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Pre-trade transparency 

01 December 2011

Impact Red traffic light High impact – especially for increased pre-trade transparency beyond equities which is likely to be significant for all firms.

Other areas to consider

Transaction reporting; Trade reporting; Systematic Internalisers

Current MiFID rules

The pre-trade transparency rules requires systematic internalisers (“SIs”), regulated markets (”RMs”) and multilateral trading facilities (“MTFs”) to publish in real time current orders and quotes relating to shares.

MiFID provides for certain waivers from these obligations based on the market model, or the type and size of orders including:

  • Systems where the price is determined by reference to a price generated by another system.
  • Systems that formalise negotiated transactions, provided the transaction meets certain criteria.
  • Orders held in an order management facility maintained by a regulated market or MTF pending disclosure to the market.
  • Transactions which are large in scale

MiFID Level 1 Directive Arts: 27, 29 and 44

MiFID Regulation Arts: 18, 20.

FSA rules

MAR 5 and 6 and REC

Proposed changes

MiFID Draft Regulation
Articles 3 - 7

Equity-like instruments

The draft Regulation extends the transparency requirements to depositary receipts, exchange traded funds, certificates issued by companies and other similar financial instruments admitted to trading or trading on an MTF or OTF, given the similarity of these instruments with shares and following requests by market participants and supervisors.

Non-equity markets

The draft Regulation extends pre-trade transparency requirements for all trades (whether executed on a regulated market, MTF, or OTF) in bonds, structured finance products (with a prospectus or admitted to trading on a regulated market), emission allowances and all derivatives traded on an MTF or an OTF.


RMs, MTFs and OTFs trading instruments subject to transparency requirements would be required to publish their pre-trade information in a continuous manner. The draft Regulation specifies that information must be made available to the public on a reasonable commercial and non-discriminatory basis (secondary measures will clarify this).

Level Playing Field Waivers

The Commission remains concerned about the proliferation of trading venues. Accordingly, the draft Regulation proposes that the pre-trade transparency requirements apply equally to regulated markets, MTFs and new OTFs. The Commission is concerned with the growth of dark pools of liquidity which fall outside the pre-trade transparency regime by virtue of waivers, and while it believes that the current framework is still valid, some improvements could be made.  Therefore, the draft Regulation proposes changes to ensure that waivers are applied consistently and coherently across the EU, including:

  • Detail on the application of the waiver rules to ensure legal certainty regarding their interpretation;
  • Requiring ESMA to monitor the waivers on an on-going basis and report annually to the Commission about their use;
    Competent authorities to notify ESMA and other competent authorities of the intended use of waivers.  ESMA to consider if such use is consistent with MiFID. A competent authority may only grant a waiver if ESMA deems it compatible with MiFID.
  • The application of the waiver regime will apply notwithstanding the product (i.e., to equity-like and non-equity products).
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