129. Under current MiFID, as specified in the MiFID Implementing Regulation (Implementing Regulation (EC) No 1287/2006), LIS thresholds for deferred post-trade transparency are determined on the basis of the ADT of the share and the length of the deferral. The minimum qualifying size for an LIS transaction increases with the liquidity (using ADT as a proxy) of the share and the length of the deferral.
Analysis following feedback from stakeholders
130. In the DP already, and consistently with the recalibration of the liquidity classes in the context of the pre-trade waiver for LIS orders, ESMA had proposed a new table with 8 liquidity classes and, for each class, three thresholds increasing with the length of the deferral (60 minutes, 120 minutes and end of day (EOD)) applying to both, shares and depositary receipts. The table proposed by ESMA in the CP is reproduced below for information purposes.
Table 5: Post-trade LIS thresholds for shares and depositary receipts (as proposed in the CP)
Average daily turnover (ADT) in EUR
Minimum qualifying size of transaction for permitted delay in EUR
Timing of publication after the transaction > 100m 10,000,000 60 minutes 20,000,000 120 minutes 35,000,000 EOD 50m – 100m 7,000,000 60 minutes 15,000,000 120 minutes 25,000,000 EOD 25m – 50m 5,000,000 60 minutes 10,000,000 120 minutes 12,000,000 EOD 5m – 25m 2,500,000 60 minutes 4,000,000 120 minutes 5,000,000 EOD 1m – 5m 450,000 60 minutes 750,000 120 minutes 1,000,000 EOD 500,000 – 1m 75,000 60 minutes 150,000 120 minutes 225,000 EOD 100,000 – 500,000 30,000 60 minutes 80,000 120 minutes 120,000 EOD < 100 k 15,000 60 minutes 30,000 120 minutes 50,000 EOD
131. Many respondents criticised that implementing this table would have a negative impact on liquidity, pricing, volatility of and investment in SME stocks, in particular. They
for transactions in less liquid sharesthan for transactions in more liquid ones. Respondents representing small issuers stressed that some stocks are so illiquid that an EOD deferral may turn out to be meaningless, market makers becoming cautious or ultimately stopping performing market making in highly illiquid stocks altogether. Respondents concluded that the ESMA proposal would not be aligned with the Capital Markets Union focus on promoting access of SMEs to capital markets.
132. Some respondents offered specific proposals to address this issue, including allowing more generous deferral periods for illiquid stocks (up to EOD +5), creating a specific class for highly illiquid stocks or linking the size of eligible trades to a percentage of ADT. 133. ESMA is aware of the goals of the Capital Markets Union and does not intend to
make it more difficult capital market funding for SMEs. At the same time, ESMA also has to consider that a huge proportion, in terms of number of instruments, of shares traded on EU trading venues are concentrated in the lower liquidity bands of the table. MiFID II intends to introduce meaningful transparency for those shares and this objective would be challenged if deferrals of EOD + 5 were to be implemented.
134. Therefore, ESMA opted for a compromise solution whereby a new class for highly illiquid stock and depositary receipts (below EUR 50,000) is created with a lower LIS threshold and also grants an EOD + 1 deferral for the largest transactions in that new liquidity band.
135. ESMA clarified in the CP that an EOD means that market participants would have to publish the transaction (i) after the closing auction of the same trading day, if the transaction was concluded more than two hours away from the end of the trading day or (ii) before the start of the following trading day, if the transaction was concluded within the last two hours of the same trading day.
136. While a number of respondents were in favour of this solution, other respondents considered this as too onerous and ultimately as damaging liquidity, particularly in the already lower liquid bands. These respondents advocated maintaining the delays foreseen in the MiFID I Level 2 Implementing Regulation or at least allowing for a deferral until noon on the next trading day.
137. ESMA decided as a compromise to slightly amend its proposal and indeed allow for the largest transactions in each liquidity band to be published at noon local time on the following trading day at the latest.
Proposal
138. In respect of shares, ESMA retains the proposal to increase the number of liquidity bands and, thus, to align pre-trade and post-trade regimes in this regard so as to simplify implementation for investment firms and trading venues.
139. However, in response to the feedback received to the CP, ESMA introduces a new liquidity band of below EUR 50,000 where large trades can be granted a delay of publication of EOD + 1. ESMA therefore proposes to establish the thresholds and corresponding delays as specified in the table below:
Table 6: Deferred publication thresholds and delays for shares and depositary receipts (as included in the final draft RTS)
Average daily turnover (ADT) in EUR
Minimum qualifying size of transaction for permitted delay in EUR
Timing of publication after the transaction > 100m 10,000,000 60 minutes 20,000,000 120 minutes 35,000,000 EOD 50m – 100m 7,000,000 60 minutes 15,000,000 120 minutes 25,000,000 EOD 25m – 50m 5,000,000 60 minutes 10,000,000 120 minutes 12,000,000 EOD 5m – 25m 2,500,000 60 minutes 4,000,000 120 minutes 5,000,000 EOD 1m – 5m 450,000 60 minutes 750,000 120 minutes 1,000,000 EOD 500,000 – 1m 75,000 60 minutes 150,000 120 minutes 225,000 EOD 100,000 – 500,000 30,000 60 minutes 80,000 120 minutes 120,000 EOD 50,000 – 100,000 15,000 60 minutes 30,000 120 minutes 50,000 EOD < 50,000 7,500 60 minutes 15,000 120 minutes 25,000 EOD + 1
140. In detail, therefore the following regime would apply to shares and depositary receipts:
i. Transactions eligible to a 60 or 120 minute delay in accordance with the above table have to be published respectively within 60 or 120 minutes after the transaction. ii. The largest transactions in each liquidity band (those eligible for an end of day
publication) also have to be published as close to real as possible after the end of the closing auction if concluded earlier than 120 minutes before the end of the present trading day. If they are concluded within 120 minutes from the end of the trading day, they shall be published by 12.00 local time of the next trading day at the latest.
iii. The largest transactions (greater than EUR 25,000) in the liquidity band below EUR 50,000 ADT have to be published after the end of the closing auction of the following trading day, regardless of the time when they were executed during the present trading day.