On November 9, 2018, ESMA published a call for evidence on periodic auctions for equity instruments. ESMA wishes to gather more information on the functioning of so-called frequent batch auction trading systems. Frequent batch auctions for equities have rapidly gained market share since the introduction of the Double Volume Cap mechanism under the revised Markets in Financial Instruments package. This has given rise to concerns that this trading may be used as alternative to trading under the DVC waivers and/or as a way to avoid the pre-trade transparency requirements of systematic internalisers. ESMA has conducted a stock-take, assessing seven frequent batch auction systems operating in the EU and sets out its findings in the call for evidence.
In the call for evidence, ESMA distinguishes conventional periodic auctions from frequent batch auctions and outlines the key characteristics of frequent batch auction systems operating in the EU. ESMA sets out its observation of a rising market share for equity trading on frequent batch auctions and considers developments in equity trading since the application of MiFID II. It seeks input on a range of questions focused on these issues.
Responses to the call for evidence are invited by January 11, 2019. The call for evidence will be of particular interest to trading venues and investment firms trading in equity instruments, but ESMA also welcomes responses from any other market participants including trade associations and industry bodies, institutional and retail investors.
ESMA will use the feedback to the call for evidence to assess whether and to what extent frequent batch auction systems can be used to circumvent the MiFID II transparency requirements and will develop appropriate policy measures if necessary.
The call for evidence is available at: https://www.esma.europa.eu/sites/default/files/library/esma70-156-785_call_for_evidence_periodic_auctions_for_equity_instruments.pdf.
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