ESMA publishes various MiFID II updates and documents

It has been a busy month of MiFID II updates. ESMA has published six documents that provide further detail or clarification for the MiFID II framework that was launched on 3 January 2018.

Launch of Bond Liquidity System

The regulator kicked the month of with the launch of a bond liquidity system. It is the first liquidity assessment for bonds subject to the pre- and post-trade requirements of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR).

ESMA’s assessment of the European bond market for the first quarter of 2018 found 220 bonds (out of 71,000  for which the assessment was executed) to be sufficiently liquid to be subject to MiFID II’s real-time transparency requirements. The full list of liquid bonds is available through ESMA’s Financial Instruments Transparency System (FITRS).

The ESMA liquidity assessment for bonds is based on a quarterly assessment of quantitative liquidity criteria, such as the daily average trading activity (trades and notional amounts) and number of days traded per quarter. The quality of ESMA’s assessment depends on the data submitted to ESMA: the data received so far, for 1Q18, is not fully complete for most instruments. These data completeness and quality issues result in a lower number of liquid instruments identified compared to ESMA’s earlier transitional transparency calculations.


MiFID II became applicable on 3 January 2018 introducing, amongst others, pre- and post-trade transparency requirements for equity and non-equity instruments, including for bonds. Post-trade, MiFID II requires real-time publication of the price and quantity of trades in liquid bonds. It is possible to defer the publication of post-trade reports if the instrument does not have a liquid market, or if the transaction size is above large-in-scale thresholds (LIS), or above a size specific to the instrument (SSTI).

Next steps

ESMA will update its bond market liquidity assessments quarterly. However, additional data and corrections submitted to ESMA may result in further updates within each quarter, published in FITRS (which shall be applicable the day following publication). The transparency requirements for bonds deemed liquid today will apply from 16 May 2018 to 15 August 2018, the date from which the next quarterly assessment, to be published on 1 August 2018, will become applicable. The transitional liquidity assessment for bond instruments (except ETCs and ETNs) will cease to apply from 16 May 2018.

ESMA, in cooperation with National Competent Authorities, will continue to address the data quality issues mentioned above, in close interaction with reporting entities. In addition, ESMA will work further on making the publication process more robust.

Update of double volume cap data

ESMA also updated its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II).  These updates include DVC data and calculations for the period of 1 April 2017 to 31 March 2018 (so-called April 2018 publication) as well as updates to already published DVC periods.

The number of new breaches is 58 equities for the 8% cap, applicable to all trading venues, and 10 equities for the 4% cap, that applies to individual trading venues. Trading under the waivers for all new instruments in breach of the DVC thresholds should be suspended from 14 May 2018 to 14 November 2018. The instruments for which caps already existed from previous periods will continue to be suspended.

In addition, ESMA highlights that some trading venues in the meantime have submitted corrected data that affects past DVC publications. For a limited number of 12 instruments, this means that previously identified breaches of the 8% and 4% caps prove to be incorrect. For these instruments, the suspensions of trading under the waivers should be lifted.

New overview file for suspensions

In this publication, ESMA is changing slightly the way it presents the DVC files to facilitate access by national competent authorities (NCAs), market participants and the public in general. The ESMA publication now comprises a separate consolidated Suspensions File, which includes all those instruments for which a suspension has been issued, and the corresponding suspension dates. The Suspensions File also identifies the instruments on which suspensions should be revoked due to data corrections.

The goal is to present all information in one place so that NCAs and market participants can identify the instruments affected by the caps in order to take the necessary actions. In addition, ESMA will continue to publish all monthly DVC files providing information on trade volumes for those instruments within the DVC scope for which complete data exists.


MiFID II introduced the DVC to limit the amount of dark trading in equities allowed under the reference price waiver and the negotiated transaction waiver. The DVC is calculated per instrument (ISIN) based on the rolling average of trading in that instrument over the last 12 months.

Updates to MiFID II Q&As

ESMA also published updates to MiFID II Q&As on investor protection topics and data reporting under MiFIR.

Investor Protection

The update to the investor protection was necessary to add 9 new or updated Q&As to the document.The new or updated Q&As cover the topics of best executionclient categorisationprovision of investment services and activities by third country firms, and other issues.

The overall MiFID II Q&A provide clarifications on the following topics:

  • Best execution
  • Suitability and appropriateness
  • Recording of telephone conversations and electronic communications
  • Post-sale reporting
  • Record keeping
  • Investment advice on an independent basis
  • Inducements (research)
  • Information on charges and costs
  • Underwriting and placement of a financial instrument
  • Client categorisation
  • Inducements
  • Provision of investment services and activities by third country firms
  • Application of MiFID II after 3 January 2018, including issues of ‘late transposition’
  • Other issues

ESMA highlighted that it will continue to develop this Q&A on investor protection topics under MiFID II in the coming months, both adding questions and answers to the topics already covered and introducing new sections for other MiFID II investor protection areas not yet addressed in this Q&A.

Data Reporting

The update to its Questions and Answers (Q&As) on data reporting under the Market in Financial Instruments Regulation (MiFIR) provides clarifications in relation to the requirements for submission of transaction reports and reference data under MiFIR. In particular, the Q&As relate to Complex Trades and National client identifiers for natural persons.  The Q&A on complex trades provides new answers on reporting transactions and reference data for instruments where the execution results in a complex trade as defined under Article 12 of RTS 22. The amendments to the existing Q&A on national client identifiers for natural persons further clarify how the following three national identifiers specified in Annex II of RTS 22 should be represented: the Czech ID, the Liechtensteinian ID, and the Romanian ID. The purpose of this Q&A is to promote common supervisory approaches and practices in the application of MiFIR. It provides guidance to Investment Firms, Trading Venues, ARMs and Systematic Internalisers on compliance with the reporting provisions of MiFIR.

Guidelines on certain aspects of the MiFID II suitability requirements.

Yesterday, ESMA published its Final Report on Guidelines on certain aspects of the MiFID II suitability requirements.

The assessment of suitability is one of the most important requirements for investor protection in the MiFID framework. It applies to the provision of any type of investment advice, whether independent or not, and portfolio management. Investment firms providing investment advice or portfolio management must, under Article 25(2) of MiFID II and Articles 54 and 55 of the MiFID II Delegated Regulation, to provide suitable personal recommendations to their clients or have to make suitable investment decisions on behalf of their clients.

The Guidelines in the Final Report build on the text of ESMA’s 2012 MiFID I guidelines on suitability, which have been largely confirmed and broadened in order to:

  • consider technological developments of the advisory market notably the increasing use of automated or semi-automated systems for the provision of investment advice or portfolio management (robo-advice);
  • build on NCAs’ supervisory experience on the application of suitability requirements (including the 2012 guidelines);
  • take into account the outcome of studies in the area of behavioural finance; and
  • provide additional details on some aspects that were already covered under the  2012 guidelines.

The Guidelines, by supporting a consistent and harmonised application of the requirements in the area of suitability, will ensure that MiFID II’s objectives are achieved.

Sustainable Finance

Furthermore, following the publication of the original Consultation Paper (CP), the European Commission (EC) published its Action Plan on sustainable finance. In the Action Plan, the EC stated that “[…] firms should ask about their clients’ preferences (such as environmental, social and governance factors) and take them into account when assessing the range of financial instruments and insurance products to be recommended, i.e. in the product selection process and suitability assessment.”

ESMA has included, pending changes to the legal framework, a good practice for firms addressing this issue. The good practice will contribute to raising firms’ and supervisors’ attention and awareness of this issue. ESMA will monitor the legislative proposals under the EC action plan and will consider making focused amendments to the guidelines to reflect changes to the MIFID II delegated acts on the topic of sustainability.


The Final Report analyses, and summarises, the responses to the CP and explains how the responses have been taken into account.
ESMA published a Consultation Paper on 13 July 2017, containing proposed guidelines which confirmed and broadened the existing MiFID I guidelines on suitability, issued in 2012. The consultation period closed on 13 October 2017. ESMA received 53 responses, 6 of which were confidential. ESMA also received advice from the Securities and Markets Stakeholder Group’s (SMSG).

Update to Questions and Answers regarding transparency and market structures issues

And lastly, ESMA today updated its Questions and Answers regarding transparency and market structures issues under MiFID II and MiFIR.

The Q&A provides clarification on the following topics:
– the requirements to publish information on post-trade data 15 minutes after publication free of charge;
– the publication of transactions and how to populate the field ‘publication date and time’;
– pre-trade transparency requirements for voice trading systems;
– pre-trade transparency requirements for RFQ systems;
– OTFs arranging trading in strategies which include an equity leg

The original ESMA statements and related information can be found here.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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