MiFID II implementation - taking stock

Steven Maijoor, Chair of ESMA, delivered a keynote address at the FESE Convention 2018 in Vienna on 21 June. His speech focused on the progress made in implementating MiFID II implementation and ESMA's priorities for related future work. Overall, Mr Maijoor says that implementation of MiFID II went "quite smoothly" and gives a number of examples how transparency is improved. For example, to date, the double volume cap system has resulted in the suspension of dark trading of more than 900 instruments, there are 109 systematic internalisers (SIs) active under MiFID II compared with 11 under MiFID I, and 95.5 per cent of instruments reported in ESMA's reference data system have the correct legal entity identifier (LEI).

However, Mr Maijoor also mentioned some future priorities (mainly relating to markets issues, rather than conduct issues) which highlight the areas which have not run as smoothly as was hoped:

• Now that the LEI grace period has ended, regulators will shift to actively supervising compliance with this requirement.
• Since the first suspension of dark trading in March, trading volumes on periodic auction trading systems have tripled. ESMA is concerned, therefore, that these systems may be designed to circumvent the double volume cap and is carrying out a fact-finding exercise on the different periodic auction trading systems to understand their various features. If necessary, this may result in ESMA taking further measures or making recommendations.
• There is also significant increase in use of SIs. ESMA proposed amendments to RTS 1 to attempt to level the playing field between SIs and trading venues by ensuring quotes of SIs meet the tick size requirements. However, Mr Maijoor has sympathy with the need for amendment in the level one legislation (which is not within its power).
• Trading venues are generally asked to "step up their efforts" in reporting data.
• ESMA is investing "significant resources" on the provision of market data, to ensure compliance with the rules. It will publish further on the costs of market data and consolidated tape.
• In light of the current system not functioning properly, in mid-July, ESMA will publish a consultation paper on options for setting an appropriate tick size for instruments with their most liquid market outside of the EU.
• Ahead of Brexit, ESMA would welcome an equivalence initiative from the Commission for third country trading venues.