MiFIR Review: ESMA Third Consultation on RTS 1, RTS 3, Shares CTP and RTS 2 flags

This consultation paper focuses on changes brought by Updated MiFIR/Updated MIFID relating to:

• Definition of a liquid market for equity instruments.
• The review of the pre-trade transparency requirements for SIs, in particular the calibrating of two quoting sizes.
• Specification of information to be disclosed for pre-trade transparency purposes.
• Mandate for ESMA concerning shares/ETF CTP, which includes (among other things) transmission protocol for data contributors; enforcement standards on data quality, as well as the substance of data. Updated MIFIR also introduced concept of "regulatory data" (data related to the status of systems matching orders in financial instruments and data related to the trading status of individual financial instruments) and imposes obligations on data contributors in respect of regulatory data.
• Minor amendments made to post trade transparency requirements for investment firms in respect of OTC transactions executed in equity and equity like instruments traded on trading venue through APAs (new paragraph 1a of Article 20 requires each individual transaction to be made public once through a single APA).
• Powers given to ESMA and NCAs to request information to prepare annual reports to the Commission regarding the application of waivers under Articles 4(4) and 9(2) and deferrals under Articles 7(1), 11(3), and 11a(1).
• Updated MIFID amends Article 48(5) of MIFID II to require trading venues to halt/constrain trading during emergency situations and for  trading venues to report the parameters for halting trading and any material changes to those parameters to the competent authority.

In addition, the regime needs to be updated in light of DORA (see our briefings here and here for more information on DORA), with some provisions currently contained in RTS 7 duplicating/conflicting with some requirements in DORA.

RTS 1

• For the liquidity determination, ESMA proposes that the start date of application of transparency calculations is that of the trading venue of the initial public offering.
• In respect of pre-trade transparency for trading venues, a new table 1b to Annex 1 of RTS 1 is to be introduced to sit alongside Table 1 of Annex 1. The table is based on Table 3 of Annex I of RTS 1 and has been adjusted to reflect specificities of pre-trade transparency information, with certain fields added (e.g. “side”, “number of orders”).
• RTS 1 is to be amended so that market capitalisation is to be used for determining a liquid market for shares admitted to trading on a regulated (in addition to existing provision stating that this is the case for shares admitted to MTFs).
• ESMA proposes that a daily traded share should be deemed to have a liquid market if: it has a market capitalisation equal to or greater than EUR 100,000,000; and it has recorded an ADT equal to or greater than EUR 1,000,000; and it has recorded an average daily number of transactions (ADNTE) equal to or greater than EUR 250.
• The calculation of the average daily turnover for the LIS waiver is to be simplified: the start of the application of the determination of the LIS threshold is to be the date on which the IPO occurred (article 7 RTS 1).
• The obligation for an SI to make public firm quotes in respect of equity and equity like instruments, will apply to SIs when they deal in sizes up to twice the standard market size. The minimum quote size for a particular equity/equity like instrument traded on trading venue will be equal to the standard market size.
• For post trade transparency reports in Table 3 of Annex 1 of RTS 1, a proposed change to the price field, reflecting that reporting in basis points in the case of certificates and other equity-like financial instruments is permitted. A field for flags is also to be added, with a field to report flags separated by commas.
• ESMA proposes deleting the flag "DUPL" in view of the change to Article 20 of MiFIR that each individual transaction to be made public once through a single APA.
• ESMA is reviewing the relevance/usefulness of ACTX flag and the SI flags of "SIZE", "ILQD" and "RPRI" in light of UK developments (see Ashurst briefing here for more information).
• Additional reporting is to be required under Annex IV (data to be provided for the purpose of determining the Most Relevant Market in terms of liquidity, the ADT and the AV) via the introduction of a flag identifying non-price forming transactions; and information on the turnover and number of transactions granularly on a per waiver type. This information would be used by ESMA for its assessment of the use of waivers and deferrals.
• Adapting all transitional provisions included in Article 19 of RTS 1 to clarify that the results published under the current RTS 1 will be valid until the first regular period to carry out the new calculations under the revised RTS 1.

ITS on the content and format of SI notifications

• A first notification is to be submitted to the NCA when a firm commences activities as an SI in one or more classes of financial instrument or decides to opt-in.
• A proposed new template consisting of: an introductory section for NCAs to understand the type of notification; a section with information to be populated with the details of the investment firm, its Compliance Officer and the person authorised to represent it; a section on the details of the SI activities at the date of the submission and whether the company is acting also as a DPE; and a section for the signature of the person authorised to represent the entity.
• SIs to update their NCAs in case of any change in the activities carried out as SIs or any changes in the contact details provided in the previous notification form. 

RTS 3

• Transitional provision for the application of the new provisions on the volume cap is proposed providing that ‘"the period for the publication of trading data by ESMA, and for which trading in a financial instrument under the waiver is to be monitored, to start on 29 September 2025".
• ESMA is proposing to lengthen the obligation on trading venues, APAs and CTPs to maintain records from three years to five years (set out in Article 5), in line with Articles 25(2), 27g(4b) 27ha(3), and 27i(4b) of MiFIR.
• Consequential technical amendments are proposed to Articles 6 and 8 of RTS 3, and to its Annex in light of Updated MiFIR (e.g. removal of the negotiated trade waiver from the scope of the volume cap and that certain data contributors do not have to contribute to the equity consolidated tape).
• ESMA proposing adjusting the timeframe of ESMA publications with those introduced by Updated MiFIR (moving from monthly to quarterly publications, with a 7 working days window after the end of March, June, September and December). ESMA is also considering reducing the frequency of reporting from trade venues and CTPs to ESMA (from bi-weekly to monthly).

RTS 7 and halting of trading etc

RTS 7 is to be recast (RTS 7a). Changes to obligations for trading venues proposed by ESMA  in light of Updated MIFID include:

• Trading venues to establish both static and dynamic circuit breakers (independently from their choice to deploy trading halts or price collars.
• A documented written methodology for the calibration of circuit breakers that will include: the liquidity profile and the quotation level of the financial instrument; the volatility profile of the financial instrument;  the trading venue system and rules.
• Trading venues to periodically reassess the adequacy of the type of circuit breakers established.
• Information to be disclosed to market participants by trading venues should cover the design and functioning of the mechanisms used an effect of these mechanisms.
• Requiring that when trading venues apply diverse types of circuit breakers, e.g. for different financial instruments, the information regarding each type of circuit breaker should be published separately to ensure clarity and should specifically mention the type of financial instrument to which the circuit breaker applies.
• Trading venues to state if they would on intervening on the parameters underpinning the functioning of circuit breakers when market conditions require.
• Trading venues to report yearly information to NCAs.

RTS 7: DORA changes 

Changes that are to be made in light of DORA include:

• removing any provisions that regulate exclusively digital operational resilience and digital operational resilience testing;
• deletion of Article 15 of RTS 7 (business continuity arrangements);
• removing duplicative requirements from Article 6 of RTS 7 and widening the definition of critical operational functions in Article 6(5)(b) of RTS 7 to include critical or important functions as defined in article 3(22) of DORA; and
• maintaining the requirement for trading venues to ask for prior authorisation only in case of outsourcing of critical operational functions.

There are also transitional provisions to provide that until the MiFID II amendments have been transposed by Member States and RTS 7a applies, the requirements in RTS 7, the Guidelines and the Supervisory Briefing will continue applying (Guidelines to be repealed and the Supervisory Briefing amended to remove guidance that has been integrated in RTS 7a requirements when RTS 7a comes into application).

RTS on input and output data for shares and ETFs CTP

• ESMA sets out various proposals in relation to the type of information to be published by the CTP in respect of the data related to the status of individual financial instruments and data related to the status of systems matching orders. ESMA also sets out changes to ensure that CTP fields stay consistent with those defined in RTS 1.
• ESMA proposes that the pre-trade data in respect of shares/ETFs to be sent by trading venues and APAs to the CTP should be that which is included in new Table 1b to Annex 1 of RTS 1, except for fields 8 and 9. In respect of post-trade data, it will be information set out in Tables 3 and 4 of Annex I to RTS 1 and in Table 2 of Annex to RTS 1.

RTS 2

• ESMA is to introduce a  new post-trade deferral flag for each of the five categories of transactions in relation to bonds (MLF1; Medium liquid flag; MIF2: Medium illiquid Flag; LLF1: Large Liquid Flag; LIF4: Large Illiquid Flag; VLF5: Very Large Flag).
• A unique flag (DEFR) for deferrals for transactions in ETCs, ETNs, SFPs and EUAs.
• New flags for supplementary deferral flags under the new regime in respect of: Volume Omission ("OMIS" for the first publication with limited details; and "FULO" for the subsequent publication with all details)  and publication in aggregated form.
• New flag, ("MHPT") for all matched principal transactions is to be introduced. 

ESMA Consultation on Commodity Derivatives 

The consultation paper is the result of certain changes made to the commodity derivatives regime under MiFIR:

• Updated MIFID II Directive expands the scope of the position management requirements, previously limited to trading venues trading commodity derivatives, to trading venues  trading derivatives on emission allowances.  The position management requirements set out in article 57(8) are therefore applicable in respect of derivatives on emission allowances.
• The requirements under Article 57(8)(b)  for the trading venue to obtain relevant information about position exposures now includes (where appropriate) positions held in derivatives of emission allowances or positions held in commodity derivatives that are based on the same underlying and that share the same characteristics on other trading venues and in economically equivalent OTC contracts through members and participants.
• Under Updated MIFID II, trading venues (where options are traded) are required to publish two weekly position reports instead of one: in addition to the existing weekly report combining futures and options positions, they must publish a weekly report excluding options positions (Article 58(1)(a)). Trading venues where options are not traded are required to publish a single weekly report with futures only.
• In Updated MiFID II, position reporting only applies to commodity derivatives and emission allowance derivatives, and no longer to emission allowances (spot).

The changes will result in amendments to Commission Delegated Regulation (EU) 2022/1299 3 (RTS on position management controls thereafter), Commission Implementing Regulation (EU) 2017/10934 (ITS 4) as well article 83 Commission Delegated Regulation (EU) 2017/56.

ESMA is proposing:

• extend the requirements to set, review and report accountability levels to trading venues trading derivatives on emission allowances; and
• a number of changes to ITS 4 in light of the emergence of two weekly reports (these include; adding a field “Report type” in Table 1 and Table 3 of Annex I of ITS 4 to reflect the existence of two weekly reports; amending the descriptions and formats of the fields “Position quantity” and “Notation of the position quantity” in Table 2 of Annex II of ITS 4 (daily position reports), to align with changes on weekly position; and changing the format requirements of daily and weekly reports from XML to JSON).