MiFID II / MiFIR

Technical standards

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

• 29 June 2015 - Final report
• 28 September 2015 - Final report, Technical Standards and CBA
• 11 December 2015 - Final report, Implementing Technical Standards and CBA
• 2016 and 2017 - Technical Standards adopted by the European Commission

Here is an overview of MiFID II/MiFIR Technical Standards and their main impacts.

RTS 1

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 (DVC) mechanism. 

We have reviewed existing waivers and applied for new waivers, as shown in LuxSE Rules and Regulations.

RTS 2

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 their components is a financial instrument for which there is no liquid market, unless there is a liquid market for the package order as a whole;
  - At least one of their 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 their components is executed on a request-for-quote or voice system and is above the size specific to the instrument.

We have reviewed existing waivers and applied for new waivers, as shown in LuxSE Rules and Regulations.

RTS 3

Volume cap mechanism and 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.

RTS 4

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

RTS 5

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

RTS 6

Specifying the organisational requirements of investment firms engaged in algorithmic trading

RTS 7

Specifying organisational requirements of facilities trading venues allowances and derivatives

RTS 8

Specifying the requirements on market making agreements and schemes

We adjusted our 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 are required to enter into a Market Making Agreement with us;
   
• We offer market making schemes on equities and ETFs, if there is a liquid market;
   
• In addition to the MiFID II requirements, we maintain liquidity provider provisions on some specific instruments to accommodate product and participant requirements;
   
• We introduce ‘Stressed Market Conditions’, for which amended market making obligations apply.

RTS 9

Ratio of unexecuted orders to transactions

Introduced by Market Abuse Regulation and as set forth by this RTS, trading venues must 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’).

We calculate and monitor the OTR per member and per financial instrument on the basis of both volumes and numbers, following the methodology described by this RTS.

We may set maximum OTRs at the levels we see as appropriate to prevent disorderly trading conditions. We will therefore make sure we accommodate market practices as much as possible.

RTS 10

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

RTS 11

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

With the adoption of this RTS, MiFID II introduces a minimum tick size across the EU for all EU shares and ETFs based on EU shares. The minimum tick size for each instrument is 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 is calculated annually and the results will be published on ESMA's website to allow trading venues to adapt their 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 aims 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, we 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, check the Appendix to the Trading Manual.
 

Technical Standards adopted by the European Commission

RTS 12

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

RTS 13

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

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 venues are also be required to make this data available on a reasonable commercial basis.

As of January 2018, we offer real time and delayed market data services at a more granular level based on client demand. Appropriate fee schemes for the new packages were implemented.

The Market Data Product Descriptions and Fee Structure reflecting these changes can be found on the Data Product Range page.

A market data contract is required by clients who wish to subscribe to these services. A contract may be requested from Market Data Services at:

RTS 15

Clearing access regarding trading venues and central counterparties

RTS 16

Access regarding benchmarks

RTS 17

Admission of financial instruments to trading on regulated markets
 
MiFID II makes it compulsory for regulated markets to adopt and publish on their website procedures to verify issuers’ compliance with EU Law mainly in respect of initial, ongoing or ad hoc disclosure duties.
 
The allocation of 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.

RTS 18

Suspension and removal of financial instruments from trading reporting services providers
 
MiFID II allows the suspension and removal from trading of 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 and Regulations were updated accordingly.

ITS 19

Description of the functioning of MTFs and OTFs

RTS 20

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

RTS 21

Application of position limits to commodity derivatives
 
MiFID II requires trading venues to publish a weekly report with the aggregate positions held by the different categories of market participants for the various 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.
 
We limit the size of issues, listings or admissions to trading on securitised derivatives that are indexed to a commodity underlying, a commodity index underlying or any underlying with a commodity component to 2.5 m units per ISIN code.
 
LuxSE Rules and Regulations were amended accordingly.

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 the 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 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:

RTS 23

Supply of financial instruments reference data
 
Trading venues have to provide competent authorities with financial instruments reference data for the purpose of transaction reporting. The new rules require daily submission of data for all financial instruments that are admitted to trading, that are traded during 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, we are obliged to collect a LEI from all issuers of securities admitted to trading on the markets we operate.

To obtain a LEI code, please contact us at:

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 this RTS.

To identify the relevant parties to an order, we 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 can submit the necessary information for each order in a flat file at the end of the day through an upload functionality made available via the dedicated Short Long Code (SLC) Manager. This solution allows members to register and manage the mapping between the short codes used in order entry messages and the associated long codes that are used for the reporting to the regulators.

We also require 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

RTS 25

Level of accuracy of business clocks

RTS 26

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

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 concerning execution quality both to the public as well as to their clients. These include information such as price, costs, speed and likelihood of execution for individual financial instruments.
 
All our best execution reports will be provided on our website and will be downloadable in machine readable format.

RTS 28

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

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