On 3 September 2018, the European Commission (Commission) published a communication (dated 10 August 2018) on its intention to endorse, with amendments, the draft amendment to the regulatory technical standard submitted by the European Securities and Markets Authority (ESMA) on transparency requirements for trading venues and investment firms in respect of shares, depositary receipts, exchange-traded funds, certificates (the draft RTS amendment).

ESMA submitted to the Commission the draft RTS amendment on 26 March 2018. The draft RTS amendment sought to clarify that systematic internalisers’ quotes would only adequately reflect prevailing market conditions where such quotes mirror the minimum price increment applicable to on-venue trading.

The Commission’s communication invites the Commission to approve a letter, in which it expresses to ESMA: (i) its intention to endorse with amendments the draft RTS amendment (enclosed with the letter); and (ii) the reasons for the changes to the draft RTS amendment. Three reasons are provided for changes to the draft RTS amendment:

  • the co-legislators did not provide that quotes of systematic internalisers would need to respect tick size increment, therefore technical standards cannot be employed to achieve this result;
  • evidence suggests that not applying tick sizes to shares and depositary receipts risks negative repercussions on the liquidity in those two asset classes. Quoting prices outside the tick size increments may also hinder the efficient valuation of shares and depositary receipts; and
  • confining the proposed amendments to shares and depositary receipts addresses concerns about efficient price formation while remaining in line with the legislative intent not to introduce a general obligation that all quotes by systematic internalisers have to respect the tick size increments.