On 29 September 2020, the European Securities and Markets Authority (ESMA) published a final report on the MiFID II/MiFIR transparency regime applicable to non-equity financial instruments.

In section 3 of the final report ESMA covers level 1 provisions starting with the proposals concerning the pre-trade transparency regime for non-equity instruments (section 3.1) which are intended to simplify the regime and, at the same time, increase transparency in the markets. ESMA also covers in this section (section 3.2) the post-trade transparency regime concluding that the level of post-trade real-time transparency remains very limited after the implementation of MiFID II/MiFIR which is exacerbated by a complex deferral regime which is subject to national discretion which leads to different rules applying in the EU. ESMA’s proposals in this regard seek to simplify the regime in order to increase post-trade transparency. Section 3 ends with the trading obligation for derivatives (section 3.3) for which ESMA suggests certain targeted amendments.

In section 4 of the final report ESMA focuses on level 2 and refers in particular to its proposals set out in the July 2020 MiFID II/MiFIR Annual Report under Commission Delegated Regulation (EU) 2017/583 to: move to stage 2 of (i) one of the parameters to assess bond liquidity and (ii) the percentile used to calculate the pre-trade SSTI thresholds for bonds and other non-equity instruments. The report concludes with the way forward related to the review of the liquidity assessment and the methodology to determine the pre-trade LIS threshold for commodity derivatives.

ESMA’s main recommendations in the final report are:

  • Deleting the specific waiver and deferral for respectively orders and transactions above the “size-specific to the instrument” threshold.
  • Streamlining the deferral regime with both a simplified system based on volume masking and full publication after two weeks as well as removing the supplementary deferral options left to Member State national competent authorities (NCAs) under the current MiFIR text.
  • Transforming the possibility granted to NCAs to temporarily suspend MiFIR transparency provisions into a mechanism coordinated at EU-level.
  • Including the possibility to suspend on short notice the application of the derivative trading obligation similarly to the mechanism available in EMIR.
  • Complementing the criteria used to grant equivalence to third-country trading venues for the purpose of the derivative trading obligation with conditions relating to transparency and non-discriminatory access.

The final report has been submitted to the European Commission and is expected to feed into any review of the transparency regime in MiFIR.