Article 14(7) MiFIR mandates the European Securities and Markets Authority (ESMA) to develop draft regulatory technical standards (RTS) to specify further, in the context of the quoting obligation for systemic internalisers (SIs), “the determination of whether prices reflect prevailing market conditions”. ESMA finalised its proposal in September 2015 and this proposal was endorsed and published in the Official Journal of the EU on 31 March 2017 (see Article 10 of Commission Delegated Regulation (EU) 2017/587 of the European Parliament and of the Council on markets in financial instruments with regard to RTS on transparency requirements for trading venues and investment firms in respect of shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments and on transaction execution obligations in respect of certain shares on a trading venue or by a systematic internaliser (RTS1))

Recently, it has come to ESMA’s attention that the concept of “prices reflecting prevailing market conditions” may require further clarification. In particular, there have been discussions whether SIs’ quotes should under certain circumstances reflect the same minimum price increments as orders and quotes submitted to trading venues trading for the same financial instrument. ESMA considers that in order to ensure that SIs’ quotes adequately reflect prevailing market conditions it may be necessary to link them to the minimum tick sizes applicable to trading venues.

ESMA has now issued a consultation paper setting out proposals that amend RTS 1. Section 1 of the consultation paper describes ESMA’s proposal for amending Article 10 of RTS 1 and clarifies the concept of “prices reflecting prevailing market conditions” for instruments subject to the mandatory tick size regime. Section 2 of the consultation paper addresses other amendments to RTS 1 which, although being of less significant nature, would allow for a more consistent and unambiguous application of the provisions contained in RTS 1.

The deadline for comments on the consultation is 25 January 2017.

View MiFID II: ESMA consults on systematic internalisers’ quote rules, 9 November 2017