A Guide for Market Makers on ETFplus
Effective 6th May 2019
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1.0 Introduction 3
1.1 Scope 3 1.2 Summary 3 1.3 Registration Process 6 1.4 Monitoring and Reporting 7
2.0 Specialist 7
2.1 Benefits to being a Specialist 7 2.2 Requirements 8 2.3 Obligations 8 2.4 IT set up 10 2.5 How to become a Specialist 11 2.6 Resignation of status 11
3.0 Advanced Liquidity Provider (AdLP) 11
3.1 Benefits to being an AdLP 12 3.2 Requirements 12 3.3 Obligations 12 3.4 IT set up 14 3.5 How to become an AdLP 15 3.6 Resignation of status 15
4.0 MiFID II Market Maker 15
4.1 Benefits to being a MiFID II Market Maker 15 4.2 Requirements 16 4.3 Obligations 16 4.4 IT set up 18 4.5 How to become a MiFID II Market Maker 18 4.6 Resignation of status 19
5.0 Explanation of Monitoring 19
6.0 Contacts and Links 20
6.1 Contacts 20 6.2 Links 20
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1.0 Introduction
Borsa Italiana’s ETFplus market is an order-driven environment, with integrated
market maker liquidity provision, delivering stable two way prices, along with a
minimum size and maximum spread obligation. The liquidity of each instrument
listed on the ETFplus market is supported by at least one market maker; a
Specialist, and potentially several other voluntary market makers.
This document acts an informative guide for all three types of Market Makers,
detailing; the benefits, requirements, technical set up and the process to
become a Market Maker.
This document is applicable to members that are currently providing liquidity on
the ETFplus market, or are aiming to do so, through the posting and maintaining
of firm quotes, complying with the specific presence, size, spread and
comparable size obligations (detailed within this guide).
1.1 Scope
The scope of this document applies to all ETFs, ETCs and ETNs listed on
Borsa Italiana’s ETFplus market.
1.2 Summary
There are three types of Market Makers who can provide liquidity, in terms of
two way prices and minimum size, to the instruments listed on the ETFplus
market:
- A Specialist (S)
- Advanced Liquidity Provider (AdLP)
- MiFID II Market Maker (MiFID II MM)
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The below table summarises the key points for each Market Making scheme. A
more granular explanation can be found under the relevant section of each
scheme within this document.
Specialist
Advanced Liquidity
Provider
MiFID II
Market Maker
Motivation Mandatory for listing,
appointed by the
issuer. Requirement
of one Specialist per
instrument
Providing additional
liquidity voluntarily.
There can be
several AdLPs per
instrument
MiFID II market
making strategy.
There can be
several MiFID II
MMs per instrument
Quoting
obligation
During opening
auction (from 9:02),
continuous trading,
volatility auction and
closing auction.
Continuous trading
only
Continuous trading
only
Daily
compliance
rate
60% 55% 50%
Obligations
during normal
market
conditions
Max. spread
Min. countervalue
Max. spread = S
max spread
Min. countervalue:
€10,000
Max. spread = S
max spread
Min. countervalue:
€5,000
Obligation
level
The above
obligations are set
per instrument –
there is no
standardisation
among instruments
All ETFplus
instruments will
follow the above
obligation
All ETFplus
instruments will
follow the above
obligation
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Resignation Notice should
ensure the continuity
of the function
No restrictions No restrictions
Quote vs.
Order1 Named quotes and
named orders
Anonymous quotes
and/or standard
orders
Anonymous quotes
and/or standard
orders
Stressed
market
conditions
obligations
Spread obligation is doubled and size obligation is reduced by
50%
Volatility
Auction
Spread obl. doubled
and size obl. is
reduced by 50%
No obligations
Exceptional
circumstances No obligations
Size
obligation
check
Total buy countervalue > Min coutervalue obligation
Total sell countervalue > Min countervalue obligation
Spread
obligation
check
(VWAP Sell – VWAP Buy) divided by
(VWAP Sell + VWAP Buy) / 2
<= Max Spread
VWAP Buy/Sell is computed considering the volume up to
compulsory min counter value obligation.
Comparable
size
Obligation
Max (Total Buy Quantity, Total Sell Quantity) = Max
Min (Total Buy Quantity, Total Sell Quantity) = Min
If ( Min < ( Max / 2 )) Then test has failed
Total buy/sell quantity up to Min. counter value obligation
1 Regardless of the Market Making scheme, the member must develop the relevant message on
their trading system to conform with the relevant parameters and successfully pass the relevant set up test. For more information, please contact Client Technology Services.
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CompID2
CompID “S” is
allowed to send
named orders and
quotes to the
relevant instruments
only
CompID “D” is
allowed to send
orders and
anonymous quotes.
CompID “F” is
allowed to send
orders only, for the
relevant instruments
only.
CompID “M” is
allowed to send
orders and
anonymous quotes.
CompID “L” is
allowed to send
orders only, for the
relevant instruments
only.
Application Written undertaking Member Portal Member Portal
1.3 Registration Process
The process to become a Market Maker differs depending on the type of Market
Maker a member wishes to apply for.
To apply for status as a Specialist, the member must be appointed by the
relevant issuer and only then, may they apply for such status through a
dedicated Specialist form. The Specialist form can be found in the instructions
section on Borsa Italiana’s website, here (Section: “Applications for admission
to listing and the documentation to be attached”).Please note that there are two
separate Specialist forms, one for ETFs and one for ETCs/ETNs.
To apply for status as either an Advanced Liquidity Provider or MiFID II Market
Maker, the member must apply within the Member Portal.
More information on how to become each type of Market Maker can be found in
the relevant section within this document.
2 The member must decide which CompID they would like to be set up with when joining the
relevant scheme. It is not possible to operate with different Comp IDs from the same Market Making scheme, i.e. for AdLP activity, the member must decide CompID “D” or “F”, it is not possible to have both. .
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The list of current Market Makers are published on Borsa Italiana’s website.
1.4 Monitoring and Reporting
Market Makers will be monitored continuously by Borsa Italiana.
Each Market Maker will have a daily compliance rate, with the assessment
calculated on a monthly basis.
Each Market Maker can consent to Borsa Italiana providing performance related
data to the relevant issuer(s), for those relevant instruments which they are
supporting.
2.0 Specialist
A Specialist will be required to place compulsory comparable bid and ask orders
which respect a maximum spread and minimum countervaule. There can only
be one specialist per instrument – the specialist is to be appointed by the
relevant issuer.
2.1 Benefits to being a Specialist
Specialists will receive a total exemption from the trading fees for transactions
deriving from the fulfilment of trading specialist obligations. Specialists are also
granted a number of free of charge transactions per second (tps), which is
dependent on the number of instruments supported as Specialist.
Number of instruments for which the specialist has
undertaken to support liquidity for
Total number of
tps
1 – 50 50 tps
51 – 150 100 tps
150 + 200 tps
The free tps are attached to the specialist CompID only.
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2.2 Requirements
The Specialist must be appointed by the relevant issuer.
2.3 Obligations
Specialist obligations are defined by Borsa Italiana.
- Obligation to display bid and ask prices continuously.
The Specialist shall comply with the obligation to enter simultaneous
buy and sell orders for comparable quantities.
- Obligation to display a minimum size.
The Specialist must honour the obligation to display a minimum size for
the instruments which it supports as Specialist.
Each instrument has a defined minimum size. Borsa Italiana classifies
each instrument into one of three liquidity categories (see table below).
Borsa Italiana defines the minimum size for each instrument in relation
to the liquidity category. The instrument is categorised into one of the
three liquidity categories on the basis of the liquidity assessment of the
underlying.
Minimum
Countervalue (Euro)
Spread
L1 50,000 Min: 3% - Max: 6%
L2 100,000 Min:1% - Max: 3%
L3 200,000 Max: 1%
During stressed market conditions as well as volatility auction, the size
is reduced by 50%.
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- Maximum spread obligation.
The Specialist’s orders have to be entered at comparable competitive
prices, i.e. the bid and ask prices must not diverge by the maximum
spread. The maximum spread obligation is defined per instrument on
the basis of the liquidity category which the instrument is in (as per the
above table). The spread obligation is assessed according to the
following formula:
(VWAP Sell – VWAP Buy) divided by (VWAP Sell + VWAP Buy) / 2
<= Max Spread
VWAP Buy/Sell are computed considering the volume up to compulsory
min counter value obligation.
During stressed market conditions as well as during volatility auction,
the spread is doubled.
- Comparable size
The Specialist must make sure that the total bid size orders does not
diverge more than 50% against the total ask size orders according to
the following formula:
Max (Total Buy Quantity, Total Sell Quantity) = Max
Min (Total Buy Quantity, Total Sell Quantity) = Min
If ( Min < ( Max / 2 )) Then test has failed
The total buy/sell quantity considered is up to minimum counter value
obligation.
- Temporary suspensions
In exceptional circumstances, declared by Borsa Italiana’s Trading
Surveillance department, the Specialist may submit a request to Borsa
Italiana for the suspension of quoting obligations for those instruments
which they are a Specialist for.
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Borsa Italiana constantly updates the table on their website which summarises
the minimum size and maximum spread obligations for each financial
instrument traded on the ETFplus market.
More information on Specialist obligations can be found in Borsa Italiana’s
Guide to the Parameters.
Specialists are required to adhere to their obligations for 60% of each trading
day. The assessment takes also into account Specialist’s compliance with
obligation during auction phases (for the opening auction, from 9:02 since the
Specialist presence is mandatory from 9:02). The assessment will be calculated
and disseminated on a monthly basis. Their performance is assessed
considering the minimum compulsory size. The counter value quoted by the
Specialist, that exceeds the minimum compulsory counter value does not
contribute to the performance assessment.
The daily compliance rate will be calculated in terms of four separate
components:
- Presence
- Size
- Spread
- Comparable size.
2.4 IT set up
Transactions entered to fulfil the quotation obligations must be “Named Quotes”
or “Named Orders”. “Named Quotes” allow the specialist to contextually submit
bid and ask orders, whilst also identifying the orders as coming from a
specialist.
New specialists must test the “Named Quote” or “Named Order” or both
functionalities before starting the activity. Specialist is to decide which
functionality they will be using.
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Specialists are given a dedicated interface (CompID “S”) to the market that can
be used for specialist activity only and only for the instruments which they
support as Specialist.
2.5 How to become a Specialist
The Specialist must be appointed by the issuer for the relevant instrument(s)
and only then, can they proceed with signing the agreement to become a
Specialist, which is signed through a dedicated Specialist form.
The Specialist form can be found within the instructions section on Borsa
Italiana’s website, here.
2.6 Resignation of status
In order for a Specialist to terminate the agreement to fulfil their obligations as a
Specialist, Borsa Italiana must be notified in writing at last three months before
the effective date of the termination. Borsa Italiana may accept shorter notice if
the continuity of the Specialist function is ensured by another entity entering into
the undertakings of the obligations to be fulfilled by the Specialist for the
relevant instrument(s).
It is the responsibility of the issuer to ensure that there is an entity available to
replace the current Specialist for the relevant instrument(s) prior to the
termination of the current Specialist’s agreement.
More information can be found in Borsa Italiana’s rules.
3.0 Advanced Liquidity Provider (AdLP)
An AdLP, as a voluntary Market Maker, will be required to provide liquidity by
placing comparable competitive bid and/or ask orders on their own account,
which respect a maximum spread and minimum countervalue. As the AdLP
scheme is voluntary, there may be unlimited AdLPs per instrument. An entity
can freely apply to be an AdLP for any instrument.
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3.1 Benefits to being an AdLP
AdLPs will receive a 100% discount on their passive executed orders, provided
that on the instrument(s) they are registered as an AdLP, they: i) achieve a 20%
share of trading (calculated as AdLPs turnover as a percentage of the total
turnover for the instrument, multiplied by 2) and ii) respect quoting obligations
set by Borsa Italiana.
Number of instruments for which the AdLP has
undertaken to support liquidity for
Total number of
tps
1 - 50 0 tps
51 - 250 50 tps
251 – 500 100 tps
501 – 750 200 tps
750+ 300 tps
An AdLP will see the discounted trades in their monthly bill.
3.2 Requirements
No requirements. An entity must only sign the agreement with Borsa Italiana,
which is managed through Member Portal. An AdLP can voluntary apply to
support the liquidity of any instrument.
3.3 Obligations
AdLP obligations are defined by Borsa Italiana.
- Obligation to display bid and ask prices continuously.
The AdLP shall comply with the obligation to enter simultaneous buy
and sell orders for comparable quantities.
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- Obligation to display a minimum size.
The AdLP must comply with the obligation to display a minimum size of
€10,000 for all instruments in which they support as an AdLP.
During stressed market conditions, the size is reduced by 50%.
- Maximum spread obligation.
The AdLP must comply with the same maximum spread obligation that
is set for the Specialist for the instrument(s) they support as an AdLP.
Specialist’s spread can be found on our website, here.
The spread obligation is assessed according to the following formula:
(VWAP Sell – VWAP Buy) divided by (VWAP Sell + VWAP Buy) / 2
<= Max Spread
VWAP Buy/Sell is computed considering the volume up to compulsory
min counter value obligation.
During stressed market conditions, the spread is doubled.
- Comparable size obligations
The AdLP must make sure that the total bid size orders does not
diverge more than 50% against the total ask size orders according to
the following formula:
Max (Total Buy Quantity, Total Sell Quantity) = Max
Min (Total Buy Quantity, Total Sell Quantity) = Min
If ( Min < ( Max / 2 )) Then test has failed
The total buy/sell quantity considered is up to minimum counter value
obligation.
AdLPs are required to adhere to their obligations for 55% of each trading
day. The quotes displayed during auction phases are not included in the
performance assessment. The assessment will be calculated and
disseminated on a monthly basis. Their performance is assessed
considering the minimum compulsory size. The counter value quoted by
the AdLP, that exceeds the minimum compulsory counter value does not
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contribute to the performance assessment. The daily compliance rate will
be calculated in terms of four separate components:
- Presence
- Size
- Spread
- Comparable size
3.4 IT set up
Orders entered to fulfil the AdLP quoting obligations must be “Anonymous
Quotes and Single Orders” or “Single Orders”. “Anonymous Quotes” allow the
AdLP to contextually submit bid and ask orders, whilst also identifying that they
are from an AdLP.
A new AdLP must test the “anonymous quote”, should they wish to use this
functionality, before starting the activity.
AdLPs are given the option of two dedicated interfaces for the relevant
instruments:
- CompID “D” for those AdLPs that wish to submit both orders and
anonymous quotes
- CompID “F” for those AdLPs that wish to submit orders only
An AdLP must decide which interface they wish to use when signing the
agreement to be an AdLP. The AdLP activity should be covered using only one
naming convention (CompID “D” or CompID “F”), but the member can set up
more CompID’s of the same type.
The “D” or “F” CompID may be used for AdLP activity only and only for those
instruments which the entity supports as an AdLP.
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3.5 How to become an AdLP
The agreement to become an AdLP is signed through Member Portal. When
signing the agreement you will be able to select the instruments that you would
like to support as an AdLP and which interface.
3.6 Resignation of status
The discontinuation of the activity of an AdLP must be communicated to Borsa
Italiana and the resignation of status as an AdLP is managed through Member
Portal. The resignation shall entry in force from the date specified by Borsa
Italiana in agreement with the AdLP.
4.0 MiFID II Market Maker
This section is for those who perform Market Making strategies according to
MiFID II, which requires the entity to enter into an agreement with the relevant
exchange, Borsa Italiana in this instance.
Please let it be noted, that Borsa Italiana will not perform any monitoring to
analyse and alert a member as to whether they are performing a Market Making
strategy according to MiFID II. It is the responsibility of the entity in question to
determine as to whether they are performing Market Making strategies
according to MiFID II.
A MiFID II Market Maker will be required to provide liquidity by placing
comparable competitive bid and/or ask orders on their own account, which
respect a maximum spread and minimum countervalue, as defined by Borsa
Italiana. There may be unlimited MiFID II Market Makers per instrument (or
none).
4.1 Benefits to being a MiFID II Market Maker
There will be a monetary incentive for those members which respect the
obligations of a MiFID II Market Maker in stressed market conditions. This
benefit is defined in the Price List for trading services.
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4.2 Requirements
No requirements. An entity must only sign the agreement with Borsa Italiana,
which is managed through Member Portal. There are no limits to the number of
products a single entity can support as a MiFID II Market Maker.
4.3 Obligations
MiFID II Market Maker obligations are defined by Borsa Italiana.
- Obligation to display bid and ask prices continuously.
The MiFID II Market Maker shall comply with the obligation to enter
simultaneous buy and sell orders for comparable quantities.
- Obligation to display a minimum size.
The MiFID II Market Maker must comply with the obligation to display a
minimum size of €5,000 for all instruments in which they support as a
MiFID II Market Maker.
During stressed market conditions, the size is reduced by half.
- Maximum spread obligation.
The MiFID II Market Maker must comply with the same maximum
spread obligation that is set for the Specialist for the instrument(s) they
support as an MiFID II Market Maker. Specialist’s spread can be found
on our website, here. The spread obligation is assessed according to
the following formula:
(VWAP Sell – VWAP Buy) divided by (VWAP Sell + VWAP Buy) / 2
<= Max Spread
VWAP Buy/Sell is computed considering the volume up to compulsory
min counter value obligation.
During stressed market conditions, the spread is doubled.
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- Comparable size obligation
The Mifid II Market Maker must make sure that the total bid size orders
does not diverge more than 50% against the total ask size orders
according to the following formula:
Max (Total Buy Quantity, Total Sell Quantity) = Max
Min (Total Buy Quantity, Total Sell Quantity) = Min
If ( Min < ( Max / 2 )) Then test has failed
The total buy/sell quantity considered is up to minimum counter value
obligation.
MIFID II Market Makers are required to adhere to their obligations for 50% of
each trading day. The quotes displayed during auction phases are not included
in the performance assessment. The assessment will be calculated and
disseminated on a monthly basis. Their performance is assessed considering
the minimum compulsory size. The counter value quoted by the MIFID II Market
Maker, that exceeds the minimum compulsory counter value does non
contribute to the performance assessment.
The daily compliance rate will be calculated in terms of four separate
components:
- Presence
- Size
- Spread
- Comparable size
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4.4 IT set up
Orders entered to fulfil the MiFID II Market Maker quoting obligations must be
“Anonymous Quotes and Single Orders” or “Single Orders”. “Anonymous
Quotes” allow the MiFID II Market Maker to contextually submit bid and ask
orders.
A new MiFID II Market must test the “Anonymous Quote”, should they wish to
use this functionality, before starting the activity.
MiFID II Market Makers are given the option of two dedicated interfaces for the
relevant instruments:
- CompID “M” for those MiFID II Market Makers that wish to submit both
orders and anonymous quotes
- CompID “L” for those MiFID II Market Makers that wish to submit
orders only.
A MiFID II Market Maker must decide which interface they wish to use when
signing the agreement to be a MiFID II Market Maker. The MiFID II Market
Maker activity should be covered using only one naming convention (CompID
“M” or CompID “L”), but the member can set up more CompID’s of the same
type.
The “M” or “L” CompID may be used for MiFID II Market Maker activity only and
only for those instruments which the entity supports as a MifID II Market Maker.
4.5 How to become a MiFID II Market Maker
The agreement to become a MiFID II Market Maker is signed through Member
Portal. When signing the agreement you will be able to select the instruments
that you would like to support as a MiFID II Market Maker and which interface.
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4.6 Resignation of status
The discontinuation of the activity of an MiFID II Market Maker must be
communicated to Borsa Italiana and the resignation of status as an MiFID II
Market Maker is managed through Member Portal. The resignation shall entry in
force from the date specified by Borsa Italiana in agreement with the MIFID II
Market Maker.
5.0 Explanation of Monitoring
Under each Market Maker scheme, Borsa Italiana will perform continuous
monitoring of each entity to ensure that they are fulfilling their obligations as
detailed in the relevant agreement.
Borsa Italiana will assess each entity against the components of specific
presence, size, spread, and comparable size obligations as detailed within this
document, on a daily basis.
Each Market Maker can consent to Borsa Italiana providing performance related
data to the relevant issuer(s), for those relevant instruments which they are
supporting.
The assessment of the daily compliance rate will be aggregated to a monthly
compliance rate assessment.
6.0 Setting up a CompID
Prior to starting the Market Making activity of any of the three schemes detailed
within this document, the entity must first, request for the relevant CompID to be
set up. The request can be managed through the Member Portal.
For any queries related to requesting or setting up the CompID, please contact
our Client Technology set up team on [email protected]
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7.0 Contacts and Links
7.1 Contacts
For general ETP queries, please contact our ETF team on:
[email protected] or +39020726419
For any queries on the technology set up, please contact our Client Technology
Services on:
For first level support, please contact our Service Desk on:
7.2 Links
Borsa Italiana’s ETF home page
Member Portal
Borsa Italiana's Rules
Borsa Italiana's Instructions
Borsa Italiana's Price List
Borsa Italiana's Specialist Obligations per Instrument
Borsa Italiana's Guide to the Parameters
Market Makers Performance Report
Disclaimer
The publication of this document does not represent solicitation, by Borsa Italiana S.p.A., of public saving and is not to be considered as a recommendation by Borsa Italiana as to the suitability of the investment, if any, herein described. This document has not to be considered complete and it is meant for information and discussion purposes only. Borsa Italiana accepts no liability, arising, without limitation to the generality of the foregoing, from inaccuracies and/or mistakes, for decisions and/or actions taken by any party based on this documents. Trademarks Borsa Italiana and Borsa Italiana's logo, ETFplus, IDEM, MOT, MTA, STAR, SeDeX, MIB, IDEX, BIt Club, Academy, MiniFIB, DDM, EuroMOT, Market Connect, NIS, Borsa Virtuale, ExtraMOT, MIV BIt Systems Piazza Affari Gestione e Servizi, Palazzo Mezzanotte Congress and Training Centre and PAGS are owned by Borsa Italiana S.p.A. FTSE is a registered trademark of London Stock Exchange plc and The Financial Times Limited and is used by FTSE International Limited under licence. London Stock Exchange, the coat of arms device and AIM are a registered trade mark of London Stock Exchange plc. The above trademarks and any other trademark owned by the London Stock Exchange Group cannot be used without express written consent by the Company having the ownership of the same. Borsa Italiana S.p.A. and its subsidiaries are subject to direction and coordination of London Stock Exchange Group Holdings (Italy) Ltd – Italian branch. The Group promotes and offers the post-trading services of Cassa di Compensazione e Garanzia S.p.A. and Monte Titoli S.p.A. in an equitable, transparent and non-discriminatory manner and on the basis of criteria and procedure aimed at assuring interoperability, security and equal treatment among market infrastructures, to all subjects who so request and are qualified in accordance with national and community legislation, applicable rules and decisions of the competent Authorities. @March 2020 London Stock Exchange Group plc All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieve system without prior permission from the copyright owners.
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