Investment firms must set up all necessary infrastructure to be able to carry out calculations of the investment firm's position versus systematic internaliser's thresholds within two weeks after the publication by ESMA of the EU-wide reference data.
Systematic internaliser legal framework, somewhat vague after the MiFID II level 1 text, has become almost complete recently.
What currently is still lacking, it is the data on the total volume of trading or total number of transactions in the same financial instrument in the European Union - as a reference value for the investment firms' business activity comparisons.
After the adoption of the MiFID II Directive it was contentious who should be in charge for developing these EU-wide numbers, in particular, whether this should function on a commercial service basis or on a officially-authorised (for example by ESMA) data.
ESMA's document issued on last Friday - Questions and Answers on MiFID II and MiFIR, Transparency topics of 4 November 2016 (ESMA/2016/1424) - demonstrates, the EU financial regulator has decided to take control over the process.
In the said document ESMA communicated, it intends to publish the necessary information within a month after the end of each assessment period – i.e. by the first calendar day of months of February, May, August and November every year.
It needs to be recalled Article 15(1) MiFIR requires firms that meet the definition of systematic internaliser to notify their competent authority.
To compare with this definition systematic internaliser thresholds for financial instruments have been stipulated (Articles 12 - 17 of the Commission Delegated Regulation (EU) of 25.4.2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive, C(2016) 2398 final).
The investment firm's position versus thresholds stipulated in the above Regulation are to be assessed on a quarterly basis on the basis of data from the past 6 months.
The assessment periods start on the first working day of the months of January, April, July and October.
Pursuant to the said ESMA's Q&As of 4 November 2016 investment firms have to perform the calculations and comply with the systematic internaliser regime (including notification to their national competent authorities) no later than by the fifteenth calendar day of the months of February, May, August and November every year.
Given that ESMA will publish the necessary information within a month after the end of each assessment period – i.e. by the first calendar day of months of February, May, August and November every year, two weeks only for calculations and compliance with the systematic internaliser regime (including notifications to national competent authorities) seem to be overly prescriptive and drastically challenging requirement.
To be a viable, the investment firm need to possess all necessary skills, resources, infrastructure and take all this on-board at the right time.
The question is, was it not possible to arrange the process in more convenient way? Why two weeks only? The European Commission's proceedings sometimes take years, not weeks.
It is apparent that the European bureaucrats are quite scrupulous when it comes to their own interests and convenience, and I can understand this, but why they don't show any empathy to other people's needs?
Do they like to work in a hassle and stress? I don't think so...
If more ESMA's Q&As on MiFID II proceed this way I'm afraid it could be extremely irritating.
Not to mention the fact that the two-weeks period is the ESMA's invention, not set explicitly in the legislative texts.
It does not, however, change the fact that what firms can do now, is to prepare in advance and with caution for these extreme timelines.
It is useful to add, the situation in that regard is complicated by the absence of any transitional provisions in MiFID II itself, as well as in the aforementioned Regulation of 25.4.2016.
Hence, in the Q&As of 4 November 2016 ESMA said it will publish the necessary EU wide data for the first time by 1 August 2018 covering a period from 3 January 2018 to 30 June 2018.
It means investment firms will have to perform their first assessment and, where appropriate, comply with the systematic internaliser obligations (including notifying their national competent authority) by 1 September 2018.