On 23 May 2023, the European Securities and Markets Authority (ESMA) published for consultation its second package of Level 2 measures under the recently revised Markets in Financial Instruments Regulation (revised MiFIR). We wrote about the first package of measures in our earlier blog note. The second package of Level 2 measures consists of draft technical standards for the revised MiFIR provisions on consolidated tape providers (CTP), consisting of both regulatory technical standards (RTS) and implementing technical standards (ITS). Specifically, this includes:

  • Draft RTS on input and output of data of CTPs: the revised MiFIR mandates ESMA to develop draft RTS prescribing data quality requirements for prospective CTPs and data contributors, and covering specifically: (1) the minimum requirements for the quality of the transmission protocols utilised for the transmission of data to the CTP, (2) data quality measures and enforcement standards to be implemented by the CTP and (3) the quality and the substance of the data for the operation of the consolidated tapes. The draft RTS subject to consultation covers provisions applicable to the equity and bonds CTP; provisions relevant to the derivatives CTP will be delivered in a second stage in 2025. Accordingly, the draft RTS cover issues relating to:
  • Quality of transmission protocols, including aspects relating to their performance, reliability, security and compatibility.
  • Quality and substance of data, including the MiFIR requirement of transmission of data “as close to real time as technically possible”, standards and format of data to be transmitted to the CTP, input and output data for the bond CTP, substance of regulatory data, substance of core market data – post-trade.
  • Data quality measures and enforcement standards, covering input and output data quality.
  • Draft RTS on the revenue distribution scheme of CTPs: by way of background, the revenue distribution scheme of equity CTPs was one of the main issues considered in the course of MiFIR legislative review. Revised MiFIR sets out that part of the revenues generated by the CTP for shares and exchange traded funds must be redistributed to data contributors meeting one or more of the three criteria for the participation in the revenue distribution scheme for which ESMA has to specify the weighting and the methodology (these being small trading venues, young instruments and pre-trade transparent trading venue). ESMA also has to specify the criteria under which the CTP can suspend / resume the participation of a data contributor in the revenue redistribution scheme. In the draft RTS ESMA proposes the relevant weights to be applied to each criterion for the participation in revenue distribution scheme (from 4.5 to 1.5), and a methodology for converting the values into percentages. ESMA also proposes a methodology for calculating trading volumes. In respect of the frequency of the revenue distribution scheme, ESMA notes that this is beyond the scope of its mandate but highlights that this issue should be carefully considered by CTPs. Finally, ESMA also sets out a proposed procedure for the suspension and resumption of redistribution, including the relevant timeframes.  
  • Draft RTS on the synchronisation of business clocks: the revised MiFIR mandates ESMA to specify the level of accuracy to which business clocks are to be synchronised. Accordingly, in the draft RTS ESMA considers the reference time, coordinated universal time (UTC), and traceability to UTC, the level of accuracy for operators of trading venues as well as for members, participants or users of a trading venue. Finally, ESMA also considers the application of clock synchronisation requirements to new entities, as the revised MiFIR extends this obligation to systematic internalisers (SIs), designated publishing entities (DPEs), approved publication arrangements (APAs) and CTPs. ESMA sets out the proposed accuracy levels per type of new in-scope entity.
  • Draft RTS/ITS on the authorisation and requirements for DRSPs: the revised MiFIR mandates ESMA to specify information to be provided in an authorisation application by the Data Reporting Service Providers (DRSPs), these being APAs, approved reporting mechanism (ARMs) and CTPs. ESMA’s mandate reflects the amendments that were made to MiFIR which set out distinct frameworks for the operation of APAs/ARMs on one hand, and CTPs on the other. To this end, ESMA proposes to update Commission Delegated Regulation (EU) 2017/571 (RTS 13) and draft a new RTS on CTP authorisation, together with its related ITS.
  • Criteria to assess CTP applicants: ESMA notes that the revised MiFIR requires that the CTP selection procedure must follow the financial rules as set out in Regulation (EU, Euratom) 2018/1046 (Financial Regulation). Accordingly, each selection procedure will be launched with the publication of a contract notice and procurement documents in an online platform, and the applicants’ offers will be assessed based on three types of criteria (exclusion / selection / award). As set out in the consultation document, ESMA is considering the choice of the competitive procedure with negotiations for the initial selection for each asset class. ESMA proposes to group the relevant assessment criteria into five thematic categories, and set out its expectations in respect of each of the individual criteria, which include:
  • Resilience
  • Cyber-risk and energy consumption
  • Governance and organisational requirements
  • Ability to process data and dissemination speed
  • Data quality, modern interface and record keeping
  • Costs, fees and revenue redistribution

Stakeholders have until 28 August to provide comments using the response form provided. EMA plans to submit the final draft RTS/ITS, covering the equities and bonds CTPs, to the European Commission by the end of December 2024.