On 28 September 2015 ESMA published 28 draft technical standards (TS) under MiFID II.

TS are binding standards adopted by the European Commission, usually in the form of a Regulation and are intended to supplement level I legislation (in this case MiFID and MiFIR) and address issues that are highly technical in nature. The TS translate how the legislation will apply in practice to market participants, market infrastructures and national supervisors.

The TS cover the following areas:

Transparency

  • Transparency requirements in respect of shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments
  • Transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives
  • Double volume cap mechanism and the provision of information for the purposes of transparency and other calculations
  • Criteria for determining whether derivatives should be subject to the trading obligation
  • Criteria for determining whether derivatives have a direct, substantial and foreseeable effect within the EU

Micro-structural issues

  • Organisational requirements for investment firms engaged in algorithmic trading, providing direct electronic access and acting as general clearing members
  • Organisational requirements of regulated markets, multilateral trading facilities (MTFs) and organised trading facilities (OTFs) enabling or allowing algorithmic trading through their systems
  • Market making, market making agreements and market making schemes
  • Ratio of unexecuted orders to transactions
  • Requirements to ensure co-location and fee structures are fair and non-discriminatory
  • Tick size regime for shares, depositary receipts and exchange-traded funds
  • Material markets in terms of liquidity relating to trading halt notifications

Data publication and access

  • Authorisation, organisational requirements and the publication of transactions for data reporting service providers
  • Data disaggregation
  • Access in respect of central counterparties (CCPs) and trading venues
  • Access in respect of benchmarks

Requirements applying on and to trading venues

  • Admission of financial instruments to trading on regulated markets
  • Suspension and removal of financial instruments from trading – connection between a derivative and the underlying financial instrument
  • Description of the functioning of MTFs and OTFs

Commodity derivatives

  • Establishing when an activity is to be considered to be ancillary to the main business
  • Methodology for the calculation and application of position limits for commodity derivatives traded on trading venues and economically equivalent OTC contracts

Market data reporting

  • Reporting obligations under Article 26 of MiFIR
  • Obligation to supply financial instruments reference data under Article 27 of MiFIR
  • Maintenance of relevant data relating to orders in financial instruments
  • Clock synchronization

Post-trading issues

  • Obligation to clear derivatives traded on regulated markets and timing of acceptance for clearing

Best execution

  • Information relating to best execution

Next steps

The TS run to over 400 pages and, as such, will take some time to digest. To add to this, ESMA also published draft TS under the Market Abuse Regulation and the Central Securities Depositaries Regulation (which have crossover with MiFID II) on the same day that the MiFID II TS were published. The Commission now has three months to endorse the draft TS after which time the Parliament and Council will be afforded a period in which they can object. If the Commission endorses the TS and the Parliament and Council do not object, they will enter into force and become legally binding in Member States from the date specified within the TS.