on a regulated market, determine the MRMTL among the MTFs on which it is made available for trading as per data provided to FIRDS; and (iii) add a field in the reporting of reference data to FIRDS declaring that the trading is the one where the IPO occurred.
• Simplify the calculation of the average daily turnover for determining the applicable Large in Scale threshold, e.g., define the start of the application for the determination of the LiS threshold as the date on which the IPO occurred.  

• Content and frequency of the requirements to provide information to NCAs and to ESMA.

• Either make no changes to Annex IV; or add a layer in the reporting by introducing a flag to identify non-price forming transactions to allow ESMA to ensure a consistent treatment of technical trades during the preformation of the transparency calculations; or add layer in the reporting by introducing a flag to identify non-price forming transactions and also collect the turnover and number of transactions granularly on a per waiver type, to allow ESMA to use FITRS for the purpose of the volume cap calculations and for a more in-depth analysis for the monitoring of the use of the waivers for the annual report on waivers and deferrals.

Consultation deadline: 15 September 2024

Deadline for ESMA to deliver final technical standards: 29 December 2024 (ESMA will deliver the updated RTS 1 by 29 September 2024 to ensure full alignment between the transparency requirements with the CTP requirements, to not place the selection procedure for the equity CTP at risk and to ensure clear requirements for equity CTP applicants.)

2. *New* Implementing Technical Standard (ITS) on the content and format of the systematic internaliser (SI) notification

Background

• Per the MiFID II Review, an investment firm is considered to be a SI only where it is deemed to perform its activities on an organised, frequent and systematic basis (to be determined only by a qualitative assessment which applies only to equity instruments) or where it chooses to opt-in under the SI regime.
• The MiFIR Review requires ESMA to develop draft ITS specifying the content and format of the notification that firms which meet the definition of an SI must submit to their competent authority.

Key proposals

• Electronic format for the submission of the notification and a standard template for notification which includes the following four sections: (i) introduction allowing NCAs to understand the type of notification; (ii) details of the investment firm, its Compliance Officer and the person authorised to represent it; (iii) details of the SI activities at the date of the submission and whether the company is acting as a Designated Publishing Entity too; and (iv) signature of the person authorised to represent the entity.
• Require additional notifications to be submitted when there is a change in the activities carried out as an SI or when the investment firm has ceased all the activities as an SI.

Consultation deadline: 15 October 2024

Deadline for ESMA to deliver final technical standards: 29 March 2025

3. *Amended* RTS 3 on the volume cap

Background

• The MiFIR Review introduces amendments to simplify the use of the volume cap mechanism by: (i) removing the trading venue specific threshold and lowering the threshold for total trading in the EU to 7% for the single volume cap; (ii) limiting the single volume cap to cover only transactions carried out under the Reference Price Waiver; (iii) applying suspensions by trading venues based on the publication of trading data by ESMA and removing the intermediary step of suspension by the competent authority that authorised the use of the waivers; and (iv) reducing the publication of trading data by ESMA from monthly to quarterly and halving the duration of suspension decisions. The changes will apply from 29 September 2025. ESMA is required to produce a yearly report as of end-2027 to assess the volume cap threshold.
• ESMA proposes amendments to minimise disruption in the transition to the new regime.

Key proposals

• Lengthen the obligation to maintain records from three years to five years.
• In addition to reducing the publication of trading data by ESMA from monthly to quarterly, regarding the frequency of reporting data to ESMA either: (i) continue to apply the existing approach to reporting requirements, i.e. bi-weekly reporting from trading venues, and from consolidated tape providers (CTPs) upon request, to ESMA; or (ii) decrease the frequency of reporting from trade venues and CTPs to ESMA, from bi-weekly to monthly.
• Change the reporting format from XML to JSON.
• Technical amendments to reflect the MiFIR Review’s removal of the quantitative test for Sis, the deletion of the SSTI waiver for non-equity instruments, removal of the negotiated trade waiver from the scope of the volume cap, to reflect the possibility for certain data contributors not to contribute to the equities consolidated tape and to align the definition of ‘machine-readable format’ with the definition provided in the European Single Access Point Regulation.
• Reflect in the RTS the direct reporting requirement of trading venues to ESMA.

Consultation deadline: 15 October 2024

Deadline for ESMA to deliver final technical standards: 29 March 2025

4. *Recast* RTS 7a on organisational requirements of trading venues, adding new provisions on circuit breakers and with targeted amendments to adapt to the DORA framework

Background

• The MiFID II Review requires trading venues to halt or constrain trading in case of “emergency situations”, to disclose publicly information about the circumstances leading to the halting or constraining of trading and on the principles underpinning the main technical parameters governing the functioning of circuit breakers and requires Member States to intervene if trading venues do not halt or contain trading in the relevant circumstances.
• The MiFID II Review mandates ESMA to develop RTS specifying the principles to be considered by trading venues when establishing their mechanisms to halt or constrain trading and the information trading venues should make available to the public and to NCAs with respect to the circuit breakers as established. Given the provisions relating to the organisational requirements of trading venues are specified in RTS 7, ESMA proposes to integrate its new mandate on circuit breakers in a recast RTS 7 (i.e., RTS 7a). RTS 7 will stop applying and RTS 7a will start applying from 29 September 2025.

Key proposals

• Trading venues to establish both static and dynamic circuit breakers, independent of their choice to deploy trading halts or price collars.
• Trading venues to establish a methodology for the calibration of circuit breakers, considering elements such as the liquidity profile, volatility profile and the quotation level of the financial instrument and internal and external references.
• Trading venues to disclose to market participants information encompassing, for example, the design and functioning of the mechanisms deployed and their effect and the range of price collars.
• Trading venues to report to NCAs the parameters for halting trading and any material changes to those parameters.
• Amendments to address provisions relating to digital operational resilience that have become duplicative or conflict with the requirements contained in DORA, which will apply on 17 January 2025.

Consultation deadline: 15 October 2024

Deadline for ESMA to deliver final technical standards: 29 March 2025

5. *New* RTS on input and output data for shares and ETFs consolidated tape provider (CTP)

Background

• The MiFIR Review requires ESMA to draft RTS specifying the quality of the transmission protocol, measures to address erroneous trade reporting and enforcement standards in relation to data quality (including arrangements regarding cooperation between data contributors and the CTP), and, where necessary, the quality and the substance of the data for the operation of the CT. The new RTS will cross refer to RTS 1 on equity transparency.

Key proposals

• Regulatory data related to financial instruments:

• Require the CTP to disseminate information on the status of a financial instrument at the level of one trading venue and one financial instrument.
• Set the default status for a financial instruments as ‘available for trading’ then ‘suspended from trading’, removed from trading’ or ‘subject to a trading halt’, where the status changes.
• Identify the instrument with an ISIN and the trading venue with a MIC.
• Require the CTP to disseminate information on the validity period of the instrument status to the extent possible.

• Regulatory data related to systems matching orders:

• Identify trading systems using a combination of the MIC and the type of trading system.

• Specify in a dedicated table of the RTS on input/output only the extra fields that are not present in RTS 1 (i.e. the field “the timestamp information on the dissemination of core market data”). For the remaining fields, cross-refer to the relevant tables in RTS 1.

Consultation deadline: 15 September 2024

Deadline for ESMA to deliver final technical standards: 29 December 2024

 6. *Amended* RTS 2 on flags for post-trade transparency reports for non-equity instruments

Background

• The MiFIR review changes the deferral regime applicable to bonds, structured finance products (SFPs) and emission allowances (EUAs) under Article 11 of MiFIR and derivatives under Article 11a of MiFIR. In May 2024, ESMA published a consultation paper on the revision of RTS 2 on the transparency regime for bonds, SFPs and EUAs. In this consultation paper, ESMA sets out proposed changes to the table of post-trade transparency fields to be published by trading venues and APAs (Table 2 of Annex II of RTS 2). These proposals were unintentionally omitted in the earlier consultation paper.

Key proposals

• Adopt a unique flag, ‘DEFR’, for transactions in ETCs, ETNs, SFPs and EUAs as they can only benefit from one type of deferral.
• Create new flags for supplementary deferral flags under the new regime relating to volume omission and publication in aggregated form.
• Introduce a new flag, ‘MHPT’, for all matched principal transactions.

Consultation deadline: 15 September 2024

Deadline for ESMA to deliver final technical standards: 29 December 2024

If you have any questions regarding the consultations, please contact Aniqah Rao.