Transparency (MiFID)
The transparency in the MiFID context can be understood as the disclosure of information related to quotes (pre-trade transparency) or transactions (post-trade transparency) relevant to market participants for identifying trading opportunities and checking best execution and to regulators for monitoring the behaviour of market participants (Commission Staff Working Document Impact Assessment Accompanying the document Commission Delegated Regulation supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions {C(2016) 2860 final} {SWD(2016) 156 final}, 18.5.2016, SWD(2016) 157 final, p. 66).
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31 May 2023 Amended rules for transparency calculations to start applying on 5 June 2023
16 May 2023 and published in the EU Official Journal
ESMA Consultation Paper, Manual on post-trade transparency (ESMA70-156-6307) focuses on the new Level 3 guidance that will be included in the manual which is meant to provide further clarifications on:
The manual will provide a general overview of the post-trade transparency regime for equity, equity-like and non-equity instruments and will include in one single document:
17 January 2023
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MiFID I imposed transparency requirements only for shares:
- post trade transparency referred to the obligation to publish a trade report every time a transaction in a share has been concluded (to enable users to compare trading results across trading venues and check for best execution);
- pre-trade transparency referred to the obligation to publish (in real-time) current orders and quotes (i.e. prices and amounts for selling and buying interest) relating to shares (to provide users with information about current trading opportunities, facilitate price formation and assist firms in providing best execution to their clients).
Transparency is also intended to address the potential adverse effect of fragmentation of markets and liquidity.
MiFID II/MiFIR extend transparency requirements to all other financial market instruments (other equity instruments and non-equity instruments), hence, the process of crafting the transparency regime under MiFID II involved the challenging tasks of:
- setting thresholds for assessing the liquidity of all non-equity financial instruments captured by MiFID II, as well as
- calibrating the different waivers for pre-trade transparency and deferrals to post-trade transparency which are of particular relevance to protect large size transactions in liquid instruments from predatory trading and, hence, avoid unintended consequences of the new transparency regime on liquidity (ESMA Annual Report 2015 of 15 June 2016, ESMA/2016/960, p. 39).
Steven Maijoor, the Chair of European Securities and Markets Authority, The state of implementation of MIFID II and preparing for Brexit, WFE Annual Meeting 2018, 3 October 2018, ESMA70-156-427
MiFID II introduces an ambitious pre- and post-trade transparency regime applicable to all equity and non-equity instruments.
This is a major change compared to MiFID I which only applied pre- and post-trade transparency to equities.
Concerning pre-trade transparency, MiFID II requires trading venues and so-called systematic internalisers – i.e. firms that trade on their own account with clients on a systematic and substantial basis – to make public quotes in instruments they are trading.
On post-trade transparency, transactions, regardless of whether they are executed on trading venues or OTC, have to be published in real-time.
The full transparency regime under MiFID II/MiFIR however only applies to liquid instruments, for illiquid instruments there are a number of exemptions. The transparency obligations are not applicable to primary market transactions such as issuance, allotment or subscription for securities and the creation and redemption of units in ETFs (Questions and Answers on MiFID II and MiFIR transparency topics, ESMA70-872942901-35).
As regards equity and equity-like instruments (Articles 3, 4, 6 & 7 of MiFIR) MiFID I had requirements for pre‑ and post‑trade transparency for the trading of shares admitted to trading on regulated markets. MiFID II extends these requirements to shares admitted to trading on MTFs, and to equity‑like financial instruments trading on regulated markets and MTFs. To strengthen transparency, MiFID II also revises the existing framework for shares.
As regards bonds and derivatives (Articles 8 to 11 of MiFIR) MIFID II introduces a calibrated pre‑ and post‑trade transparency regime for bonds and derivatives that have liquid markets and are admitted to trading on trading venues.
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See also:
European Single Access Point (ESAP)
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It is noteworthy, European Commission Proposal of 25 November 2021 for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 600/2014 as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders (COM(2021) 727 final) includes changes to the equity and non-equity transparency regime.
In the said draft of 25 November 2021 the European Commission proposes to remove the size specific to the instrument (SSTI)-waiver and deferral to remove the competitive advantage currently granted to request for quote and voice trading systems compared to other trading systems.
The Explanatory Memorandum to said European Commission Proposal of 25 November 2021 assessed that the use of waivers as certain exemptions from the transparency rules was responsible for the relatively low percentage of share trades that are executed on price transparent venues” and therefore proposed rules to curb the use of the most commonly used transparency waivers.
ESMA is supportive of the above proposals (see ESMA Letter of 9 March 2022 to the Council of the European Union and the European Parliament on MiFIR Review Proposal (ESMA70-156-5299)) - to lessen current complexities of the transparency regime. However, ESMA suggests that the removal of the SSTI should be counterbalanced by lower large in scale (LIS) thresholds to be specified in Level 2 to protect orders and transactions from negative market impact.
It is noteworthy, on 5 September 2022 the European Commission explained (Questions and Answers on MiFID II and MiFIR transparency topics, ESMA70-872942901-35) that transfers of financial instruments between two branches of the same legal entity or a branch and its parent company are not subject to the transparency or transaction reporting requirements, as they do not entail a change in the ownership of financial instruments.
Post-trade transparency
Under MiFID II, all trades must be immediately included in a trade report. Such trade report, containing the volume and price must be published to the market. Post-trade transparency requires the timely publication of trade data to an Approved Publication Arrangement (APA).
The said data duplicate some of the fields and flags necessary to meet the MiFID II regulatory transaction reporting requirements.
Briefing Note, ESMA data systems for MiFID II/MiFIR and MAR, 6 December 2017, ESMA71-99-669
FITRS - ESMA system to provide data on transparency calculations
MiFIR introduces transparency obligations that require the publication of transparency thresholds applicable to each financial instrument.
ESMA will receive, either directly from trading venues, Approved Publication Arrangements (APAs) and Consolidated Tape Providers or from NCAs, reference data and/or quantitative data for both equity and non-equity instruments.
FITRS will support the MiFIR transparency regime by publishing, the applicable transparency calculations for each instrument subject to transparency requirements.
Entities responsible for these post-trade transparency obligations as regards bonds, structured finance products, emission allowances and derivatives are prescribed by Article 7 of the Commission Delegated Regulation (EU) 2017/583 of 14 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments with regard to regulatory technical standards on transparency requirements for trading venues and investment firms in respect of bonds, structured finance products, emission allowances and derivatives (see box below).
There is a single-sided disclosure, which means that only one counterparty has the obligation to disclose the details of trade. The said rules differentiate the responsibility depending on the execution venue. To be brief, the entity responsible for publishing the report is:
- for trades on an regulated market or an MTF - the said venue,
- for trades with a systematic internalisers (SI) - the SI,
- for OTC trades - the seller.
Such reporting structure has its implications. In particular, considering the above seller’s responsibility for OTC trades’ transparency reporting, some unprepared for these new onerous obligations may be incentivised to move trading only on-venue or with SIs. Data must be made public within one minute of execution for equity and equity like products, the deadline for non-equity is fifteen minutes of execution (five minutes as from 2020).
Commission Delegated Regulation (EU) 2017/583 of 14 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments with regard to regulatory technical standards on transparency requirements for trading venues and investment firms in respect of bonds, structured finance products, emission allowances and derivatives (RTS 2)
Article 7
Post-trade transparency obligations
(Article 10(1) and Article 21(1) and (5) of Regulation (EU) No 600/2014)
1. Investment firms trading outside the rules of a trading venue and market operators and investment firms operating a trading venue shall make public by reference to each transaction the details set out in Tables 1 and 2 of Annex II and use each applicable flag listed in Table 3 of Annex II.
2. Where a previously published trade report is cancelled, investment firms trading outside a trading venue and market operators and investment firms operating a trading venue shall make public a new trade report which contains all the details of the original trade report and the cancellation flag specified in Table 3 of Annex II.
3. Where a previously published trade report is amended, investment firms trading outside a trading venue and market operators and investment firms operating a trading venue shall make the following information public:
(a) a new trade report that contains all the details of the original trade report and the cancellation flag specified in Table 3 of Annex II;
(b) a new trade report that contains all the details of the original trade report with all necessary details corrected and the amendment flag as specified in Table 3 of Annex II.
4. Post-trade information shall be made available as close to real time as is technically possible and in any case:
(a) for the first three years of application of Regulation (EU) No 600/2014, within 15 minutes after the execution of the relevant transaction;
(b) thereafter, within 5 minutes after the execution of the relevant transaction.
5. Where a transaction between two investment firms is concluded outside the rules of a trading venue, either on own account or on behalf of clients, only the investment firm that sells the financial instrument concerned shall make the transaction public through an APA.
6. By way of derogation from paragraph 5, where only one of the investment firms party to the transaction is a systematic internaliser in the given financial instrument and it is acting as the buying firm, only that firm shall make the transaction public through an APA, informing the seller of the action taken.
7. Investment firms shall take all reasonable steps to ensure that the transaction is made public as a single transaction. For that purpose, two matching trades entered at the same time and for the same price with a single party interposed shall be considered to be a single transaction.
8. Information relating to a package transaction shall be made available with respect to each component as close to real-time as is technically possible, having regard to the need to allocate prices to particular financial instruments and shall include the package transaction flag or the exchange for physicals transaction flag as specified in Table 3 of Annex II. Where the package transaction is eligible for deferred publication pursuant to Article 8, information on all components shall be made available after the deferral period for the transaction has lapsed.
Questions and Answers on MiFID II and MiFIR transparency topics, ESMA70-872942901-35
Question 7 [Last update: 03/10/2017]
When should the operator of an RFQ system provide pre-trade transparency?
Answer 7
Trading venues are responsible for designing their RFQ systems in compliance with the pre-trade transparency requirements defined in MiFIR and specified in Annex I of RTS 1 and RTS 2.
The arrangements used may differ depending on the approach chosen by individual trading venues.
Such approaches might include arrangements where trading interests become executable after a pre-defined period of time but would, in any circumstances, require the indications of interest to be disclosed no later than when they become actionable and in any case before the conclusion of a transaction.
The disclosure of the pre-trade quotes or actionable indications of interest only at the time of execution would not be consistent with the obligations set in Annex I of RTS 1 and 2.
Question 8 [Last update: 03/10/2017]
Do real time post-trade transparency requirements apply equally to trading venues and systematic internalisers?
Answer 8
Yes, the requirements in Articles 6 and 10 of MiFIR as further specified in Article 14 of RTS 1 and Article 7 of RTS 2 apply to both trading venues and investment firms. ESMA expects that trading venues and investment firms, in particular systematic internalisers, that use expedient systems publish transactions as close to real time as technically possible. In particular, since systematic internalisers are competing with trading venues over customers’ order flow, it is important to provide for a level playing field. Therefore, trading venues and systematic internalisers using similar technology and systems should process transactions for post-trade publication at the same speed.
Non-equity transparency
Question 5 [Last update: 03/10/2017]
What are normal trading hours for non-equity instruments? Are investment firms allowed to postpone publication of transactions until the opening of the next trading day in respect of trades in non-equity instruments taking place outside of normal trading hours?
Answer 5
Normal trading hours for non-equity instruments should be set on basis of the daily trading hours of trading venues trading non-equity instruments. Normal trading hours may therefore be different for different (classes of) non-equity instruments.
Transactions that take place on a given trading venue should be made public as close to real-time as possible. Transactions in a non-equity instrument that take place outside a trading venue during the normal trading hours of the trading venues trading that instrument should be published as close to real-time as possible. Where more than one trading venue trades that instrument, investment firms/APAs are expected to check whether the transaction took place within the daily trading hours of any of those trading venues. Transactions that take place outside the daily trading hours of trading venues trading that instrument should be made public before the opening of trading on those trading venues on the next trading day.
Third country issues
Question 2 [Last update: 15/11/2017]
How are transactions with a third country dimension treated for the purpose of the transparency requirements (Articles 3,4, 6-11, 20, 21 of MiFIR and as further specified in RTS 1 and 2), and for the systematic internaliser regime (Article 4(1)(20) of MiFID II and Articles 12-16 of Commission Delegated Regulation (EU) No 2017/565)?
Answer 2
MiFID II and MiFIR do not provide specific guidance on the treatment of transactions with a third country dimension, i.e. trades executed by EU investment firms outside the EU and trades by branches or subsidiaries of non-EU firms within the EU, for the purposes of the MiFIR transparency regime and the determination of systematic internalisers. ESMA considers it important to clarify how those MiFID II / MiFIR requirements should apply to transactions with a third country dimension.
Transactions with a third country dimension in this context include transactions where at least one counterparty is an investment firm (IF) authorised in the EU or where the trade is executed on an EU trading venue by a non-EU firm. Transactions where both counterparties are not authorised EU investment firms and that are executed outside the EU are in any case not subject to the MiFIR transparency requirements and do not count for the systematic internaliser determination.
The following general principles should apply:
1. Transactions concluded on EU trading venues
The transparency requirements always apply to transactions concluded on EU trading venues, irrespective of the origin of counterparties trading on the trading venue and regardless whether the counterparties to the transaction are authorised as EU investment firm or not.
2. Transactions executed on non-EU venues
ESMA already published an Opinion (ESMA70-154-165, here) providing guidance in particular with respect to transactions concluded on third-country venues by EU investment firms. The opinion clarifies that only transactions concluded on third-country venues meeting the criteria established in the ESMA’s opinion and listed in the Annex of the opinion (“comparable third country trading venues” thereafter) should not be subject to the MiFIR transparency regime. Transactions concluded on other third-country trading venues should be treated as OTC transactions and reported through an APA.
3. OTC transactions involving an EU investment firm
If one of the parties of an OTC-transaction is an IF authorised in the EU, the transaction is considered as executed within the EU: the MiFIR transparency requirements apply and the transaction will be included for the systematic internaliser determination.
4. Transactions of non-EU subsidiaries of EU IFs
Subsidiaries are independent legal entities and subject to the regulatory regime of the third country in which they are established. Therefore, the MiFIR transparency requirements do not apply, unless the transaction is concluded on an EU trading venue. The transactions undertaken by such subsidiaries do not count for the Systematic internaliser determination.
5. Transactions involving a non-EU branch of an EU IF
Contrary to subsidiaries, branches do not have legal personality. Therefore, transactions by non-EU branches of EU IFs are treated as transactions of the EU parent company and, therefore, have to be made transparent under the MiFIR rules.
The table below provides more details on the treatment of transactions with a third country dimension for the purpose of the MiFID transparency requirements and the determination of whether an investment firm is a systematic internaliser (SI):
| Case | Investment Firm (IF) |
Counterparty/ Client |
Execution place | Mifir transparency |
Count for SI determination (numerator) |
Count for total trading within the EU (denominator or SI calculations) |
| 1 | EU IF | EU/non-EU | Comparable third country TV | No | No | No |
| 2 | EU IF | non-EU | OTC | Yes | Yes | Yes |
| 3 | non-EU Branch of the EU IF | EU/non-EU | Comparable third country TV | No | No | No |
| 4 | non-EU Branch of the EU IF | non-EU | OTC | Yes | Yes | Yes |
| 5 | non-EU Subsidiary of the EU IF | EU/non-EU | non-EU TV/OTC | No | No | No |
| 6 | non-EU Subsidiary of the EU IF | EU/non-EU | EU TV | Yes | No | Yes |
| 7 | non-EU firm | EU/non-EU | EU TV | Yes | No | Yes |
| 8 | EU branch of the non-EU firm | EU/non-EU | EU TV | Yes | No | Yes |
| 9 | EU branch of the non-EU firm | EU/non-EU | Comparable third country TV | No | No | No |
| 10 | EU branch of the non-EU firm | non-EU | OTC | Yes | Yes | Yes |
| 11 | EU subsidiary of the non-EU firm | EU/non-EU | EU TV | Yes | No | Yes |
| 12 | EU subsidiary of the non-EU firm | EU/non-EU | Comparable third country TV | No | No | No |
| 13 | EU subsidiary of the non-EU firm | non-EU | OTC | Yes | Yes | Yes |
Detailed explanation of the table
- Case 1 – EU investment firm (IF) trading on a comparable third country trading venue (TV): The transaction is treated as executed “on venue”. Therefore, the MiFIR transparency requirements do not apply (to avoid double reporting) and the transaction is not counted for the SI-determination. For transactions concluded on non-compliant third country TVs, case 2 applies.
- Case 2 – EU IF trading with a non-EU counterparty/client OTC: An OTC- transaction, i.e. either a transaction concluded on a non-comparable third country TV or a pure OTC-transaction, that involves an EU IF is subject to the transparency requirements and has to be published through an APA. The transaction counts for the SI-determination (both for the numerator and the denominator).
- Case 3 – non-EU branch of an EU IF trading on a comparable third country TV: The trade is treated as executed “on venue”. Therefore, the same treatment as under case 1 applies, i.e. MiFIR transparency requirements do not apply and the trade is not counted for the SI-determination. For transactions concluded on non-compliant third country TVs, case 4 applies.
- Case 4 - non-EU branch of an EU IF trading with a non-EU counterparty/client OTC: Non-EU branches of EU IF are treated like their EU parent company. Therefore, the same treatment as under case 2 applies. An OTC-transaction, i.e. either a transaction concluded on a non-comparable third country TV or a pure OTC- transaction, is subject to the transparency requirements and has to be published through an APA. The transaction counts for the SI-determination of the parent company (both the numerator and the denominator).
- Case 5 – non-EU subsidiary of an EU IF trading on a non-EU TV or OTC: Subsidiaries are independent legal entities and subject to the regulatory regime of the third country in which they are established. Therefore, the MiFIR transparency requirements do not apply. The transaction does not count for the SI determination.
- Case 6 – non-EU subsidiary of an EU IF trading on an EU TV: The transparency requirements apply at the level of the trading venue. Therefore, the MiFIR transparency requirements will apply and the transaction will be included in the denominator (total trading in the EU) for determining the SI activity. Since subsidiaries are independent legal entities they are subject to the regulatory regime of the third country in which the subsidiary is established and do not have to perform the SI test. The transaction does hence not count for the numerator for the SI-determination.
- Case 7 – non-EU firm trading on an EU TV: The transparency requirements apply at the level of the trading venue. Therefore, the transparency requirements will apply and the transaction will be included in the denominator (total trading in the EU) for determining the SI activity. However, it does not count for the numerator.
- Case 8 – EU branch of a non-EU firm trading on an EU TV: The transparency requirements apply at the level of the trading venue. Therefore, the transparency requirements will apply. Transactions on trading venues do not count for the numerator for the SI-determination, but are counted in the denominator (total trading within the EU).
- Case 9 – EU branch of a non-EU firm trading on a comparable third country TV: The trade is treated as executed “on venue”. Therefore, the same treatment as under case 1 applies. MiFIR transparency requirements do not apply (to avoid double reporting) and the transaction is not counted for the SI-determination (since they are executed “on venue”). For transactions concluded on a non-comparable third country TVs, case 10 applies.
- Case 10 – EU branch of a non-EU firm trading with a non-EU counterpart/client OTC: Where a non EU-firm is required to establish a branch in accordance with Article 39 of MiFID II, this branch has to apply, in accordance with Article 41(2) of MiFID II, with the requirements of Articles 16-20, 23-25 and 27, Article 28(1) and Articles 30-32 of MiFID II and Articles 3 to 26 of MiFIR and the measures adopted pursuant thereto. Therefore, EU branches of non-EU firms are subject to the transparency requirements and have to report their trades to APAs. Furthermore, the transactions count for the SI determination (numerator and denominator).
- Case 11 – EU subsidiary of a non-EU firm trading on an EU TV: The transparency requirements apply at the level of the trading venue. Therefore, the transparency requirements will apply. Transactions on trading venues do not count for the numerator for the SI-determination, but are counted in the denominator (total trading within the EU).
- Case 12 – EU subsidiary of a non-EU firm trading on a comparable third country TV: The transaction is considered as executed “on venue” i. Therefore, the same treatment as under case 1 applies; MiFIR transparency requirements do not apply and the trade is not counted for the SI-determination. For transactions concluded on non-comparable third country TVs, case 13 applies.
- Case 13 – EU subsidiary of a non-EU firm trading with a non-EU counterparty/client OTC: Subsidiaries are independent legal entities and subject to the regulatory regime of the country where they are established. Therefore, EU- subsidiaries of non-EU firms are subject to the full MiFID II/MiFIR requirements. The transaction is subject to MiFIR transparency and counts for the SI-determination (both numerator and denominator).
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