04/07/2017

TRADEcho's Reg Summary of ESMA's FAQs on MiFID II Interim Transparency Calculations

Yesterday, the 3rd of July 2017, ESMA issued an opinion with interim transparency calculations for non-equity instruments in relation to the implementation of the MiFID II.
The opinion aims at gathering FAQs and answers regarding the publication of the MiFID II Transitional Transparency Calculations (TTC) for all non-equity instruments in accordance with RTS 2 regulatory technical standards on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives under MiFIR. The FAQs include SSTI and LIS data for all non-equity except bonds. Bond data will be published in August.
The transitional transparency calculations specify the transparency regime applicable to trading in secondary markets from 3 January 2018, when MiFID II will enter into force, and were performed using data related to 2016 trading activity provided by Trading Venues.
From the first analysis, it is difficult to see how comprehensive and complete these calculations are. This is because, in the majority of cases, trading OTC derivatives is performed on a bilateral basis. Never the less there should be significant parts of data from Trading Venues including Dealer to Dealer and Dealer to Clients platforms and National Exchanges (for some of the sub asset classes/sub class levels) that is useful.
The transparency files contain reference data (e.g. notional currency, time-to-maturity bucket, etc.) and the calculated large-in-scale (LIS) and size-specific to the instrument (SSTI) thresholds for pre and post-trade transparency purposes per sub-class when they have been classified as liquid. In the downloadable files, there are instruments for which there is a liquid market and only for those instruments are the SSTI/LIS pre and post-trade thresholds calculated and included in the tables. 
Because of the liquidity assessment, some asset classes are deemed illiquid (e.g. SFP) or have no liquid instrument (e.g. C10 derivatives). For the eight remaining classes, the thresholds were calculated and stored in individual files.
TRADEcho’s reference data will import the following classifications, flags and threshold:
  • Liquidity flag
  • Pre-trade LIS value
  • Pre-trade SSTI threshold
  • Post-trade LIS thresholds
  • Post-trade SSTI thresholds
To summarise, this is a timely and important update for the implementation of additional MiFID II flags such as the Liquidity Flag, LIS Thresholds and SSTI Thresholds, used to calculate waivers and post trade deferrals.
You can read ESMA's FAQs on MiFID II Interim Transparency Calculations here.