Response on the transparency regime for non-equity and the DTO

We fully agree with the objectives of MiFID II /R to increase pre- and post-trade transparency for non-equity, but we fear that these have not materialised. To solve this, we suggest the following changes to the current regulatory framework:

On pre-trade transparency:

• The regime needs to be simplified and made more coherent for the market. Therefore, we support the proposal to remove the SSTI waiver and to recalibrate the methodology to determine LIS thresholds where appropriate, including the lowering of the LIS threshold e.g. for commodity derivatives and bonds.
• For bonds, we suggest allowing the execution of trades which are at and below a threshold of 100,000 EUR on transparent RMs, MTFs and OTFs only. This would significantly reduce market fragmentation, aggregate liquidity and increase pre- and post-trade transparency, in particular for retail investors.
• With respect to ETDs markets, we support ESMA’s current approach and methodology which aims to increase the proportion of lit trading while preserving the needs of market participants for pre-arranged transactions based on an analysis of the instruments’ liquidity. In this context, we believe a tailored approach finetuning - possibly lowering - the current LIS threshold could be investigated for some ETDs.
• These measures should be accompanied by removing the SSTI-concept also for the SI-quoting obligation and replacing it by a reference to (a high percentage of) the LIS threshold.
• The regime is ill-fitted for commodity derivatives markets and we therefore welcome ESMA’s willingness to review the current design at both Level 1 and 2. We believe that the hedging exemption available in Art. 8(1) of MiFIR should be extended to cover all market participants managing risks arising from activity in the physical market, including financial counterparties. Such a solution would allow the building of liquidity in the order book to continue without jeopardising the ability of commodity derivatives markets to fulfil their function. Secondly, such a change should be combined with relevant amendments in Level 2 which would remove the current factors leading to inappropriate illiquid (‘IL) and Large in scale (‘LIS’) thresholds (e.g. using notional values which are highly reliant on market prices).
• We agree with ESMA’s proposal to require SIs to make available data free of charge 15 minutes after its publication. To improve the quality of published pre-trade transparency information, in particular, in traditionally opaque markets, the requirements of SIs should be on the same level as those of trading venues. This would not only level the playing field between SIs and trading venues further but would also improve the overall level of pre-trade transparency in financial markets.

On post-trade transparency:

• We share ESMA’s views on the need to create a less complex post-trade transparency regime. While we agree with the removal of the SSTI deferral, we would not support a lowering of post-trade LIS thresholds uniformly across all asset classes to compensate for the adaption to the waiver regime.
• Only a fraction of all non-equity transactions should be eligible for deferred publication i.e. for bonds, the illiquid and LIS deferrals should be maintained. Other than that, we suggest that the number of other options available in the post-transparency regime should be reduced, in particular waivers that enable only partial publication or no publication of trades as well as the 4-week waiver. For derivatives, we propose to introduce a harmonised and simplified regime, requiring the publication of all transaction-related data by the next business day (no later than t+2).

On the liquidity calculations for bonds:

• To enhance transparency, we believe that the criteria for assessing the liquidity of bonds need to change so as to increase the number of bonds that are deemed liquid and therefore subject to the transparency requirements. The amended criteria should take into account market reality, as highlighted in our response to Q25.
• We support the move to stage 2 for the liquidity assessment of bonds and the determination of the pre-trade SSTI thresholds for bonds (except ETCs and ETNs). However, we think it is only a small step into the direction of increasing transparency for bonds markets.