The European Securities and Markets Authority (Esma) has released new data for the systematic internaliser (SI) calculations for equity, equity-like instruments and bonds under the Markets in Financial Instruments Directive (Mifid 2) and Regulation (Mifir).
More specifically, the European regulator has published the total number of trades and total volume over the period January-June 2018 for the purpose of the SI calculations for 9,173 equity and equity-like instruments and for 73,828 bonds.
The results are published only for instruments for which trading venues submitted data for at least 95% of all trading days over the six-month observation period. The data publications also incorporate OTC trading to the extent it has been reported to Esma.
The publication of the data for the SI calculations for derivatives and other instruments will start on February 1, 2019.
Firms dealing on own account are expected to determine whether they are SI by September 1, 2018 for equity, equity-like and bond instruments, according to the regulator. Under Mifid 2 a 'systematic internaliser' is defined as 'an investment firm which, on an organised, frequent systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF (multi-trading facility) or an OTF (organised trading facility) without operating a multilateral system'.
Although the concept of a SI was introduced under Mifid 1, it was largely seen a voluntary regime particularly given that there was no definition of 'frequent' or 'systematic'. The Mifid 2 framework removed the voluntary nature of the SI regime by providing definitions and thresholds under which firms must measure whether they do meet both 'frequent and systematic' and 'substantial'.
Under the new rules, the regulator will consider 'frequent and systematic' where the number of OTC transactions carried out by the firm on own account - taking place on average on a daily basis, when executing client orders in the past six months is equal to or larger than 0.4% of the total number of transactions that share executed in the EU on any trading venue or OTC in that same period.
The 'substantial' test is where the firm's trading on own account in the instrument, again over a six-month period, is equal to or larger than either 15% of the total turnover in those shares executed by the firm on own account or on behalf of clients and executed on a trading venue or OTC; or 0.4% of the total turnover in those shares executed in the EU on a trading venue or OTC.
Investment firms are required to perform their first assessment and, where appropriate, comply with the SI obligations regarding pre and post-trade reporting by September 1, 2018 for equity, equity-like and bond instruments; and by March 1, 2019 for exchange-traded commodities (ETCs), exchange-traded notes (ETNs), securitised derivatives, emission allowances and derivatives.
Click in the link to read the Esma update on systematic internalisers.
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