MiFID Final Policy on the trading venue perimeter – Anticipated Q3 2002

Background

On 28 January, ESMA published a consultation paper with proposals aimed at clarifying the MiFID II provisions relating to multilateral systems and the trading venue authorisation perimeter.

The focus of this consultation is the treatment of “technology providers”. ESMA proposes to give broadly helpful clarity that internal Order Management Systems (OMS) and some Execution Management Systems (EMS) will fall outside the trading venue perimeter

ESMA will also analyse the position of RFQ systems. In confirming that a platform which offers an RFQ-to-one trading platform can be a multilateral system, ESMA unhelpfully suggests that systems which only permit one-to-one interactions (or, indeed, where there is only ever one trading counterparty) can still be multilateral systems (and thus require authorisation as a trading venue).

ESMA does seek to draw a distinction between reception and transmission of orders (“RTO”) and operation of a multilateral system in the consultation paper itself.

ESMA also reiterates the position it stated in the Final Report that a system that “pre-arranges” transactions for execution on a trading venue is not itself multilateral, now taking the view that the pre-arranging firm acts as ‘an extension of’ the trading venue where the transaction is ultimately formalised.

It is envisaged likely that some market participants will want to use the response time to propose changes and clarification prior to ESMA releasing the final policy.

Summary

  • Definition: The paper examines the definition of multilateral systems and the implications of the changes introduced in MiFID II with regard to trading venue authorisation
  • Multiple “third party” buying and selling interests with specific clarification relating to Systematic Internalisers
  • Meaning of “interaction”: ESMA states that “interaction” happens in a system where members are able to react to trading interests. Some of ESMA’s statements (e.g. that systems or facilities where there is “confirmation of a trade” would require authorisation as a trading venue) could have significant consequences for existing systems.
  • Clarification will be forthcoming as to the position of “technology providers”.
  • Understanding OMS propositions to be inward looking and subsequent clarification as to definition and applicability of being an MTF.
  • Request for Quote systems. Specifically ESMA explaining that in its view any system where the operator is distinct from two or more trading parties will be a multilateral system. This may have implications for general purpose communication systems.
  • Pre-arranged transactions. With respect to pre-arranged transactions which pre-arrange transactions for execution on a trading venue, these do not themselves require authorisation as a multilateral system.

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Should you have any questions or require any help on interpreting your trading venue perimeter obligations please contact Xcina Consulting.

The full consultation paper is available here

Xcina Consulting can assist firms in navigating regulatory requirements and ensure they are moving in the right direction.

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