On November 4, the European Securities and Markets Authority (ESMA) published an updated question and answer (Q&A) document on a range of transparency topics under the revised Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR).

The updated Q&A likely will be particularly relevant to brokerage firms as it clarifies key assessment and compliance dates for investment firms with respect to the systematic internalizer regime (SIs).

Under MiFID II, SIs are investment firms that, on an organized, frequent, systemic and substantial basis, deal on own account when executing client orders outside a trading venue (being, a regulated market, a multilateral trading facility or an organized trading facility) without operating a multilateral system. MiFIR contains a transparency regime for SIs, and sets out a number of requirements for SIs, including obligations to publish quotes in respect of equity and non-equity instruments where there is a liquid market (subject to conditions), among others. In order to determine if an investment firm falls within the definition of an SI, they must assess whether their trading activities meet pre-defined trading thresholds, indicating frequent systematic and substantial activities.

The updated Q&A confirms that:

  • ESMA will publish data on the total number and volume of transactions executed in the European Union by August 1, 2018.
  • Investment firms will subsequently need to: (1) assess their trading activities to confirm if they within the definition of an SI; and (2) comply with those requirements under MiFID II and MiFIR (where applicable) by September 1, 2018.

This means that SIs effectively have a “reprieve” or delay of nine months after MiFID II and MiFIR take effect before they have to determine whether or not they fall into the new SI regime.

ESMA intends to publish information for subsequent assessments by the first calendar day of February, May, August and November of each year. Investment firms that meet the definition of an SI are expected to comply with the SI regime no later than two weeks after each publication (by the 15th calendar day of February, May, August and November of each year).

For more information, see the Corporate & Financial Weekly Digest edition on October 14.

A copy of the Q&A is available here, and ESMA’s accompanying press release is available here.