2.3. Objetivos de la Relajación:
2.3.9. Técnicas de Estiramiento
73. A key aspect of the SI regime is the concept of the SMS. MiFIR requires SIs to compy with pre-trade transparency requirements when dealing in sizes up to the SMS and to make public quotes - a firm bid and a firm offer – for sizes of at least 10% of the SMS for the share, depositary receipt, ETF or certificate for which they are SIs.
74. Article 14(4) of MiFIR requires shares, depositary receipts, ETFs and certificates to be grouped together in classes on the basis of the arithmetic average value of the orders executed in the market for that financial instrument. The SMS must be of a size representative of the arithmetic average value of the orders executed in the market for the financial instruments included in each class.
Analysis following feedback from stakeholders
75. On the basis of the responses to the DP and with the objective of maintaining and enhancing transparency, ESMA proposed in the CP to establish equivalent classes by AVT for financial instruments with an AVT larger than €20,000. The SMS for the class with an AVT between 0 and €20,000 would be €10,000, the SMS for the next class (€20,000 - €40,000) would be €30,000 and so forth. ESMA also favoured a recalculation of the AVT for each financial instrument on an annual basis. In other words, ESMA proposed to amend the SMS under current MiFID I and to group the two smallest classes into a single class for shares with an AVT between zero and €20,000 and set a SMS of €10,000.
76. To recall, this corresponded to the second of the three option presented by ESMA in its DP, which were;
i. Option 1: maintain the existing classes while lowering the SMS for the smallest class by AVT from €7,500 to €5,000;
ii. Option 2: group the two smallest classes into a single class for shares with an AVT between zero and €20,000 and set an SMS of €10,000; or
iii. Option 3: maintain the current classes and SMSs for each class as under Table 3 of Annex II of the Implementing Regulation (EC) No 1287/2006 (status quo option). 77. A slight majority of respondents disagreed with the ESMA proposal. However, within
the contrary in favour of a more stringent regime. The arguments put forward included the following:
i. Those supporting lower SMSs stressed that, as showed in the DP, around 95% of all trades have a volume of up to EUR 10,000. The introduction of a class with an AVT of up to EUR 20,000 and an SMS of EUR 10,000 as proposed by ESMA would hence result in almost every trade falling below the SMS. Whilst this would lead to increased transparency this must be, in the respondents’ view, weighed against the protection of SIs against unreasonable risks. For them, the right equilibrium cannot be achieved if nearly all trades are below the SMS.
In this regard, ESMA would like to stress that, as already highlighted in the DP, it is vital to further reinforce the objective of increased transparency for SIs through well- targeted implementing measures. However, ESMA is unconvinced that the reduction in the average size of transaction necessarily reflects greater market risk for SIs. ii. Those supporting higher SMS thresholds stressed in particular that it is crucial to
avoid creating significantly less rigorous transparency regime for SIs compared to the one generally enforced by trading venues in respect to market makers. Some suggested an alignment of the quantitative thresholds between SIs (SMS thresholds) and trading venues (LIS threshold). In their view, the methodology for the calculation should be changed, with ADT also applied to the SI instead of AVT. For them, the weakness of the AVT approach is simply that as liquidity increases for a specific share, the average size of transaction usually tends to decrease, resulting in lower SMS threshold for that share above which one can trade in the dark, which is completely counter-intuitive.
ESMA notes that MiFIR defines how the SMS should be calculated for shares and equity-like instruments and that that size shall reflect the average size of transaction for each class of financial instruments.
78. More generally, ESMA appreciates the concern raised by certain respondents with regard to the unintended consequences that a significant misalignment of the respective transparency regimes for trading venues and SIs could have. Respondents noted in this respect that SIs do not truly contribute to price formation. Due to the volume caps that will apply to dark trading on trading venues and to the trading obligation for shares, SIs might become an increasingly attractive option for accommodating current trading activity. In order to address such a development, which would go against the Level 1 framework objective to foster transparency, a key point for regulators and policymakers should be to ensure the bilateral nature of SI activity.
79. According to those respondents, some recitals in MiFID II/MiFIR may be used by market participants to argue that riskless counterparty trading can be undertaken by SIs, thus providing an alternative home for current OTC broker crossing business. Such a
trading venues) together with their new ability to provide price improvement under MIFID II, would effectively see the re-introduction of an organised trading facility (OTF) category within the equity space. This is because, if ultimately allowed for the SI, riskless principal trading would de facto enable the matching of two client orders by interposing the SI own account between them for a fraction of time, i.e. taking very limited market/counterparty risk.
80. ESMA believes that this would indeed go against the political, technical and legal agreement underpinning the Level 1 text. It is worth noting that ESMA has acknowledged this is an issue and raised it in its December 2014 Technical Advice to the Commission but ESMA cannot provide further clarity in the final draft RTS as it has no relevant empowerment to do so.
Proposal
81. After careful consideration, ESMA has decided to maintain the proposal presented in the CP which represents the best possible compromise between those requesting more stringent thresholds and those advocating for a more accommodating regime for SIs. The proposal is summarised in the table below.
Table 4: Standard market size
Average value of transactions (AVT) in EUR AVT< 20 000 20 000 ≤ AVT < 40 000 40 000 ≤ AVT < 60 000 60 000 ≤ AVT < 80 000 80 000 ≤ AVT < 100 000 100 000 ≤ AVT < 120 000 120 000 ≤ AVT < 140 000 Etc. Standard market size 10 000 30 000 50 000 70 000 90 000 110 000 130 000 Etc.
82. In order to ensure consistent implementation in the Union, the methodology to be used for calculating the average value of transactions has been specified in the final draft RTS which also clarifies that calculations should take into consideration all transactions executed in the Union whether executed on or outside a trading venue excluding reference price, negotiated and post-trade LIS transactions. In that context, post-trade LIS transactions are transactions for which deferred publication is permitted or, in other words, the smallest threshold for each ADT class set out in table 4 of Annex II of the final draft RTS.