The European Securities and Markets Authority has launched a consultation to collect the views of market participants on the pre-trade transparency regime applicable to systematic internalizers for “non-equity instruments” (which include bonds, structured-finance products, emission allowances and derivatives) under the Markets in Financial Instruments Regulation. A consultation on the transparency regime for equity and equity-like instruments has been launched separately.
MiFIR requires “systematic internalizers” (i.e., firms that execute client orders outside regulated markets without operating a multilateral system) to make firm quotes for non-equity products public if they are prompted to, or agree to, provide a quote. Firms must also disclose quotes to their clients on request if they agree to provide a quote in respect of non-equity products for which there is not a liquid market. National regulators and ESMA are required to monitor compliance with these pre-trade transparency obligations, including the sizes at which quotes are made available to clients relative to other trading activity of the firm and the extent to which such quotes reflect market conditions. ESMA must submit a report to the Commission by July 2020 on the application of the transparency obligations on the basis of the information it has collected. The consultation paper provides an overview of the legal framework applicable to systematic internalizers and makes a series of proposed recommendations on which it seeks market participants’ feedback, including:
- Simplification of the requirements for systematic internalizer quotes in liquid and illiquid instruments;
- Defining the exceptional market circumstances in which systematic internalizers may withdraw quotes;
- Development of Regulatory Technical Standards by ESMA to harmonize pre-trade transparency requirements; and
- Specification of the arrangements for systematic internalizers to publish their quotes.
Responses to the consultation should be submitted by market participants by March 18, 2020. ESMA expects to publish its final report for submission to the European Commission by July 2020.