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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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).  

 

  

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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:

 

Consolidated tape

 

European Single Access Point (ESAP)

 

ESMA website on transparency calculations

 

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.

 

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.

 

 

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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).

 

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