Anne PlestedWhile the 10 key takeaways from MiFID II may have given Steve indigestion, we are busy tucking in to the smörgåsbord of recently published MiFID II documents and snacking on all the published articles on the subject.

From my reading so far, most looks as expected from the previous version that was leaked in August, with the following worthy of note:

  • Organised Trading Facilities (OTFs) will be introduced as the third type of trading venue, aside from regulated market and MTF. The same organisational aspects and market surveillance will apply across RM, MTF and OTF – there is much ongoing discussion (and confusion) around the fact that MiFID II states that OTF operators are prohibited from trading against their own proprietary capital. The text is not at all clear, but to me it looks like you will be able to have OTF designated market makers.
  • MiFID II introduces changes to the SI pre-trade transparency rules of a minimum quote size and a requirement for 2-way firm quotes, but the promised clarification of SI rules is still elusive.
  • Existing waivers for pre-trade transparency will be scrutinised by ESMA – so dark pools will be under the spotlight!  There is the possibility for waivers for non-equities – dark derivatives – nice!
  • Trading in suitably developed derivatives to occur only on eligible platforms (RM, MTF, OTF) – ESMA will maintain a database of the instruments in scope and where they are traded.
  • The proposals aim to bring all entities engaged in high frequency trading under MiFID but go too far with the requirement for firms to operate a ‘continuous’ algo trading strategy during trading hours. This would imply that a firm would have to continue to trade regardless of the prevailing market conditions.

Bon appétit!

One Response to “MiFID II Digest”
  1. Anne says:

    HFT market-making obligations appear to be “unfeasible” !

    Interesting that the ESMA Securities and Markets Stakeholder Group position paper comments on the establishment of guidelines on systems and controls in a highly automated trading environment (26th Oct ESMA/2011/SMSG/12) has under ‘Other measures for regulators to consider to regulate HFT …’ ‘…requiring HFT to bear market-making obligations, that is to say to commit capital. This appears unfeasible in the current context.’

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