On 18 December 2020, the European Commission adopted a Delegated Regulation establishing regulatory technical standards (RTS) amending Delegated Regulation (EU) 2017/583 as regards adjustment of liquidity thresholds and trade percentiles used to determine the size specific to the instrument applicable to certain non-equity instruments.

Commission Delegated Regulation (EU) 2017/583 sets out the transparency requirements applicable to bonds, structured finance products, emission allowances and derivatives. In order to ensure a smooth implementation of those requirements, the Delegated Regulation introduces an annual phase-in of application of certain transparency thresholds over the course of four years, starting from 2019. This phase in allows gradual broadening of the application of corresponding transparency obligations. In particular, this concerns the ‘average daily number of trades’ criterion used for the determination of bonds for which there is a liquid market and the trade percentiles used for the determination of the size specific to the instrument which allows for pre-trade transparency obligations to be waived.

This latest Delegated Regulation adopted by the Commission aims to realise a move to phase 2 with regard to:

  • Liquidity assessment of bonds. Currently bonds are deemed to be liquid if: the average daily notional amount traded is at least EUR 100,000; the average daily number of trades (ADNT) is at least 15; and if at least on 80% of the days during the last quarter trading took place. Within these parameters the amount of liquid bonds between Q4 2018 and Q3 2019 was between 0.15% and 0.31%. The move to phase 2 means that the ADNT will be decreased from 15 to 10, resulting in an expected increase of liquid bonds of around 50%. This is done by replacing Article 17(1) of Delegated Regulation (EU) 2017/583 to this effect.
  • Size specific to the instrument (SSTI). The SSTI is either a fixed threshold (of EUR 200,000 or EUR 300,000 depending on the type of bond) or the amount that lies above the 30th percentile of the actual daily notional amount traded, whichever is higher. Within these parameters currently 9% of sovereign bonds are traded under a pre-trade SSTI waiver and 5% of other types of bonds. Moving to phase 2 means that the 30th percentile will be replaced by the 40th percentile, thus increasing the threshold above which a pre-trade transparency waiver is available, which would primarily affect sovereign and covered bonds. This is done by replacing Article 17(3) of Delegated Regulation (EU) 2017/583 to this effect.

The Delegated Regulation enters into force on the twentieth day following its publication in the Official Journal of the EU.

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