News & Views

Trading on a Trading Venue – More Confusion or Clarity?


ESMA has now released further rules regarding instruments subject to trading on a trading venue (TOTV) and there are some further important points to note.

First, this is an “Opinion” and not a Q&A. Why does that matter? Because it reinforces ESMA’s ability to ensure uniform procedures across the EU – “for the purpose of building a common Union supervisory culture and consistent supervisory practices.” A clear message from ESMA that there is legal weight behind the document.

Second, under MiFIR, all instruments are subject to pre- and post-trade transparency, if they are admitted to trading on a Regulated Market (RM), Multilateral Trading Facility (MTF), Organised Trading Facility (OTF) or Systematic Internaliser (SI). ESMA has now clarified that where non-EU venues meet a set of criteria, only OTC transactions concluded by EU investment firms should be made post-trade transparent. This includes either:

  • “bilateral transactions with non-EU firms,” or
  • those “that are concluded on third country trading venues that would not be subject to a certain level of post-trade transparency.”

This means that where non-EU trading venues meet a set of objective criteria, EU investment firms will not need to post-trade report transactions concluded on those trading venues.

This has added significance for UK and Swiss firms given that these will both fall under the category of third-country non-EU firms; Switzerland as of January 3, 2018, and the UK, post-Brexit. Further guidance from ESMA on supervisory convergence for the remaining EU Member States outlines nine key principals to ensure that any outsourcing or delegation of services outside of EU organisations does not lead to supervisory arbitrage.

ESMA notes that non-EU trading venues with similar transparency provisions to those under the MiFID II/MiFIR framework would require third country venues to:

  1. Operate a multilateral trading system;
  2. Be subject to authorisation in accordance with the legal and supervisory framework of the third-country; and
  3. Be subject to supervision and enforcement by a National Competent Authority (NCA) that is a full signatory to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU); and,
  4. Have a post-trade transparency regime which ensures that “transactions concluded on that trading venue are published as soon as possible after the transaction was executed or, in clearly defined situations, after a deferral period.”

To avoid any further confusion, ESMA also notes that it will publish a list of trading venues which meet the above criteria. This will be updated on an ongoing basis.

OTC Derivatives

For derivatives, the situation is more complex. While MiFIR does not state all financial instruments traded OTC are captured by the transparency and transaction reporting obligation, the obligation to transaction report does apply to all financial instruments where the underlying is listed on a trading venue (including an index or a basket of instruments traded on a trading venue).

In ESMA’s opinion, Article 27(3) specifies the relevant reference data required for each financial instrument admitted to trading on a RM, MTF, or OTF. The reference data to be submitted under Article 27 (1) will identify the derivative admitted to trading on a RM, MTF, or OTF. Therefore, only OTC derivatives sharing the same reference data details as the derivatives traded on a trading venue should be considered to be TOTV and subject to the MiFIR transparency requirements.

Currently, if a firm executes an OTC derivative trade it has to trade and transaction report the OTC portion under EMIR. This would appear to be bringing MiFID II requirements in line with EMIR reporting requirements. The challenge for those trading OTC derivatives is that the new ESMA opinion will create challenges in deciding what needs to be reported by whom if only OTC derivatives sharing the same reference data details as a listed derivative should be treated TOTV. For an instrument without an ISIN, market participants will need to match off reference data, which could create complications given different maturity dates on Interest Rate Swaps for example.

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