European Commission Communication on Proposed Amendments to Technical Standards on Systematic Internalisers' Quote Rules

The European Commission has published a Communication (dated August 10, 2018) on proposed amendments by the European Securities and Markets Authority to a Regulatory Technical Standard, known as "RTS1," supplementing the Markets in Financial Instruments Regulation.

Under MiFIR, Systematic Internalisers must make public firm quotes in equity instruments. The quotes must: (i) be at least equivalent of 10% of the standard market size for the quoted instrument; (ii) include both a bid and offer price; 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 final draft 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 minimum price increments ("tick sizes") quoted by EU trading venues trading the instrument.

In the Communication, the European Commission states that it will endorse the proposed amended RTS1 once ESMA has made certain changes to the draft text to reflect the following concerns:

• when MiFIR was developed, the co-legislators did not provide that quotes of SIs would need to respect tick size increments, which means that technical standards cannot be used to address this point;
• there is evidence that not applying tick sizes to shares and depositary receipts risks negative repercussions on the liquidity in those two asset classes;
• quoting prices outside the tick size increments might also hinder the efficient valuation and pricing of shares and depositary receipts; and
• the proposed amendments should be confined to shares and depositary receipts so that concerns about efficient price formation can be addressed while remaining in line with the legislative intent not to introduce a general obligation that all quotes by SIs have to respect the tick size increments.

A draft letter to ESMA from the Commission is attached as an annex to the Communication. The text of the proposed amendments has not been published.

View the Communication.

View the draft letter to ESMA.

View details of ESMA's final draft amendments to RTS1.

Return to main website.