On Friday, 20 March 2020, the European Securities and Markets Authority (ESMA) published a Public Statement to ensure coordinated supervisory actions by national competent authorities on the application of the new tick size regime for systematic internalisers (SIs) under Regulation (EU) 600/2014 on markets in financial instruments (MiFIR), as amended by Regulation (EU) 2019/2033 on the prudential requirements of investment firms (IFR). This is yet another measure undertaken by ESMA over the recent days in its attempt to mitigate the impact of the COVID-19 outbreak on European financial markets and follows ESMA’s Public Statement on the delay in application of Phase 1 reporting obligations under Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse.
By way of background, IFR introduced new Article 17a to MiFIR, whereby quotes, price improvements on those quotes and execution prices published by SIs must comply with the tick size regime as set out by Article 48 of Directive 2014/65/EU on markets in financial instruments (MiFID II). This obligation was due to become applicable on 26 March 2020.
ESMA understands the difficulties for SIs to comply with the tick size regime in the current market situation caused by the COVID-19 outbreak and “acknowledges that in the current environment, market participants’ human and technological resources are stretched and have to focus on ensuring business continuity”. Introducing changes to “critical trading technology infrastructure” in such a situation can, in ESMA’s view, “create additional operational risks for certain EU markets participants at a time of heightened volatility in markets”.
While it lacks formal regulatory forbearance powers, ESMA “expects competent authorities not to prioritise their supervisory actions in relation to the new tick size regime from 26 March, the application date, until 26 June 2020, and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner”.
The new deadline for SIs to comply with Article 49 MiFID II tick size regime is therefore 26 June 2020.