Shearman & Sterling LLP | FinReg | EU Evaluates MiFID II's Success in Improving Trade Data Quality, Availability and Costs
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  • EU Evaluates MiFID II's Success in Improving Trade Data Quality, Availability and Costs

    The European Securities and Markets Authority has launched a consultation on the development of pre- and post-trade transparency data and the functioning of the consolidated tape for equity instruments under the revised Markets in Financial Instruments package. The consultation paper sets out ESMA's initial views, taking into account feedback received during earlier roundtables and questionnaires. Responses to the consultation should be provided by September 6, 2019. ESMA will consider the feedback it receives in preparing its final report, which it intends to submit to the European Commission in December 2019. The final report will assist the Commission in preparing its review reports to the European Parliament and Council of the European Union, which are expected to be published in 2020.

    MiFID II, which has applied since January 3, 2018, introduced provisions on pre- and post-trade transparency that aimed to improve the quality and availability of market data and reduce the costs of purchasing data. The transparency obligations require market operators and investment firms operating a trading venue to: (i) make separately available pre- and post-trade data; (ii) make pre- and post-trade data available to the public on a reasonable commercial basis and to ensure non-discriminatory access to the information; and (iii) make available data free of charge 15 minutes after publication. Systematic internalisers are required to make quotes public to other market participants on a reasonable commercial basis. ESMA's report assesses how these provisions have contributed to achieving the objectives for data and provides summaries of the feedback from market participants during the roundtables and questionnaire exercises. ESMA also discusses how it intends to address some of the issues raised through issuing guidance.

    MiFID II also introduced requirements for consolidated tape providers, including requiring a CTP to collect post-trade information published by trading venues and approved publication arrangements and to consolidate this into a continuous live data stream made available to the public, both for equity instruments and non-equity products. Given the additional complexity involved in providing a non-equity consolidated tape, the relevant MiFID II provisions for the non-equity tape do not enter into effect until September 3, 2019. However, the provisions for an equity CTP have been applicable since MiFID II first applied in January 2018. However, to date, there are no authorized EU CTPs. ESMA's report examines the reasons why a CTP has not been established in the EU, considers the availability, timeliness and quality of post-trade information already available, reviews the risks of having no EU CTP for equity instruments and evaluates the key factors for effectively establishing a CTP, with reference to the CTPs requirements in Canada and the U.S., potentially through making it mandatory for trading venues and approved reporting mechanisms to provide data to a CTP. In addition, the report requests feedback on the potential impact of Brexit on the establishment of an equity consolidated tape. ESMA raises the point that future trading flows are uncertain and it is not yet clear how much trading activity will be moved to the EU27 post-Brexit, but states that a consolidated tape should "ideally" reflect both U.K. and EU27 trading once the U.K. has left the EU. ESMA requests feedback on: (i) whether an EU27 only consolidated tape would be attractive to market participants due to less fragmentation of the markets; and what the perceived impact of an EU27 only consolidated tape would be on the level playing field between the EU and U.K.

    View the consultation paper.

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