For my newest weblog, I reviewed the latest report by ESMA on fairness transparency (RTS 1) to uncover what individuals must plan for.
Following an earlier session, ESMA revealed its closing report on the evaluation of fairness transparency
(RTS 1) on the finish of March.
In July 2021, ESMA launched a session on a hefty set of adjustments to help an built-in view of EU buying and selling, together with post-trade transparency fields. Further amendments to pre-trade fields, deferred publication, software of transparency calculations,
and extra, made this a large-scale evaluation. I beforehand wrote in regards to the potential compliance prices looming for the trade.
In response to the regulator, for the reason that 2018 software of MiFID II, points with post-trade flags have persevered. Variations within the software are inflicting persevering with issues for the usability of revealed information, notably for OTC transactions. Understandably,
ESMA needs trades to be flagged persistently by all market individuals and has got down to present extra readability on what needs to be reported. On the identical time, aiming for higher information high quality within the context of building an fairness consolidated tape.
ESMA needs to scrub up overlaps within the textual content, and make clear which post-trade flags to make use of.
Specializing in the reporting fields, ESMA had proposed deleting numerous flags, amending sure current flags, and introducing new ones. In addition they steered requiring the publication of flags within the prescribed order, which many responders strongly disagreed
with as a result of this was disruptive, with out including worth. Of extra concern although, was that the proposed sequencing of flags was much like however not wholly aligned with the construction of the extensively used trade post-trade information commonplace FIX
MMT. Transforming on this space will show expensive.
Nevertheless, contemplating the session feedback, and to keep away from overlap with the continuing extra complete MiFID II evaluation, ESMA has now cut up its overhaul of post-trade flags into two phases.
The primary part prioritizes figuring out non-price forming trades. This can be a important however arguably extra manageable chunk of labor to plan for. The second part will cowl different flag-related amendments and can look additional into inconsistencies with FIX MMT.
The flagging of non-price forming trades has confirmed to be a problem in observe.
In numerous articles throughout the rulebook, from transaction reporting exemptions to the fairness share buying and selling obligation, the scope of software will depend on the kind of commerce executed. However there aren’t any widespread definitions of those ideas within the regulation. One thing
ESMA intends to rectify.
“Within the CP, ESMA recognized 4 completely different ideas that are generally used, together with within the MiFIR framework, to characterize liquidity: i.e.
- transactions that don’t contribute to the worth discovery course of or to the worth formation (additionally known as non-price forming transactions);
- transactions topic to circumstances apart from the present market value,
- non-addressable liquidity trades and
- technical trades”
A number of flags are at the moment related for non-price forming transactions. For instance, a benchmark transaction executed as a negotiated transaction on a buying and selling venue could be flagged with BENC, NPFT, TNCP, and PRIC.
From the sweeping EU evaluation of RTS 1, we now have a cut-down to-do checklist rising from the ESMA closing report, however no agency dates but for implementation.
(First revealed on the ION Markets weblog, the place you’ll be able to faucet into views and commentary on Brexit, MiFID, and different rising monetary regulation.)