MiFID_MARS_Traing_PPTT_v1.0
- 1. Copyright © 2016 Axis Global Business UK Limited MiFID II - Pre and Post Trade Transparency Overview 16th March 2016
- 2. Copyright © 2016 Axis Global Business UK Limited Contents 2 1. Introduction 2. Execution venues, RFQ and disclosure via APA 3. Waiver details (Liquid/illiquid, SMS, LIS and SSTI criteria) 4. Exemptions and waivers 5. Information requirements ( via APAs) and NCAs 6. Appendix Use Case 1
- 3. Copyright © 2016 Axis Global Business UK Limited 1. Introduction 3 MiFIDII/MiFIR The Markets in Financial Instruments Directive and Regulation is often described as the biggest overhaul of financial markets regulation in the EU for a decade. It includes considerable changes to the pre- and post- trade transparency (PPTT) regime for EU financial markets. Why MiFID II? MiFID II seeks to build up on MiFID I to make the financial markets more transparent by creating level playing field amongst EU wide Trading Venues (TV). For example, a customer seeking to buy a financial product will now be able to compare quotes from EU wide trading venues selling the same product. Key impacts: Product scope extended from equity to cover equity-like and non-equity product traded on any TV. Systematic internalisers (“SIs”) and other investment firms that trade Over-the-counter (OTC) products will be subject to PPTT obligations. What are PPTT obligations? Pre-trade disclosures: Obligation to make public, on a continuous basis, current bids and offer prices, known as Request For Quotes (RFQ). Post-trade disclosures: Obligation to make public the price, volume and time of transactions traded as close to real-time as technically possible, in in respect of transactions concluded on own account or on behalf of clients. Information to be published via an Approved Publication Arrangement (APA) to the National Competent Authority (NCA) to provide data for PPTT calculations.
- 4. Copyright © 2016 Axis Global Business UK Limited 2. Execution venues, RFQ and disclosure via APA 4 Multilateral Trading (Trading Venues – TV) Regulated Market (RM) Multilateral Trading Facilities (MTF) Organised Trading Facility (OTF) Non Systematic Bilateral Trading/System Systematic Internaliser (SI) Post Trade transparency Pre Trade transparency Given below is a high level overview of the execution venues from a PPTT prospective. MiFID II seeks to bring in all products (except the most exotic ones) within MiFID II scope*. Post trade disclosures to be made public through Approved Publication Arrangement (APA). Equity and equity like instruments based on Standard Market Size (SMS) Non Equity instruments based on other exemptions and waivers (SSTI, LIS and liquidity) RFQ Disclosure via APAs * Fx Spot is out of scope
- 5. Copyright © 2016 Axis Global Business UK Limited 3. Waiver details (Liquid/illiquid, SMS, LIS and SSTI criteria) 5 • ESMA may or may not specify if a product is liquid or illiquid but instead it will provide a set of values for banks to make the liquidity assessment. Liquidity assessment • MiFIR requires SIs to comply with pre-trade transparency requirements when dealing in sizes up to the SMS and at least 10% of the SMS for the share, depositary receipt, ETF or certificate for which they are SIs. Standard Market Size (SMS) • Is the threshold (“upper limit”) for Systematic Internalisers’ (SI) firm quotes • Acts as waiver for liquidity providers and applies in request for quote and voice trading systems • Serves as a threshold for post trade deferral (no requirement on trading systems) Size Specific To the Instrument (SSTI) • Is the threshold (“upper limit”) for Trading Venues firm quotes. Orders that are large in scale (LIS) can benefit from a waiver from pre-trade transparency. • The waiver is designed to protect large orders from adverse market impact and to avoid abrupt price movements that can cause market distortions. Large In Scale (LIS) Overview of key waivers used to determine if PPTT obligations apply or not.
- 6. Copyright © 2016 Axis Global Business UK Limited 4. Exemptions and waivers 6 Client request for a quote Is product admitted to trading on a TV? Is product liquid? Is either trading entity EU/EEA based? Is below SMS/SSTI? Is below LIS? PPTT obligations apply Out of Scope Out of Scope Out of Scope* Out of Scope Out of Scope PPTT Exemptions and Waivers PPTT obligations will only apply if a host of criteria is satisfied as demonstrated in the diagram. Please note: 1. SMS is applicable to cash equities while SSTI is applicable to derivatives 2. Different set of SSTI and LIS values are applicable for post and pre trade 3. If a product is not liquid then a different set of criteria will apply 4. SSTI is applicable for a SI while LIS is applicable to Trading Venues. Y Y Y Y Y Y N N N N N * Please refer to point 3
- 7. Copyright © 2016 Axis Global Business UK Limited 5. Information requirements (via APAs) and NCAs 7 As per Article 27 of Directive 2014/65/EU(MiFIR), with regards to financial instruments admitted to trading on various trading venues shall provide National Competent Authorities (NCA) with identifying reference data (via APAs). Competent authorities on their part will provide necessary threshold for SI (and/or trading venues) to enable them to perform SI and eligibility service calculations. NCA TVs and SIs In case of reference data reporting, to avoid duplicity, the responsibility for publishing transactions shall always fall on the seller except where (for example) only one of the investment firms party to the transaction is an SI (and buyer) in the given instrument. ESMA will provide SI data for counterparty. Buyer Seller Post trade reporting responsibility SI SI Seller Not SI SI Seller SI Not SI Buyer Post trade reporting obligation by Trading Venues and SI ESMA to aggregate EU wide data ESMA to receive EU wide data Reference data published by ESMA
- 8. Copyright © 2016 Axis Global Business UK Limited Appendix 8
- 9. Copyright © 2016 Axis Global Business UK Limited Use Case – Product Taxonomy 9 The Use case given below demonstrates how PPTT works using two Fixed Income (FI) products. The key assumptions are: a. Bond Product X and Bond Product Y are traded on a trading venue b. Bond Product X and Bond Product Y are within MiFID II scope c. One of the trading counterparty is based in EU/EEA. # Bond Product X Bond Product Y Calculated fields Trading Venue product taxonomy and trade aggregation data 1 a Asset Class Interest Rate Derivatives Interest Rate Derivatives 1 b Sub-Asset Class Bond futures/forwards Bond futures/forwards 1 c Segmentation Criterion 1 - Issuer of the underlying Government X Corporate Y 1 d Segmentation Criterion 2 - Term Medium Term (4,8) Medium Term (4,8) 1 e Segmentation Criterion 3 – Maturity bucket Maturity bucket 2 (3,6) Maturity bucket 2 (3,6) 1 f Daily transactions 200 5 1 g Nominal €6,500,000 €6,500,000 1 h Venue GBLO US NY GBLO US NY 1 i ISIN NA NA Please note that this Use Case is based on the ESMA final RTS. There are still outstanding questions which are expected to be clarified when the L3 text is published.
- 10. Copyright © 2016 Axis Global Business UK Limited Use case – Reference data 10 # Bond Product X Bond Product Y Calculated fields Reference threshold data provided by regulators 2 a Asset Class Interest Rate Derivatives Interest Rate Derivatives 2 b Sub-Asset Class Bond futures/forwards Bond futures/forwards 2 c Segmentation Criterion 1 - Issuer of the underlying Government X Corporate Y 2 d Segmentation Criterion 2 - Term Medium Term (4,8) Medium Term (4,8) 2 e Segmentation Criterion 3 – Maturity bucket Maturity bucket 2 (3,6) Maturity bucket 2 (3,6) 2 f Average daily notional amount (ADNA) €5,000,000 €5,000,000 2 g Average daily turnover (ADT) 10 10 2 h Liquid SSTI pre trade - Trade percentile 60 60 2 i Liquid SSTI pre trade – Thresh hold floor €4,000,000 €4,000,000 €7,000,000 2 j Liquid LIS pre-trade - Trade percentile 70 70 2 k Liquid LIS pre-trade - Threshhold floor €5,000,000 €5,000,000 €8,000,000 2 l Liquid SSTI post-trade - Trade percentile 80 80 2 m Liquid SSTI post-trade - Volume percentile 60 60 2 n Liquid SSTI post-trade - Threshhold floor €20,000,000 €20,000,000 €21,000,000 2 o Liquid LIS post-trade - Trade percentile 90 90 2 p Liquid LIS post-trade - Volume percentile 70 70 2 q Liquid LIS post-trade - Threshhold floor € 25,000,000 € 25,000,000 €26,000,000 2 r Illiquid SSTI pre trade €4,000,000 €4,000,000 2 s Illiquid LIS pre trade €5,000,000 €5,000,000 2 t Illiquid SSTI post trade €20,000,000 €20,000,000 2 u Illiquid LIS post trade €25,000,000 €25,000,000
- 11. Copyright © 2016 Axis Global Business UK Limited Use Case – Liquidity assessment 11 Match product taxonomy (1a- 1e) with (2a – 2e) IS ADT (2g- 10) > Daily tran (1f-200)? IS ADNA (2f- €5,000,000) > Nominal (1g- €6,500,000)? Match product taxonomy (1a- 1e) with (2a – 2e) IS ADT (2g- 10) > Daily tran (1f- 5)? IS ADNA (2f- €5,000,000) > Nominal (1g- €6,500,000)? Product is illiquidProduct is liquid Bond product X Bond product Y Y Y N
- 12. Copyright © 2016 Axis Global Business UK Limited Use Case – Pre trade transparency requirement 12 Match product taxonomy (1a- 1e) with (2a – 2e) IS calc SSTI(2i- €7,000,000) > Nominal (1g- €6,500,000)? Match product taxonomy (1a- 1e) with (2a – 2e) IS calc SSTI (2r- €4,000,000) > Nominal (1g- €6,500,000)? Pre trade obligations do not apply Pre trade obligations apply Bond product X* Bond product Y* Y N Please note that Pre trade obligations apply for liquid Bond product X but not to illiquid Bond product Y *Use case uses SSTI assuming the products are sold by a SI
- 13. Copyright © 2016 Axis Global Business UK Limited Use Case – Post trade transparency requirement 13 Match product taxonomy (1a- 1e) with (2a – 2e) IS Calc SSTI (2n- €21,000,000) > Nominal (1g- €6,500,000)? Match product taxonomy (1a- 1e) with (2a – 2e) IS Calc SSTI (2t- €20,000,000) > Nominal (1g- €6,500,000)? Post trade obligations apply Post trade obligations apply Bond product X* Bond product Y* Y Please note that Post trade obligations apply for both liquid Bond product X and illiquid Bond product Y *Use case uses SSTI assuming the products are sold by a SI Y
- 14. Copyright © 2016 Axis Global Business UK Limited 14 Shashank Kumar Senior Manager – Axis Corporate skumar@axiscorporate.com David Traveria Manager – Axis Corporate dtraveria@axiscorporate.com Thank you