Shearman & Sterling LLP | Financial Regulatory Developments Focus | European Commission Adopts Amendments to Technical Standards On Systematic Internalisers' Quote Rules
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  • European Commission Adopts Amendments to Technical Standards On Systematic Internalisers' Quote Rules
    12/12/2018
    The European Commission has adopted a Delegated Regulation amending and correcting the Regulatory Technical Standards under the Markets in Financial Instruments Regulation on the equity transparency obligations of trading venues and investment firms. The RTS, known as RTS 1, is set out in Commission Delegated Regulation (EU) 2017/587, supplementing MiFIR. Under MiFIR, Systematic Internalisers must make public firm quotes in equity instruments. The quotes must: (i) be at least equivalent to 10% of the standard market size for the quoted instrument; (ii) include both a bid and an offer price for a size that could be up to market size; and (iii) reflect the prevailing market conditions for that instrument. RTS 1 specifies the concept of "prices reflecting prevailing market conditions" as being "close in price, at the time of publication, to quotes of equivalent sizes for the same financial instrument on the most relevant market in terms of liquidity."

    ESMA submitted proposed amendments to RTS 1 in March 2018 which provided that, where a financial instrument is subject to the "minimum tick size" regime, the quotes of an SI can only adequately reflect prevailing market conditions when those quotes reflect the price increments ("tick sizes") quoted by EU trading venues trading in the same instruments. Following the Commission's response in August 2018, in which it expressed that it would only adopt the amending RTS if ESMA revised the text to reflect a number of concerns (including that the application of tick sizes should be limited to shares and depository receipts only), ESMA revised the RTS, addressing the Commission's concerns, and submitted the RTS to the Commission in September 2018. The adopted Delegated Regulation contains the same provisions as ESMA's revised draft RTS, without any amendments. The provisions now state that the prices in respect of shares and depository receipts will be deemed to "reflect prevailing market conditions" if: (i) the conditions stated above apply; and (ii) the prices respect the minimum price increments corresponding to the tick sizes specified in the Commission Delegated Regulation (EU) 2017/588.

    The adopted Delegated Regulation is subject to approval by the European Parliament and the Council of the European Parliament. Once finalized, it will be published in the Official Journal of the European Union and will apply directly across the EU twenty days thereafter.

    View the adopted Delegated Regulation.

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    TOPIC: MiFID II