MIFIR Review: ESMA Consultation on CTPs and DRSPs

Background: Consultation 1 on CTPs and DRSPs 

This consultation paper focuses on changes brought by revised MIFIR including in relation to:

• Minimum requirements for transmission protocols, choice of the technical data formats definition of real time, data quality measures, and enforcement standards in respect of the CTP.
• Revenue distribution for CTP for shares and ETFs according preferential treatment to certain trading venues, under which revenue is distributed according to three criteria (data contributor is a small trading venue; the data contributor is a trading venue that provided initial admission to trading of shares/ETFs on or after 27 March 2019; and venue provides pre-trade transparency), with different weighting given to each criterion.
• The expansion of the existing regime in relation to the synchronisation of business clocks to require SIs, DPEs APAs and CTPs, in addition to trading venues (and their members, participants or users), to synchronise the business clocks used to record the date and time of any reportable event.
• Authorisation and organisational requirements for DRSPs.
• Assessment criteria for the CTP selection procedure.

In respect of systems, ESMA is considering: keeping the collection of quantitative data in the ESMA’s FITRS and in the Double Volume Cap System (DVCAP);  or using other data available to ESMA to perform the transparency calculations (including the volume cap calculations) thus ending the collection of quantitative data in DVCAP and/or the FITRS.

The RTS on CTP input/output data will be developed into two steps: draft RTS (applicable to equity and bond CTPs) to be submitted by 29 December 2024; and update of the RTS (by incorporating provisions applicable to the derivatives CTP)  by 29 September 2025. 

The consultation covers proposals that do not rely on the review of RTS 1 and RTS 2 (i.e. minimum requirements for transmission protocols, choice of the technical data formats definition of real time, data quality measures, and enforcement standards); proposals for the quality and substance of input/output data of the bond CTP. The proposals for the input/output data in respect of  the equity CTP are in the third consultation package.

RTS on input and output data of CTPs

• The RTS contain minimum requirements for the quality of transmission protocols in respect of data transmission by data contributors to the CTP,  based on identified categories of technical criteria (performance; reliability; security; and compatibility).
• The data transmitted to, and disseminated by, the CTP will need to comply with the pre- and post-trade transparency obligations in RTS 1 and RTS 2  “unless provided otherwise” in the RTS.
• Proposed minimum requirements for the technical criteria related to performance of a transmission protocol (latency should be maintained below 100 milliseconds; throughput should exceed 100 Megabits per second; Round Trip Time for connection setup should be less than 500 milliseconds; and the protocols must support operation in clustered or load-balanced environments (it remains to be seen whether the various thresholds/proposals concerning latency and throughput etc are appropriate for a bond CTP/account for different volumes of activity between different asset classes).
• Proposed definition of “transmission of data as close to real time as technically possible” for transmission of input data by data contributors to CTP. For post-trade data (irrespective of asset class), data contributors expected to transmit data no later than 100 milliseconds from the execution timestamp in respect of transactions executed on a trading venue; and 200 milliseconds from the execution timestamp for transactions executed OTC. For pre-trade equity data, data contributors are expected to transmit data no later than 50 milliseconds from the timestamp of the submission of the order.
• ESMA proposes adopting JSON as standards and format of data to be transmitted by data contributors to the CTP. Any proposal in this regard would need to factor in compatibility of this with existing protocols that are widely used in the industry and firms would need to note any implementation issues should ESMA proceed with this proposal.

RTS on the revenue distribution scheme of CTPs

• In respect of the second criterion for revenue distribution scheme, ESMA proposes the CTP could use FIRDS data; or collect information on a per ISIN and trading venue basis to determine whether the data contributor admitted shares to trading on or after 27 March 2019. In respect of the third criterion for the revenue distribution scheme (venue offering pre trade transparency where transactions not subject to waiver), a new flag defining if a transaction was subject to the LIS waiver is to be introduced in the input/output data RTS to allow the CTP to collect this information for calculations.
• Regime consists of monetary amounts (i.e. weights multiplied by trading volumes) to be transformed into percentages are defined annually.
• Redistribution is to be carried out annually, based on estimated eligibility with a periodic balance adjustment seems a good basis. Possibility of an ad-hoc regime for the first year of the operations of the CTP.
• CTP will temporarily suspend participation the revenue redistribution based on quantitative criteria and qualitative criteria. Quantitative criteria includes timeliness (when, for three consecutive days, a data contributor has failed to submit transactions or has submitted later than as close to real time as technically possible); and quality, format and substance of data. Qualitative criteria includes:  quality of transmission protocol; and clock synchronisation.
• CTP will be expected to inform data contributors about main aspects of suspension. This will include the exceptional circumstances, thresholds triggering the suspension, duration of the suspension, eventual extension of the suspension for additional periods where the grounds for the suspension continue to apply, etc.
• Data quality measures and enforcement standards for input data (to include data quality checks; and cooperation arrangements between CTPs and data contributors to include confirmation of receipt from CTP).  This includes option for CTP to impose a penalty where data does not meet required quality standards and temporary suspension of revenue distribution.

RTS on the synchronisation of business clocks

• RTS 25 will be repealed as of the date of entry into force of the new RTS on clock synchronisation. RTS 25 has lost its legal basis, owing to the fact that Article 1(9) of Updated MIFID deletes Article 50 of MiFID II.
• General approach and content of RTS 25 will be transposed to the new RTS on clock synchronisation (UTC as the reference time for clock synchronisation to which subject entities shall synchronise their business clocks; permitting synchronisation to UTC both via a timing centre and through a satellite system; and differentiate the required level of accuracy based on the type of entity (e.g. TV operators vs TV members or participants)).
• There will be bespoke new articles and correspondent tables in the annex outlining the maximum divergence and timestamp granularity required for SIs, DPEs, APAs and CTPs.
• The current requirement under Article 4 of RTS 25 (requiring operators of trading venues and their members or participants to establish a system of traceability to UTC, and to review the compliance of their traceability system at least once a year) is to be extended to all entities in scope of Article 22c of MiFIR (i.e. SIs, DPEs, APAs and CTPs).
• Subject to a derogation in certain circumstances, trading venues and SIs to ensure that business clocks adhere to accuracy levels set out in the RTS according to the gateway-to-gateway latency of each of their trading systems. Gateway to gateway latency is the time measured from the moment a message is received by an outer gateway of the trading venue's system, sent through the order submission protocol, processed by the matching engine, and then sent back until an acknowledgement is sent from the gateway.
• DPEs are to be required to record the date and time of reportable events up to one millisecond or better and to ensure that their business clocks used to record the time of reportable events do not diverge by more than one millisecond from the reference time set out in the RTS (the proposed accuracy levels do not appear to factor in different types of trading activity undertaken and different asset classes).

RTS/ITS on the authorisation and organisational requirements for DRSPs

• New authorisation provisions on ownership structure and internal controls for APAs and ARMs.