On 15 November 2012, the European Securities and Markets Authority (“ESMA”) published a paper (the “Paper”) dealing with the waivers available under the Markets in Financial Instruments Directive (“MiFID”). The waivers exempt the operators of regulated markets (“RMs”) and multilateral trading facilities (“MTFs”) from the requirement to make public the current bid and offer prices, as well as the depth of trading interests, in respect of shares admitted to trading.

The Paper outlines the positions taken by ESMA’s predecessor, the Committee of European Securities Regulators (“CESR”), on each of the waivers and ESMA’s corresponding opinions.

The Waivers

The following four waivers are available under MiFID:

  1. Reference price systems:

This waiver is available to systems that determine price by reference to prices generated by other systems. The reference price must be widely published and should be regarded by market participants as being a reliable reference price.

  1. Negotiated trade systems:

Systems that formalise negotiated transactions are capable of taking advantage of this waiver. In order to do so the transaction must:

  • take place at, or within, the current volume-weighted spread that is reflected in an order book. Alternatively, if the transaction takes place at, or within, quotes of market makers in that share, or in the event that the share is not traded continuously, within a percentage of a suitable reference price set in advance by the operator of a RM or MTF; or
  • be subject to conditions other than the current market price of the share.
  1. Order management facilities:

This waiver can be utilised when orders are held in an order management facility maintained by a RM or MTF pending those orders being disclosed to the market.

  1. Large-in-scale transactions:

This waiver is available when an order is considered to be large-in-scale. An order will be deemed as such where it is compared with the normal market size and is found to be equal to or larger than the minimum size or order specified in Table 2 of Annex II of Commission Regulation (EC) No. 1287/2006.

Purpose of the Paper

The Paper is primarily aimed at competent authorities in the hope that it will ensure that when undertaking their supervisory activities, they do so in accordance with the opinions of ESMA. In addition, it is hoped that the examples given in the Paper for each of the four waivers will provide some clarity to the competent authorities, as well as assistance when they look to develop new trading functionalities.

It can be noted that the Paper endorses the decisions previously adopted by CESR in respect of the waivers and will be subject to continuous update as ESMA formulates new opinions.