Introduction
The European Securities and Markets Authority (ESMA) has published a consultation paper on the draft regulatory technical standards (RTS) that it is required to draft under Article 65(8)(c) of MiFID II with regard to the consolidated tape for non-equity instruments. ESMA has already submitted its RTS specifying the scope of the equity tape. However, non-equity tape has additional complexities that have caused EMSA to delay delivering the draft RTS specifying the scope for it.
There are three key areas that the draft RTS on the non-equity tape include rules on and for which ESMA has posed questions relating to in their consultation paper.
1. Specialisation of the Consolidated Tape Providers (CTPs)
To increase the probability of a viable business case for the non-equity consolidate tape, ESMA considers it sensible to allow CTPs to specialise in and/or provide services covering only one or a group of asset classes rather than the entire raft of non-equity instruments.
2. The trading venues and Approved Publication Arrangements (APAs) to be included
ESMA believes that CTPs should not be required to collect information from all trading venues and APAs due to high cost. They therefore suggest that information should be included from a particular trading venue or APA if it meets or exceeds a threshold based on the volume and number of transactions reported on a per asset class level. They also believe that trading venues and APAs are best placed to perform the assessment, since they have aggregated information on the numerator.
ESMA acknowledges that there could be concerns about how the denominator of these assessments are determined, but is confident that once MiFID II comes into effect, the necessary information will be available.
3. Inclusion of a new source and removal of a source
ESMA are proposing that the same system for inclusion be provided for non-equity tape as is currently in place for equity tape, ie. that data from new trading venues or APAs be included as soon as possible and no later than 6 months after the start of the trading venues or the APA’s operations.
To avoid a situation of frequent changes of the sources to be included in the consolidated tape, ESMA suggests that a trading venue or an APA that falls below the thresholds of the minimum size for three consecutive periods, would be no longer required to be included in the consolidated tape.
ESMA considers it important to provide for a balanced draft RTS, which strikes the right balance between being sufficiently attractive for potential CTPs while allowing for a user-friendly approach.
Next steps
ESMA is requiring responses to its consultation by 5 December 2016. On the basis of the responses to the consultation paper, ESMA will finalise the draft RTS and submit the final report to the European Commission for endorsement
To access the consultation, please click here. On page 12 of the paper, you will find a useful summary of the questions ESMA is posing.
For any further information or advice on this topic, please contact Cleveland & Co, your External In-House Counsel.
