On May 26, 2016, the European Commission adopted two Delegated Regulations with RTS which will supplement MiFID II and MiFIR. The first RTS, relevant to MiFIR, set out the criteria that ESMA must use to assess whether derivatives that have been declared subject to the clearing obligation (under the European Market Infrastructure Regulation) have sufficient third-party buying and selling interest to be considered sufficiently liquid for the trading obligation to apply. MiFIR will introduce a trading obligation, whereby standardised volumes of sufficiently liquid non- equity instruments must be traded on a regulated market, multilateral trading facility, organized trading facility or equivalent third-country platform (and not OTC). This RTS aims at addressing the criteria for this to apply by expanding on the criteria set out in MiFIR as follows: (i) the average size and frequency of trades over a range of market conditions—ESMA must consider the number of days on which trades took place and the number of trades taking into account the distribution of trading executed on trading venues and executed OTC as well as consider the average daily turnover of trades and average value of trades; (ii) the number and type of active market participants—ESMA must consider whether there are more than two market participants trading in the class of derivatives, the number of trading venues that have admitted to trading or are trading the class of derivative and the number of market makers; and (iii) the average size of the spreads—ESMA must consider the average size of weighted spreads and the spreads at different points of time.
The second RTS, relevant to MiFID II, specify the criteria according to which a trading platform will be considered to be material in terms of liquidity. Such a trading platform must notify its national regulator when it imposes a temporary halt to trading of a relevant financial instrument. This means that only those trading platforms with the greatest potential for market-wide impact when a temporary halt to trading is instated will be subject to the notification obligation. For equity and equity-like financial instruments, the material market in terms of liquidity will be the trading venue in the EU that has the highest turnover in the relevant financial instrument. For non-equity financial instruments, the material market in terms of liquidity will be the regulated market where the relevant financial instrument was first admitted to trading. If the non-equity financial instrument is not admitted to trading on a regulated market, the material market in terms of liquidity will be the trading venue where it was first traded.
Both RTS will apply directly across the European Union from the same date that MiFID II applies. MiFID II is currently due to apply from January 3, 2017. However, draft legislation is likely to delay the application date for a year. The RTS are now subject to consideration by the European Parliament and the Council of the European Union.
The RTS on the criteria for determining the trading obligation is available at:
and the RTS on temporary trading halts is available at: