European Union: Further Amendments To Technical Standards On EU Systematic Internalisers' Quote Rules

On September 20, 2018, the European Securities and Markets Authority published an Opinion and revised draft amendments to the Regulatory Technical Standard on the equity transparency obligations of trading venues and investment firms. The RTS, known as RTS 1, is set out in Commission Delegated Regulation (EU) 2017/587, supplementing the Markets in Financial Instruments Regulation.

Under MiFIR, Systematic Internalisers must make public firm quotes in equity instruments. The quotes must: (i) be at least equivalent of 10% of the standard market size for the quoted instrument; (ii) include both a bid and offer price; and (iii) reflect the prevailing market conditions for that instrument. RTS 1 specifies the concept of "prices reflecting prevailing market conditions" as being "close in price, at the time of publication, to quotes of equivalent sizes for the same financial instrument on the most relevant market in terms of liquidity."

ESMA submitted final draft amendments to RTS 1 in March 2018, which provided that, where a financial instrument is subject to the "minimum tick size" regime, the quotes of an SI can only adequately reflect prevailing market conditions when those quotes reflect the minimum price increments ("tick sizes") quoted by EU trading venues trading the instrument.

In August 2018, the European Commission published a Communication stating that it proposed to endorse the proposed amended RTS 1 once ESMA had made certain changes to the draft text to reflect a number of concerns, including that the application of tick sizes should be limited to shares and depository receipts. ESMA acknowledges that the amendment requested by the Commission will ensure the application of tick sizes to SIs' quotes for most equity instruments in a timely fashion. ESMA has agreed to limit the application of tick sizes to quotes of SIs to shares and depositary receipts and has sent its Opinion and a revised draft RTS 1 to the Commission for endorsement.

The Opinion and related documents are available at: https://www.esma.europa.eu/press-news/esma-news/esma-agrees-limit-application-tick-sizes-systematic-internalisers-quotes-shares  and details of the Commission Communication are available at: https://finreg.shearman.com/european-commission-communication-on-proposed-ame.

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