The European and Securities Market Authority (ESMA) has launched a consultation on what constitutes a multilateral system.
It also provides guidance on concrete examples, where the trading venue is not easily identified and might be subject to different interpretations from market participants and national competent authorities.
The consultation follows the publication of the final report on the functioning of organised trading f
acilities (OTFs) last June which aimed to reduce the level of complexity for market participants and create a more effective legal framework.
The European regulator committed to publish an opinion clarifying the definition of trading platforms and their regulatory status.
One of the main takeaways from the OTF report was the lack of consensus on what the trading venue perimeter is – from request for quotes (RFQs), to interactive bulletin boards, to buy side OMS/EMS.
As a result, “this may lead to regulatory inconsistencies and contribute to an unlevel playing field between entities authorised as trading venues, which are required to comply with the MiFID II regime and the regulatory obligations attached to it, and entities that run similar systems but operate outside the regulatory perimeter,” according to the consultation paper.
The second outcome of the OTF report was the role of technology providers. In its consultation paper, ESMA stressed the “technology used is not a relevant criterion to exempt those providers from the MiFID II regulatory framework.”
It noted that technology is the core business of a trading venue to bring together interests and the while the activity is conducted through new protocols (such as an Application Programming Interface or API, this does not mean these systems are outside the boundaries of MiFID II.
The regulator said that although it “supports and encourages new business models and innovative solutions,” it is important they are appropriately regulated to ensure an adequate level of protection for investors and to maintain the resilience of EU markets.
“In order not to hamper the development of new solutions, the supervisory approach should take into account proportionality while ensuring a level playing field between all firms operating in the Union,” it added.
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