Shearman & Sterling LLP | FinReg | EU MiFID II Review: First Review Report on Prices for Market Data and on the Consolidated Tape
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  • EU MiFID II Review: First Review Report on Prices for Market Data and on the Consolidated Tape

    Following its consultation earlier this year, the European Securities and Markets Authority has published a report on the development of prices for market data and on the consolidated tape for equity. The report is the first review report on the implementation of the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation and will assist the Commission in preparing its reports to the European Parliament and Council of the European Union, which are expected in 2020.

    The MiFID II package includes provisions that aim to improve the quality and availability of market data and reduce costs for market participants when purchasing data. The provisions impose obligations on trading venues and approved publication arrangements (APAs) to make pre- and post-trade data available separately and to do so on a reasonable commercial basis (RCB). MiFID II also introduced the requirements for a consolidated tape for equity instruments. In the report, ESMA sets out its assessment of, and recommendations on, the development in prices for pre- and post-trade transparency data from regulated markets, multilateral trading facilities, organised trading facilities, approved publication arrangements and CTPs and on the functioning of the CT for equity. Due to the uncertainty around the timing and conditions of the U.K.'s departure from the EU, ESMA's recommendations to address the identified deficiencies cover the position before and after Brexit (i.e. the recommendations are tailored for either the EU28 or the EU27).

    ESMA's view is that the objectives of the RCB provisions have not been achieved as the RCB information provided by trading venues and APAs does not assist users to understand market data policies and how the price for market data is set. ESMA is proposing various workstreams to improve the existing approach to RCB, including some legislative changes and issuing supervisory guidance to enhance the usability and comparability of information disclosed. ESMA intends to work with national regulators to ensure that the RCB requirements are enforced and will assess whether, after allowing time for application of the guidance, to recommend that the EU adopts price regulation if the current situation does not improve.

    Regarding the requirements for the provision of disaggregated data, ESMA notes that there has been a limited demand for disaggregated data and that data disaggregation has not contributed to reducing market data costs. ESMA is therefore not recommending any legislative changes and considers that the further guidance on RCB and increased enforcement should address concerns about the prices of disaggregated data.

    In ESMA's view, the objective of making market data available free of charge 15 minutes after publication by the trading venues and APAs has not been achieved. Although many trading venues and APAs make the data available to retail investors, they do not do so for commercial users. ESMA is recommending that the MiFID II requirements on this should be made specifically applicable to trading venues.

    MiFID II also introduced requirements for CTPs, including requiring a CTP to collect post-trade information published by trading venues and APAs and to consolidate this into a continuous live data stream made available to the public, both for equity instruments and non-equity products. The relevant MiFID II provisions for the non-equity tape entered into effect on September 3, 2019, however, the provisions for an equity CTP have been applicable since January 2018. To date, there are no authorized EU CTPs.

    ESMA's report discusses the reasons why an equity CTP has not been established and the risks of there not being an EU equity CTP. ESMA recommends that the key factors for implementation of an equity CTP would include: (i) mandatory contributions by trading venues and APAs, with the CT sharing revenues with all contributors; (ii) a CT that consolidated all equity and equity-like instruments; (iii) a single CT to provide the most cost-efficient provision of data; and (iv) a strong governance framework for the CT. ESMA acknowledges that the value of a CT would be higher if it included U.K. data, but considers that an EU27 CT would also add value. According to ESMA, the establishment of a CT under the recommended framework would take at least five years from the decision to do so until it went live.

    View ESMA's MiFID review report No.1.

    View details of the related consultation.

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