Response to ESMA on the MiFIR Report on SIs in Non-equity Instruments

The objective of MiFID II / MiFIR was to bring OTC multilateral trading to lit multilateral trading venues in an attempt to increase transparency and improve price formation and investor protection. Unfortunately, the analysis on the evolution of the EU non-equity market structure hints to the fact that policy measures have not been as successful as originally expected.

Bonds and derivatives markets with deep pools of high-quality liquidity are a crucial component of healthy ecosystems as well as an important contributor to competitive, transparent and stable EU financial markets.

Ensuring transparency in these markets requires tailored rules that balance the need for enhanced transparency whilst recognising the nuanced working of such markets. Based on this, we believe more needs to be done to guarantee the transparency objectives of MiFID II and the G20 mandate can be fulfilled.

As highlighted by ESMA in the consultation paper, based on our observations there seems to be gaps in the application and enforcement of the SI legislative framework to the detriment of transparent trading. There needs to be more clarity on whether there is a risk of an unlevel playing field between SIs and multilateral trading venues. FESE therefore calls for increased reflection on the appropriate application and subsequent enforcement of existing rules.

Furthermore, for certain instruments, such as bonds and securitised derivatives, we would recommend using the 100,000 EUR denomination threshold to delineate lit (RM, MTF and OTF) trading from dark (OTC and SI) trading. Limiting trading at and below the 100,000 EUR threshold to transparent multilateral venues would reduce market fragmentation and increase liquidity and pre- and post-trade transparency, in particular for retail investors.