Final Draft EU Technical Standards on Pre-trade Transparency Requirements for Package Orders Published

The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards on pre-trade transparency rules for package orders under the Markets in Financial Instruments Regulation. Package transactions are transactions executed by investment firms, either on their own account or on behalf of clients, which are made up of a number of interlinked, contingent components. Their aim is to reduce transaction costs and assist in risk management. The legislation delaying the implementation of the MiFID II package also revised MiFIR to specifically require public disclosure of bid and offer prices for package orders. Definitions for package orders and package transactions were also added. National regulators are able to waive the obligation for package orders which meet certain conditions, such as where the package order includes a financial instrument for which there is no liquid market (unless there is a liquid market for the package order as a whole).

ESMA was required to prepare draft RTS setting out the methodology for determining package orders for which there is a liquid market, assessing whether packages are standardized and frequently traded. ESMA consulted on proposed draft RTS in November and December 2016. Following feedback, ESMA has revised the final draft RTS, narrowing the scope of package orders that will qualify as having a liquid market. ESMA's methodology for determining which package orders have a liquid market remains based on qualitative criteria, both general and asset-class specific. The qualitative criteria have been refined to address the concern that potentially illiquid strategies could be caught. In addition, previous draft provisions that would have applied the systematic internaliser obligations at the package order level are not included in the final draft RTS. ESMA intends to provide guidance on the application of systematic internaliser obligations for package orders using Q&As, in addition to more general Q&As on the application of pre- and post-trade transparency for package orders. Finally, ESMA has revised its approach on derivatives that are subject to the clearing obligation and the final draft RTS only covers packages where all components are subject to the trading obligation provided certain additional criteria is met.

ESMA submitted the final draft RTS to the European Commission on February 27, 2017. The Commission has three months to decide whether to endorse the final draft RTS. ESMA intends to monitor trading activity in packages and consider whether amendments to the final draft RTS are appropriate.

View the final report and the final draft RTS on package orders.