What does Level 2 say?
Phase 1 (May 2014 to Aug 2014):
ESMA Consultation Paper CP 2014/549 (CP1) and Discussion Paper DP 2014/548 (DP)
ESMA acknowledged in the DP the sensitivities of publishing incorrect information which would lead to the suspension of a waiver, the need to ensure IT structures for trading venues are sufficient in quality and co-operation between trading venues is effective in order to ensure the timely and correct publication of the required data. In the DP ESMA proposed the following options to collect, consolidate and publish relevant data for these purposes:
Volume traded via waiver facilities
ESMA considers that each trading venue (ie dark pool) operating reference price waiver or relevant negotiated trade waiver has to submit the total volume trading (the volume of individual transactions calculated by multiplying price times number of units and the total volume being the sum of all individual transaction in euro executed via each waiver facility during the 12 month period to ESMA. Trading in currencies other than the euro will be converted into euro using the ECB monthly average rate.
The volumes collected from the waiver facilities then have to be measured against the volume traded in the on-venue market as a whole. For this ESMA has proposed two approaches:
- Collation of volume from trading venues:
Under this proposal ESMA will request all trading venues to submit the total volume of all trading during the relevant 12 month period to ESMA in parallel to the requests for the volumes executed via the waiver facilities. Accordingly, ESMA notes the quality of data submitted should be of sufficiently high standard and consistent.
- Collation of volume from Consolidated Tape Providers (CTP’s):
Under this option ESMA considers the data of the entire on-venue trading volume per financial instrument could be retrieved from CTP’s. Under this option ESMA would not need to aggregate
trading volumes from a number of trading venues and all data would be received via one channel.
Consolidation and calculation of actual volumes
ESMA noted that it is minded to establish technical arrangements seeking to ensure that the data is consolidated on a timely basis and procedures for corrections are adequately implemented and would design a template for such purposes.
ESMA will make available to the public on its website free of charge and machine readable all necessary information for the operation of the volume cap mechanism and the monitoring of thresholds.
Phase 2 (Dec 2014 to September 2015):
Final Report 2014/1569 (FR), Consultation Paper 2014/1570 (CP2) and Final Report 2015/1464 (FR3)
In CP2 and in the proposed RTS 10 (in CP2), ESMA elaborated on its proposals set out in CP1. The most significant development was that ESMA noted that the use of waivers should be monitored on a more frequent basis and therefore proposes to request data from trading venues and CTP’s and perform the relevant calculations twice a month. Updates would still be published monthly by ESMA or twice a month in cases where an initial calculation produces a +3.75% (per trading venue) or +7.75% (overall trading venue) as prescribed in Level 1. To this end trading venues and CTP’s will be required to send all data (in respect of the immediately prior half month period) on the first and sixteenth day of each calendar month by 13:00 CET to their respective competent authorities (subject to change to the extent that they fall on a public holiday or non-business day in which case reports should be submitted the following working day).
In order to simplify the periodic submission of data, ESMA notes that trading volumes should be requested for the previous 15 days (rather than 12 months). The volumes will then be aggregated with data collected previously. For example on 01 March 2017, trading venues and CTP’s will be requested to submit data for the period 16 February 2017 to 28 February 2017 (end of the month). Volumes collected will then be added to the calculation sample from which the volumes for the period from 16 February 2016 to 29 February 2016 (end of the month) would have been removed.
ESMA notes that it also foresees the need for ad hoc requests and therefore trading systems and CTP’s should ensure that they have systems and IT infrastructures in place to submit by close of business on the next working day following any such request, data for the last 12 months aggregated over different time horizon’s (the last year, last 15 days).
A further significant development at Level 2 was ESMA’s confirmation that the obligation to put in place systems to generate this data will commence in 2016. Article 5(3) of MiFIR notes that “the period for the publication of trading data by ESMA, and for which trading in a financial instrument under those waivers is to be monitored shall start on 03 January 2016. On this basis, trading venues and CTP’s will have to submit their first report to their respective competent authority by 03 January 2017. This report will include trading data for the previous 12 months (03 January 2016 to 31 December 2016) and will be published by ESMA within five working days.
Many stakeholders have objected to this proposal arguing that it is flawed, given that both the numerator and denominator in the calculation will be much changed by all market structure changes to be put in place by MiFID2, and owing also to that the provision of any data into the volume cap mechanism in this period will most likely to be provided on an inconsistent, non-harmonised, and non-comparable basis.
ESMA has now produced its final version of the draft RTS (now re-numbered as RTS 3 in Annex I to FR3), which adopts, without material change, the approach that was advocated by ESMA in CP2. Assuming the draft RTS is not rejected in the final stage of the legislative process, this means that trading venues and CTP’s only have months to ensure that they have adequate personnel and IT systems in place to commence the relevant data collection from January 2016.