MiFID_MARS_Traing_PPTT_v1.0

Copyright © 2016 Axis Global Business UK Limited

MiFID II - Pre and Post Trade Transparency Overview

16th March 2016


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


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.


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


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.


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


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

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http://www.google.com/url?url=http://www.iconarchive.com/tag/greek-temple&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwj53sTItsXKAhWDhQ8KHaycA8QQwW4IHjAE&usg=AFQjCNESo-ASozvpLXXQoDKTy48TbJ9ylw

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https://www.google.co.uk/url?url=https://twitter.com/cnmv_hr&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjSs9eEt8XKAhXGcRQKHUJ4D3UQwW4IFjAA&usg=AFQjCNFm0y1WXpBHUgNojeQfxBi3npSKjw


Appendix

8


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.


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


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)?


(2a – 2e)

IS ADT (2g- 10) >

Daily tran (1f- 5)?

IS ADNA (2f-

€5,000,000) >

Nominal (1g-

€6,500,000)?

Product is illiquid Product is liquid

Bond product X Bond product Y

Y

Y

N


Use Case – Pre trade transparency requirement

12


(2a – 2e)

IS calc SSTI(2i-

€7,000,000) >

Nominal (1g-

€6,500,000)?


(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


Use Case – Post trade transparency requirement

13


(2a – 2e)

IS Calc SSTI (2n-

€21,000,000) >

Nominal (1g-

€6,500,000)?


(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

MiFID_MARS_Traing_PPTT_v1.0

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