On January 31, the European Securities and Markets Authority (ESMA) updated two Question and Answer (Q&A) documents on implementation issues relating to transparency and market structure under the revised Markets in Financial Instruments Directive (MiFID II) and the associated Markets in Financial Instruments Regulation (MiFIR).

The Q&A on transparency clarifies issues related to the systematic internalizer regime, which, under MiFID II and MiFIR, is extended beyond shares to apply to other equity-like instruments and non-equity instruments, while also being subject to a quantitative calculation to determine if a firm is a systematic internalizer. The updated Q&A adds four new items, clarifying issues relating to:

  • the level at which the firm must perform the calculation where it is part of a group or operates EU branches;
  • which transactions should be exempted from, and included in, the calculation;
  • at which level of asset class the calculation should be performed for derivatives, bonds and structured finance products; and
  • how a systematic internalizer in non-equity instruments can comply with some of its quoting obligations.

The Q&A on market structures has been updated to clarify when a Multilateral Trading Facility (MTF) operator also can be a member of its own MTF, that trading venues locating electronic systems on a third-party data center must comply with the co-location provisions and how the reference to market makers should be understood under Article 2(1)(d) of MiFID II, which provides an exemption, under very specific conditions, from the obligation to be authorized as an investment firm.

ESMA’s Q&As relating to transparency and market structures are available here and here.