MiFID II / MiFIR

LuxSE has adjusted its internal framework to ensure that it complies with the new MiFID II/MiFIR framework, entering into force on 3 January 2018.

Technical Standards

MiFID II and MiFIR empower the European Securities and Markets Authority (ESMA) to develop numerous draft Regulatory Technical Standards (RTS) and draft Implementing Technical Standards (ITS) and ESMA delivered three sets of Technical Standards:


Below please find an overview of MiFID II/MiFIR Technical Standards and main impacts.

RTS 1

MiFID II introduces significant changes to the pre- and post-trade transparency regime for EU financial markets.

Waivers for equity and equity-like instruments

Competent authorities can waive the obligation for trading venues to make pre-trade information public for:

  • Reference Price Waiver (RPW)
    Systems matching orders based on the midpoint within the current bid and offer process of the trading venue where that financial instrument was first admitted to trading or the most relevant market in terms of liquidity.
     
  • Negotiated Trade Waiver (NTW)
    Systems that formalise negotiated transactions.
     
  • Large In Scale (LIS)
    Orders that are large in scale compared with normal market size.
     
  • Order Management Facility (OMF)
    Orders held in an order management facility of the trading venue pending disclosure.

Both RPW and NTW regimes are subject to the Double Volume Cap mechanism (DVC). 

LuxSE has reviewed existing waivers and applied for new waivers as reflected on LuxSE Rules and Regulations.

Technical Standards adopted by the European Commission

RTS 2

MiFID II introduces significant changes to the pre- and post-trade transparency regime for EU financial markets.

Waivers for non-equity instruments

The new non-equity instruments transparency regime also allows for waivers. Competent authorities can waive the obligation for trading venues to make pre-trade information public for the following:

  • Large In Scale (LIS)
    Orders that are large in scale compared with normal market size.
     
  • Size Specific To Instrument (SSTI)
    Actionable indications of interest in request-for-quote and voice trading systems that are above a size specific to the financial instrument, which would expose liquidity providers to undue risk and takes into account whether the relevant market participants are retail or wholesale investors.
     
  • Order Management Facility (OMF)
    Orders in an order management facility of a trading venue pending disclosure as per RTS 2 Article 4 (Type and minimum size of orders held in an order management facility), including iceberg orders.
     
  • Order for the purpose of executing an exchange for physical
    Package orders - that meet one of the following conditions:
    - At least one of its components is a financial instrument for which there is not a liquid market, unless there is a liquid market for the package order as a whole;
    - At least one of its components is large in scale compared with the normal market size, unless there is a liquid market for the package order as a whole;
    - At least one of its components is executed on a request-for-quote or voice system and is above the size specific to the instrument.
     

LuxSE has reviewed existing waivers and applied for new waivers as reflected on LuxSE Rules and Regulations.

Technical Standards adopted by the European Commission

RTS 3

The volume cap mechanism and the provision of information for the purposes of transparency and other calculations
 
MiFID II introduces a double volume cap mechanism limiting the scope of trading under the Reference Price and Negotiated Deal waivers. Volumes traded under these waivers will be capped at 4% per share on a single venue and 8% across all EU trading venues.

Technical Standards adopted by the European Commission

RTS 4

Criteria for determining whether derivatives subject to the clearing obligation should be subject to the trading obligation

Technical Standards adopted by the European Commission

RTS 5

Direct, substantial and foreseeable effect of derivative contracts within the Union

Technical Standards adopted by the European Commission

RTS 6

Specifying the organisational requirements of investment firms engaged in algorithmic trading

Technical Standards adopted by the European Commission

RTS 7

Specifying organisational requirements of facilities trading venues allowances and derivatives

Technical Standards adopted by the European Commission

RTS 8

Specifying the requirements on market making agreements and schemes

LuxSE will adjust its policies on market making management to ensure that they comply with MiFID II framework, as follows:

  • Investment firms engaged in algorithmic trading and pursuing market making strategies on any LuxSE tradable instrument will be required to enter into a Market Making Agreement with LuxSE;
     
  • LuxSE will offer Market Making Schemes on the following instruments, if there is a liquid market: equities and ETFs;
     
  • In addition to the MiFID II requirements, LuxSE will maintain Liquidity Provider provisions on some specific instruments to accommodate product and participant requirements;
     
  • LuxSE will introduce ‘Stressed Market Conditions’, during which amended market making obligations will be applied.

Go to Market Makers and Liquidity Providers page

Technical Standards adopted by the European Commission

RTS 9

The ratio of unexecuted orders to transactions

Introduced by Market Abuse Regulation and following the release of this RTS 9 (with regard to regulatory technical standards for the ratio of unexecuted orders to transactions in order to prevent disorderly trading conditions) trading venues are required to put in place a number of systems, procedures and arrangements to ensure that algorithmic trading systems do not create disorderly trading conditions and to limit the ratio of unexecuted orders to transactions (‘Order to Trade Ratio’ or ‘OTR’).

LuxSE will calculate and monitor the OTR per member and per financial instrument on the basis of both volumes and number following the methodology described by this RTS 9.

LuxSE may set maximum OTRs at the levels considered as appropriate to prevent disorderly trading conditions. In doing so, LuxSE will ensure to accommodate market practices as much as possible.

Technical Standards adopted by the European Commission

RTS 10

Requirements to ensure fair and non-discriminatory co-location services and fee structures

Technical Standards adopted by the European Commission

RTS 11

Tick size regime for shares, depositary receipts and, exchange traded funds

With the adoption of this RTS 11 (with regard to regulatory technical standards on the tick size regime for shares, depositary receipts and exchange-traded funds), MiFID II introduces a minimum tick size across the Union for all EU shares and ETFs based on European shares. The minimum tick size for each instrument will be determined as a function of price of the order submitted and the liquidity profile of the financial instrument traded, except for ETFs, which have all been included in the most liquid category and for which the tick size will solely be a function of price.

The instruments’ liquidity profile will be calculated annually and the results will be published on ESMA website as to allow trading venues including LuxSE to adapt its tick size to the new MiFID II requirements.

The application of the new minimum tick size regime extends to all orders submitted to trading venues and aim at ensuring the orderly functioning of the market.

In line with ESMA Questions and Answers on MiFID II/MiFIR market structures topics, in particular Q&A 7 on tick size, LuxSE will systematically cancel the remaining orders in the Central Order Book (T-1 after the closing of the markets) when a financial instrument changes the tick size regime. Members will be informed by email in due course.
 
For more information on tick size, please consult the Appendix to the Trading Manual, which will be available in due course.

Technical Standards adopted by the European Commission

RTS 12

Determination of a material market in terms of liquidity relating to halt notifications

Technical Standards adopted by the European Commission

RTS 13

Authorization, organisational requirements and the publication of transactions for data reporting services providers

Technical Standards adopted by the European Commission

RTS 14

Specification of the offering of pre- and post-trade data and the level of disaggregation of data

MiFID II requires trading venues to unbundle pre- and post-trade data and to provide further disaggregation of data, upon client request, based on a number of criteria such as asset class and country of issue. Trading venue will also be required to make this data available on a reasonable commercial basis.

LuxSE will offer real time market data packages at a more granular level based on client demand and will implement appropriate fee schemes for the new packages.
 
Relevant market data contracts will be required for clients subscribing to the services.

The Market Data Price List for 2018 reflecting these changes will be published in due course.

Technical Standards adopted by the European Commission

RTS 15

Clearing access in respect of trading venues and central counterparties

Technical Standards adopted by the European Commission

RTS 16

Access in respect of benchmarks

Technical Standards adopted by the European Commission

RTS 17

Admission of financial instruments to trading on regulated markets
 
MiFID II imposes obligations on regulated markets to adopt and publish on their website procedures to verify issuers’ compliance with European Union Law mainly in respect of initial, ongoing or ad hoc disclosure duties.
 
The allocation of those supervisory responsibilities shall not conflict with the regime foreseen in other pieces of legislation, e.g. Market Abuse Regulation, assigning the supervisory competences to national competent authorities.
 
Relevant procedures will be published on LuxSE website in due course.

Technical Standards adopted by the European Commission

RTS 18

Suspension and removal of financial instruments from trading reporting services providers
 
MiFID II allows the suspension and removal from trading a financial instrument which no longer complies with the rules of trading venues unless such suspension or removal would be likely to cause significant damage to the investors’ interests or the orderly functioning of the market.

LuxSE Rules & Regulations, which will be available in due course, were updated accordingly.

Technical Standards adopted by the European Commission

ITS 19

Description of the functioning of MTFs and OTFs

Technical Standards adopted by the European Commission

RTS 20

Criteria to establish when an activity is considered to be ancillary to the main business

Technical Standards adopted by the European Commission

RTS 21

Application of position limits to commodity derivatives
 
MiFID II requires trading venues to make public a weekly report with the aggregate positions held by the different categories of market participants for the different commodity derivatives traded on the venue. The report should contain information on the number of long and short positions held, the percentage of open interest represented by each category and the number of market participants holding a position in each category.
 
Trading venues are also required to provide competent authorities with a breakdown of the positions held by all persons on the venue on a daily basis.
 
LuxSE limits the size of issues, listings or admissions to trading on securitized derivatives that are indexed to a commodity underlying, a commodity index underlying or any underlying with a commodity component to 2.5 Mio units per ISIN code.
 
LuxSE Rules & Regulations, which will be available in due course, were amended accordingly.

Technical Standards adopted by the European Commission

RTS 22

Reporting of transactions to competent authorities
 
Trading members that are performing transactions in listed financial instruments admitted to trading on a regulated market are obliged to report details of such transactions to the competent authority as quickly as possible, and no later than the close of the following working day.
 
This RTS 22 governs only transactions (i.e. trades made under the LuxSE Rules & Regulations) and extends without prejudice to the trade reporting obligations set forth under MiFID II Article 25.

For further information, please contact:


Technical Standards adopted by the European Commission

RTS 23

Supply of financial instruments reference data
 
Trading venues have to provide competent authorities with financial instruments reference data for the purposes of transaction reporting. The new rules require daily submission of data for all financial instruments that are admitted to trading, or that are traded on that day or for which a request for admission to trading has been made.
 
Trading venues shall ensure that Legal Entity Identifiers (LEI) provided in the reference data are listed in the Global Legal Entity Identifier database. Therefore, LuxSE is obliged to collect a LEI from any issuers of securities admitted to trading on markets operated by LuxSE.
More information on LEI
Alternatively, in order to obtain a LEI code, please contact us at:


Technical Standards adopted by the European Commission

RTS 24

Maintenance of relevant data relating to orders in financial instruments
 
Trading venues are required to collect, store and, where relevant, report order-related information for the purpose of order record keeping requirements under RTS 24 (with regards to regulatory technical standards for the maintenance of relevant data relating to orders in financial instruments).

To identify the relevant parties to an order, LuxSE will then request members to submit the relevant details (Client Identification Code - Investment Decision Within Firm Code - Execution Within Firm code - Non Executing Broker Code) upon order entry using the existing fields FreeText and ClientID. Members who are unable to use these fields may submit the necessary information for each order in a flat file at the end of the day via an upload functionality made available via the dedicated Short Long Code (SLC) Manager. This solution will allow members to register and manage the mapping between the short codes used in order entry message and the associated long codes that will be used for the reporting to the regulators.

LuxSE requires also members to submit a mapping between short codes and corresponding long codes via SLC Manager.
 

New order fields

For the purposes of transaction reporting to regulators, as well as Kill Switch and Order Storage, members and trading participants are required to supply new fields in all order messages, including specifying the party that initiated the order as well as an algo identification when relevant.

New fields required at the order entry level or the end-of-day reconciliation are:

  • Client identification code
  • Investment decision within firm code
  • Execution within firm code
  • Non-executing broker code
  • Direct Electronic Access (DEA) flag
  • Deferred publication flag
  • Algo flag for investment decision within firm
  • Algo flag for execution within firm
  • Position limit indicator for commodity derivatives
New order fields will be integrated in the deployment of the Optiq platform for Cash markets. 

Technical Standards adopted by the European Commission

RTS 25

Level of accuracy of business clocks

Technical Standards adopted by the European Commission

RTS 26

Specifying the obligation to clear derivatives traded on regulated markets and timing of acceptance for clearing (STP)

Technical Standards adopted by the European Commission

RTS 27

Data to be provided by execution venues on the quality of execution of transactions
 
All execution venues, i.e. SIs, Market Makers and Liquidity Providers, in addition to trading venues, have to provide quarterly reports – both to the public as well as to their clients – concerning execution quality. These include information such as price, costs, speed and likelihood of execution for individual financial instruments.
 
All LuxSE best execution reports will be provided on LuxSE website and will be downloadable in machine readable format.

Technical Standards adopted by the European Commission

RTS 28

Annual publication by investment firms of information on the identity of execution venues and on the quality of execution

Technical Standards adopted by the European Commission

 


Disclaimer
The information contained herein is provided for information purposes only. Although the Luxembourg Stock Exchange (LuxSE) has made reasonable efforts to ensure that the information is accurate and not misleading, LuxSE does not accept any responsibility or liability of any kind whether for the accuracy, reliability or completeness of the information or for any action refrained or taken or results obtained from the use of the information. The information does not constitute and is not construed as any advice, recommendation, undertaking or commitment from or on behalf of LuxSE. The information shall not be substitute for your own researches, investigations, verifications or consultation for professional or legal advice.

If you need more information